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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 26, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-20538
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CASINO AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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: (228) 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. [X]
The aggregate market value of the voting and non-voting stock held by non-
affiliates/1/ of the Company is $68,328,098.16, based on the last reported
sale price of $3.56 per share on July 17, 1998 on the Nasdaq National Market,
multiplied by 19,193,286 shares of Common Stock outstanding and held by non-
affiliates of the Company on such date.
As of July 17, 1998, the Company had a total of 23,568,562 shares of Common
Stock outstanding.
DOCUMENT INCORPORATED BY REFERENCE:
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PART OF FORM
10-K INTO
WHICH
DOCUMENT INCORPORATED
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Casino America's Definitive Proxy Statement for its Annual
Meeting of Stockholders to be held September 25, 1998 Part III
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(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.
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INDEX
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PAGE
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PART I.................................................................... 1
ITEM 1. BUSINESS........................................................ 1
ITEM 2. PROPERTIES...................................................... 24
ITEM 3. LEGAL PROCEEDINGS............................................... 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 27
PART II................................................................... 28
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S
MATTERS......................................................... 28
ITEM 6. SELECTED FINANCIAL DATA......................................... 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 29
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................... 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................ 64
PART III.................................................................. 64
ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 64
ITEM 11. EXECUTIVE COMPENSATION......................................... 64
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 64
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 64
PART IV................................................................... 64
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K............................................................ 64
SIGNATURES................................................................ 65
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PART I
ITEM 1. BUSINESS.
GENERAL
Casino America, Inc. (the "Company") 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, five dockside or
riverboat casinos operating from four 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, together
with a hotel, 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. 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. Recently, the Company began operating a cruise ship, with
onboard casino gaming, from the port of New Orleans, though a joint venture
with Commodore Holdings Limited ("Capri Cruises"). Additionally, the Company
is currently developing a casino entertainment facility in Black Hawk,
Colorado (the "Isle-Black Hawk") through a limited liability company, in which
the Company owns a 60% equity interest. The Isle-Black Hawk is expected to
open in late 1998 or early 1999.
HISTORY AND ORGANIZATION
The Company was incorporated in Delaware in February 1990 under the name of
Kana Corporation, and as part of a 1992 reorganization, the Company's name was
changed to Casino America, Inc. Each of the Company's facilities is owned and
operated by separate wholly-owned facilities. Riverboat Corporation of
Mississippi ("RCM") owns and operates the Isle-Biloxi; Riverboat Corporation
of Mississippi-Vicksburg currently owns and operates the Isle-Vicksburg;
Louisiana Riverboat Gaming Partnership ("LRGP"), a general partnership of
which wholly-owned subsidiaries of the Company are the sole partners, owns and
operates the Isle-Bossier City; and St. Charles Gaming Company, Inc. ("SCGC"),
and Grand Palais Riverboat, Inc. ("GPRI") each own a riverboat casino and
operate jointly at the Isle-Lake Charles.
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 is adding
hotels at the Isle-Bossier City and the Isle-Vicksburg in order to compete
effectively in its markets and provide customers with a complete resort
experience designed to increase a customer's length of
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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
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 limited
liability company, Isle of Capri Black Hawk L.L.C. ("ICBH"), with Nevada Gold
& Casinos, Inc. for the development of a casino facility in Black Hawk,
Colorado. ICBH is developing the Isle-Black Hawk, expected to contain
approximately 1,100 slot machines, up to 24 blackjack and poker tables,
restaurants, a parking garage containing approximately 1,000 spaces and other
related amenities which is scheduled to open in late 1998 or early 1999. The
Company owns 60% of ICBH and has entered into an agreement to manage the Isle-
Black Hawk for a fee. In addition, the Company has formed a joint venture with
Commodore Holdings Ltd. to operate a cruise ship, with onboard casino gaming,
out of the Port of New Orleans that began operating on June 5, 1998. The
Company owns 50% of the joint venture, which currently offers 2 and 5 night
cruises that can accommodate up to 550 passengers.
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 26, 1998,
the Company had enrolled approximately 2.5 million members in the Island Gold
Players Club.
The Company intends to emphasize food and entertainment amenities to enhance
its customer-friendly atmosphere with a view toward attracting repeat
customers. In that regard, the Company 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. During fiscal 1998, the Company opened a Farraddays' at each of its
casino properties. In addition, during fiscal 1998, the Company opened a 241-
room hotel at the Isle-Lake Charles which has enabled the Company to offer
overnight accommodations to its patrons. The Company is currently constructing
a 305-room all-suite hotel at the Isle-Bossier City which is scheduled to open
in the spring of 1999. 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 and currently has under construction, a 124-room
hotel, adjacent to its casino, which is scheduled to open by the end of 1998.
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 Isle-Biloxi's hotel is included in the Holiday
Inn worldwide reservations system which the Company believes provides the
hotel with significant marketing benefits.
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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 entertainment 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
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 approximately 30,000 square feet of gaming space on
three levels with 1,058 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 1998, the Company spent approximately $2.9 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, a 40-seat delicatessen and fast food outlet. Live
entertainment is featured in the Caribbean Cove Showroom, an entertainment
facility which can accommodate up to 500 guests. The Company broke ground on a
new all-suite hotel during fiscal 1998, which will feature 305 rooms and is
scheduled to open in the spring of 1999.
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 400,000
and 900,000 people live within 50 and 100 miles, respectively, of the Isle-
Bossier City.
The Isle-Bossier City is one of four 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
118,000 square feet of casino floor space in use in the Shreveport/Bossier
City market.
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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 and 1996, occupancy has remained constant at 72.5%. During 1997,
hotel occupancy rates fell slightly to 72%. During fiscal 1998, one of the
Isle-Bossier City's competitors opened 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
the demand for quality overnight accommodations will increase, and with the
addition of the all-suite hotel which is under construction, the Company
believes that the Isle-Bossier City will be well positioned to take advantage
of this demand.
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 44 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 946 slot machines and 49 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 also includes a $30 million, 105,000 square foot land-
based pavilion. The 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 card suits. 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 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; the Island Gold Players Club booth and the
Farraddays' restaurant. The pavilion includes a 14,000 square foot activity
center, which seats up to 1,100, 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 Inn at the Isle, a 241-room hotel, opened in September, 1997 at the
Isle-Lake Charles enabling the Company to offer on-site accommodations to its
patrons. In addition to the Inn at the Isle, a Farraddays' opened at the Isle-
Lake Charles in September 1997, offering patrons a fine-dining alternative.
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.
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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 enables 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 1,207 slot machines and 40 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 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 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.
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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; Tradewinds Grill,
where visitors can enjoy a "Cheeseburger in Paradise," and Caribbean Cove,
which together share 88 seats; and the new fine-dining facility, Farraddays'.
Calypso's and Farraddays' 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 a
Banana Cabana 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 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 26% 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 19 million visitors in calendar 1997. The tourist
season is heaviest from May to September, which the Company believes
contributes to some seasonality in the Isle-Biloxi's business.
At present, 11 gaming facilities (including the Isle-Biloxi), comprising
approximately 587,000 square feet of casino floor space, are located along the
Mississippi Gulf Coast. Eight facilities are located in Biloxi and
collectively account for approximately 436,000 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 three casinos at the eastern end of U.S.
Highway 90, affording visitors the convenience and visual impact of three
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 early
1999 at the site of the Beau Rivage, approximately two miles from the Isle-
Biloxi, and 1,100 rooms at the Imperial Palace,
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approximately three miles from the Isle-Biloxi, of which approximately 500
rooms opened in early 1998. In addition, Casino Magic, located next door to
the Isle-Biloxi, recently opened a 378-room hotel at its property, Grand
Casinos opened a second, 500-room hotel at its Biloxi facility and is
constructing a 600-room hotel at its Gulfport facility. Hotel occupancy is
generally highest in the peak tourist months between May and September. In
calendar 1997, 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 currently consists of 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 240-seat buffet-style
restaurant, the Tradewinds delicatessen, which includes seating for 60 people
and live entertainment, and the new fine dining facility, Farraddays'. 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 801 slot machines and 33 table games, including a
poker room with four 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 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 is currently constructing a 124-room hotel at the Isle-
Vicksburg, which is expected to open by the end of 1998. The hotel will be
located on the bank of the Mississippi River, adjacent to the casino, and will
feature riverfront suites with balconies overlooking the river.
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 1997.
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 three competitors of the Isle-Vicksburg, have hotels at or
in close proximity to their casino facilities. The Isle-Vicksburg is the
second largest casino in
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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 1998, Pompano Park conducted
approximately 198 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 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
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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 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 opened a 606-room all-
suites hotel at its dockside riverboat casino location in Bossier City, and
replaced its riverboat with a larger vessel. 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. A joint venture involving Hollywood Casinos has
received preliminary approval to relocate a riverboat which previously
operated as the Flamingo Hilton from New Orleans to Shreveport. In addition,
the last available license in Louisiana could ultimately be awarded to an
operator in the Shreveport-Bossier City area, although the Louisiana Gaming
Control Board (the "Gaming Control Board") has indicated it will not award the
license until after the 1999 legislative session. Therefore, it is possible,
in management's opinion, that at least five riverboat casinos eventually will
be operating in the Shreveport/Bossier City market, where only four currently
operate. Legislation was proposed during the 1998 legislative session which
would have permitted 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. The legislation did not pass; however, similar
legislation may be considered in the future. If ultimately approved, slot
operations at Louisiana Downs 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 two hotels
containing 491 rooms, 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
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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 that regard, an
operator recently announced plans to apply for the last available gaming
license to develop a facility in Lake Charles. Although, the Gaming Control
Board has decided that it will not award the license until following the 1999
legislative session, the license could ultimately be awarded to an operator in
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 587,000 square feet of casino floor space, are located along the
Mississippi Gulf Coast. Eight facilities are located in Biloxi and
collectively account for approximately 436,000 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 will
include an 1,800-room hotel, is scheduled to open in early 1999. In addition,
an "Imperial Palace" casino opened in December 1997 on the Back Bay in Biloxi,
approximately three miles from the Isle-Biloxi. This development includes a
hotel facility containing approximately 1,100 rooms, of which approximately
500 opened in early 1998. Similarly, Grand Casinos opened a second 500-room
hotel at its site in Biloxi, and is constructing a 600-room hotel at its
Gulfport facility. Grand recently acquired Lady Luck Gaming's Biloxi facility,
which was subsequently closed providing Grand with additional property with
which to expand its Biloxi operations. In addition, Casino Magic opened a 378-
room hotel at its location immediately adjacent to the Isle-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,
including Hilton Corporation which has announced a merger with Grand Casinos
and Hollywood Park Inc. which has announced a merger with Casino Magic (both
of which are significant competitors of the Isle-Biloxi). Intense competition
on the Mississippi Gulf Coast has contributed to the closure of three gaming
facilities in that area. 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. While
a hotel is under construction at the Isle-Vicksburg, there is currently no
hotel at the facility. 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.
Horseshoe Gaming has announced 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
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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 the
Mississippi Supreme Court involving an appeal of a decision by the Mississippi
Gaming Commission 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. The Gaming Commission denied site approval, finding
the site unsuitable and that decision was reversed by a state court which
found that the site was legal. In the event sites are approved in the eastern
part of Warren County, the Isle-Vicksburg would be adversely affected.
PROJECTS UNDER DEVELOPMENT
Black Hawk, Colorado
The Company has formed a limited liability company, ICBH, with Nevada Gold &
Casinos, Inc. which is developing a casino in Black Hawk, Colorado. The
facility will include approximately 1,100 slot machines, up to 24 blackjack
and poker tables, restaurants, a parking garage containing approximately 1,000
spaces and other related amenities. The Company is continuing to evaluate
whether to construct a hotel as part of the Isle-Black Hawk. The Company owns
60% of ICBH and will manage the facility developed by ICBH for a fee. The
budget for the project is approximately $100 million, and the facility is
expected to open in late 1998 or early 1999. ICBH issued $75 million of 13%
First Mortgage Notes, due 2004 with Contingent Interest (the "ICBH Notes"), to
finance development of the Isle-Black Hawk. The Company has made capital
investments into the project totaling approximately $8.3 million. Although the
ICBH Notes are non-recourse to the Company, the Company has provided 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, and the Company and ICBH must be licensed prior to commencing
operations.
Pompano Commons
On February 4, 1998, the Company formed a limited liability company, Pompano
Commons, with Wilmorite, Inc., to develop 140 acres adjacent to Pompano Park.
The Company has an option exercisable by December 31, 1998 to purchase this
property, and, subject to conditions set forth in the operating agreement of
Pompano Commons, the Company has agreed to assign the option to Pompano
Commons in exchange for a one-third ( 1/3) interest in Pompano Commons.
Pompano Commons intends to develop the property as a retail and entertainment
development, has applied for the necessary permits, is finalizing a
development plan and is seeking financing for the development.
RECENT DEVELOPMENTS
Capri Cruises
On April 20, 1998, the Company formed Capri Cruises, a joint venture with
Commodore Holdings, Ltd., which operates a cruise ship with onboard gaming out
of the Port of New Orleans. The Company owns 50% of the joint venture which
currently offers two and five night cruises which can accommodate up to 550
passengers.
FUTURE DEVELOPMENT OPPORTUNITIES
The Company 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.
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The Company believes that its operating experience and its ability to enter
new markets quickly will enable it to compete for new gaming opportunities.
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. The Company also owns options to purchase real
estate in three locations in central and northern Mississippi.
EMPLOYEES
As of June 19, 1998, the Company employed approximately 5,500 persons. None
of the Company's 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 third license in April 1998 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 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
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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
therefore 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 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.
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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.
A resident of Mississippi is circulating a petition which would call for a
statewide referendum amending the constitution to prohibit gaming and several
lawsuits have been filed contesting this proposal. The Company cannot
determine at this time whether the petitioner will get the required
signatures, nor can it determine what the outcome of the statewide election
would be. However, the passage of such a referendum would 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 activities to
the Louisiana Riverboat Gaming Commission and the Riverboat Gaming Enforcement
Division of
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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 Louisiana Gaming Control Board. The Louisiana Gaming
Control Board now oversees 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 Louisiana Gaming Control Board is composed
of nine voting members appointed by the governor.
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 now makes all licensing
and permitting determinations--whether for operators, key employees, or
manufacturers and suppliers--with regard to riverboat gaming. However, the
Louisiana State Police continues to be involved broadly in gaming enforcement,
reporting to the Gaming Board. The Gaming Control Law provides that the
Louisiana State Police continue to conduct suitability investigations,
continue to audit, investigate, and enforce compliance with standing
regulations, initiate enforcement and administrative actions, and 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
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
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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 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.
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.
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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.
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 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, 1996 and ending June
30, 1997 on a total of 183 evening racing dates. The Division has approved
PPI's license to conduct a total of 201 live evening racing performances for
the season beginning July 1, 1997 to June 30, 1998. 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
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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 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.
Colorado
Operating Restrictions. Colorado gaming law permits legalized limited gaming
in the cities of Central City, Black Hawk and Cripple Creek, Colorado.
"Limited gaming" is defined as the use of slot machines and the card games of
black jack and poker, each with a maximum single bet of five dollars. Gaming
is confined to the commercial districts of Black Hawk, Central City and
Cripple Creek as those commercial districts are defined in city ordinances.
Gaming is restricted to structures that conform to the architectural styles
and designs that were common to the areas prior to World War I, as determined
by the municipal governing bodies. No more than 35% of the square footage of
any building and no more than 50% of any one floor of such building may be
used for gaming. Gaming operations are prohibited between the hours of 2:00
a.m. and 8:00 a.m. No limits are imposed on total patron losses and casinos
are not allowed to extend credit to the patrons. Persons under the age of 21
are prohibited from participating in gaming or lingering in gaming areas of a
casino. Colorado law requires
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licensees to maintain detailed books and records that accurately account for
all monies and business transactions. Books and records must be furnished upon
demand to the Colorado authorities. Detailed and extensive playing procedures,
standards, requirements and rules of play are established for poker, blackjack
and slot machines. Licensees must, in addition, adopt comprehensive internal
control procedures governing their gaming operations. Such procedures must be
approved in advance by the Colorado authorities and include the areas of
accounting, surveillance, security, cashier operations, key control and fill
and drop procedures, among others. No gaming may be conducted in Colorado
unless all appropriate licenses are approved by and obtained from the Colorado
Limited Gaming Control Commission (the "Colorado Commission"). Violations of
Colorado gaming laws or regulations are criminal offenses and the person or
entity violating the same may, in addition, be subject to fines and have its
gaming license suspended or revoked.
License Information Requirements. The Colorado Commission may issue the
following five types of licenses: (i) slot machine manufacturer or
distributor; (ii) operator; (iii) retail gaming; (iv) support; and (v) key
employee. The first three licenses are issued for a one-year period and
require annual renewal. However, support licenses and key employee licenses
are issued for two year periods and are renewable. The Colorado Commission has
broad discretion to condition, suspend, revoke, limit or restrict a license at
any time and also has the authority to impose fines.
A slot machine manufacturer or distributor license is required for all
persons who manufacture, import or distribute slot machines in Colorado, or
who otherwise act as slot machine manufacturers or distributors. No
manufacturer or distributor of slot machines may have an interest in any
casino retailer or operator, allow any of its officers or persons with a
substantial interest in it to have such an interest, employ any person if such
person is employed by a casino retailer or operator, or allow any casino
retailer or operator or person with a substantial interest therein to have an
interest in a manufacturer's or distributor's business. "Substantial interest"
means the lesser of: as large an interest (direct or indirect) in the licensee
as that of any other shareholder, partner or principal, or any financial or
equity interest equal to or greater than 5%. Notwithstanding the definition of
"substantial interest", there may remain an argument that the ownership of
less than 5% of the voting securities of a publicly traded licensee or
publicly traded affiliate of a licensee is not a substantial interest. On
December 15, 1997, the Division ruled that it is unlawful for any officers,
directors or persons holding a substantial interest in a
manufacturer/distributor to hold publicly or privately traded stock in a
corporate operating as a retailer in Colorado, and vice versa. An operator
license is required for all persons who permit slot machines on their premises
or who engage in the business of placing and operating slot machines on the
premises of a retailer. A retail gaming license is required for all persons
permitting or conducting gaming on their premises and such license may be
granted only to a retailer. No person may have an ownership interest in more
than three retail licenses. All natural persons employed in the field of
gaming must hold either a support or key employee license. The Colorado
Commission recently ruled that businesses which provide gaming-related
services must obtain support licenses. Every retail gaming licensee must have
a key employee licensee in charge of all gaming activities available at all
times when gaming is being conducted. The Colorado Commission may determine
that any employee of a licensee is a key employee and, therefore, require that
such person apply for licensing as a key employee.
An applicant for any type of Colorado license must provide the following
information: (i) personal background information; (ii) financial information;
(iii) participation in legal or illegal activities in Colorado or other
jurisdictions, including foreign countries; (iv) criminal record information;
(v) information concerning all pecuniary and equity interest in the applicant;
and (vi) other information as requested or required. Prior to licensure,
applicants must satisfy the Colorado Commission that they are suitable for
licensing and are of good moral character. The Colorado legislature has
defined unsuitability or unsuitable in relation to a person as the inability
to be licensed by the Colorado Commission because of prior acts, associations
or financial conditions, and, in relation to acts or practices, those which
violate or would violate the statutes or rules or are or would be contrary to
the declared legislative purposes of the Colorado Act. Without limiting the
foregoing, a person cannot be licensed if such person has served a sentence
upon conviction of a felony or fraud-related misdemeanor within ten years or
has been convicted of a gambling-related offense, or is currently under a
prosecution or is associated
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with organized crime or has refused to cooperate in certain governmental
investigations. Applicants have the burden of proving their qualifications to
the Colorado Commission and must submit to and pay the full cost of any
background investigations as may be ordered by the Colorado Commission. There
is no limit on the cost of such background investigations and no guaranty that
any applicant will receive licensing from the Colorado Commission.
The current practice of the Colorado authorities is to require the following
persons and entities to complete background investigation forms, and to
provide comprehensive information and to submit to a full background
investigation: (a) persons or entities owning (either directly or on a pass-
through basis) 5% or more of a licensee (other than certain institutional
investors in publicly traded licensees), (b) directors and officers of the
licensees and (c) in certain circumstances, directors and officers of entities
described at (a) above. But, the Colorado authorities retain the discretion to
require any person or entity with an interest in a licensee (directly or on a
pass-through basis) to submit such information and undergo such investigation.
The purpose of the investigation is to determine each such person's or
entity's qualifications and suitability for licensure. In addition, all
persons loaning monies, goods or real or personal property to a licensee or
applicant, or having any interest in a licensee or applicant, or entering into
any agreement with licensee or applicant, must provide any information if so
requested by the Colorado authorities, including submission to a full
background investigation if ordered by the Colorado authorities.
Persons found unsuitable by the Colorado Commission may be required
immediately to terminate any interest in, association or agreement with or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a
licensee or applicant also may jeopardize the licensee's license or the
applicant's license application. A license grant may be conditioned upon the
termination of any relationship with unsuitable persons.
Licensees have a continuing duty to report to the Colorado Commission
information concerning persons with a financial or equity interest in the
licensee, or who have the ability to control or exercise a significant
influence over the licensee, or who loan money to the licensee. Therefore, the
requisite information regarding the holders of the ICBH Notes will have to be
periodically reported to the Colorado authorities.
As a general rule, under the Colorado law and regulations, it is a criminal
violation for any person to have a legal, beneficial, voting or equitable
interest, or right to receive profits, in more than three retail gaming
licenses in Colorado. The Colorado Commission has ruled that a person does not
have an interest in a licensee for purposes of the multiple-license
prohibition if: (i) such person has less than a 5% interest in an
institutional investor which has an interest in a publicly traded licensee or
publicly traded company affiliated with a licensee (such as the Company); (ii)
a person has 5% or more financial interest in an institutional investor, but
the institutional investor has less than a 5% interest in a publicly traded
licensee or publicly traded company affiliated with a licensee; (iii) an
institutional investor has less than 5% financial interest in a publicly
traded licensee or publicly traded company affiliated with a licensee; (iv) an
institutional investor possesses securities in a fiduciary capacity for
another person, and does not exercise voting control over 5% or more of the
outstanding voting securities of a publicly traded licensee or of a publicly
traded company affiliated with a licensee; (v) a registered broker or dealer
retains possession of securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee for its customers in street
name or otherwise, and exercises voting rights for less than 5% of the
publicly traded licensee's voting securities or of a publicly traded company
affiliated with licensee; (vi) a registered broker or dealer acts as a market
maker for the stock of a publicly traded licensee or of a publicly traded
company affiliated with a licensee and possesses a voting interest in less
than 5% of the stock of the publicly traded licensee or of a publicly traded
company affiliated with a licensee; (vii) an underwriter is holding securities
of a publicly traded licensee or of a publicly traded company affiliated with
a licensee as part of an underwriting for no more than 90 days if it exercises
voting rights with respect to less than 5% of the outstanding securities of a
publicly traded licensee or a publicly traded company affiliated with a
licensee; (viii) a stock clearinghouse holds voting securities for third
parties, if it exercises voting rights with respect to less than 5% of the
outstanding securities of a publicly traded licensee or of a publicly traded
company affiliated with a licensee;
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or (ix) a person owns less than 5% of the voting securities of the publicly
traded licensee or publicly traded company affiliated with a licensee. Hence,
the business opportunities of the Company and its stockholders in Colorado are
limited to such interests that comply with the statute and Commission's rules.
Conveyance of Licensor. With limited exceptions applicable to licensees that
are publicly traded entities, no person may sell, lease, purchase, convey or
acquire any interest in a retail gaming or operator license or business
without the prior approval of the Colorado Commission. Also, no person may own
gaming equipment without being licensed.
There cannot be a change in control of the Company without the Colorado
Commission's prior approval. Also, there can be no change in the membership
interests of the Company without the Colorado Commission's prior approval.
All agreements, contracts, lease or arrangements in violation of applicable
Colorado law or regulations are void and unenforceable. The Colorado
Commission or Division Director may require changes in gaming contracts or
termination of a gaming contract.
Rule 4.5. In addition to the other requirements of the gaming laws, the
Colorado Commission has enacted a special rule, Rule 4.5, which imposes
additional requirements on publicly traded corporations holding gaming
licenses in Colorado and on gaming licensees in Colorado owned directly or
indirectly by publicly traded corporations. The term "publicly traded
corporation" is a specially defined term and may include limited liability
companies, trusts, partnerships and other business organizations, and may even
include entities exempted from the registration requirements of the securities
laws under certain circumstances.
Under Rule 4.5., licensees to whom Rule 4.5 applies must include in their
articles of organization or similar charter documents certain specified
provisions that: restrict the rights of the licensee to issue voting interests
or securities except in accordance with the Colorado gaming laws; limit the
rights of persons to transfer voting interests or securities of a licensee
except in accordance with the Colorado gaming laws; and provide that holders
of voting interests or securities of a licensee found unsuitable by the
Colorado Commission may be required to sell their interests or securities back
to the issuer at the lesser of, in general terms, the holder's investment or
the market price as of the date of the finding of unsuitability.
Alternatively, and with authorization by the Colorado Commission, the holder
may in limited circumstances transfer the voting interest or securities to a
suitable person (as determined by the Colorado Commission). Until the voting
interests or securities are held by suitable persons, the issuer may not pay
dividends or interest on them, the interests or securities may not be voted,
or entitled to any vote, and they may not be included in the voting or
securities of the issuer, and the issuer may not pay any remuneration in any
form to the holder of the securities or interests.
Pursuant to Rule 4.5, persons who acquire direct or indirect beneficial
ownership of (i) 5% or more of any class of voting securities of a publicly
traded corporation involved in gaming in Colorado or (ii) 5% or more of the
beneficial interest of any class of voting securities in a gaming licensee
directly or indirectly through any class of voting securities of any holding
company or intermediary company of a licensee (all such person hereinafter
referred to as "qualifying person"), must notify the Colorado authorities
within 10 days of such acquisition, are required to submit all requested
information and are subject to a finding of suitability. Licensees also must
notify any qualifying person of these requirements. A qualifying person whose
interests equal 10% or more must apply to the Colorado Commission for a
finding of suitability within 45 days after acquiring such securities.
Licensees must also notify any qualifying persons of these requirements.
Whether or not notified, qualifying persons are responsible for complying with
these requirements.
A qualifying person who is an institutional investor under Rule 4.5 and
whose interests equal 15% or more must apply to the Colorado Commission for a
finding of suitability within 45 days after acquiring such interests. A
qualifying person who is an institutional investor and whose interests are
less than 15%, may not be required to apply for suitability, provided such
person fulfills certain reporting requirements.
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Pursuant to Rule 4.5, persons found unsuitable by the Colorado Commission
must be removed from any position as an officer, director, or employee of a
licensee, or from a holding or intermediary company thereof. Such unsuitable
persons also are prohibited from any beneficial ownership of the voting
securities of any such entities. Licensees, or affiliated entities of
licensees, are subject to sanctions for paying dividends to persons found
unsuitable by the Colorado Commission, or for recognizing voting rights of, or
paying a salary or any remuneration for services to, unsuitable persons.
Licensees or their affiliated entities also may be sanctioned for failing to
pursue efforts to require unsuitable persons to relinquish their interests.
The Colorado Commission may determine that anyone with a material relationship
to a licensee, or affiliated company, must apply for a finding of suitability.
Taxes. In addition, to any other applicable license fees, up to a maximum of
40% of the adjusted gross proceeds of gaming operations ("AGP") may be payable
by a licensee for the privilege of conducting gaming. AGP is generally defined
as the total amounts wagered less all payments to players. With respect to
games of poker, AGP means those sums wagered in a hand retained by the
licensee as compensation, which must be consistent with the minimum and
maximum amounts established by the Colorado Commission. Currently, the gaming
tax on AGP is; 2% on the first $2 million of AGP; 4% on AGP from $2 million to
$4 million; 14% on AGP from $4 million to $5 million; 18% on AGP from $5
million to $10 million; and 20% on AGP over $10 million. The gaming tax is
paid monthly, with licensees required to file returns by the 15th of the
following month. Effective July 1 of each year, the Colorado Commission
establishes the gaming tax for the following 12 months.
Annual Device Fees. The Colorado Commission requires all gaming licensees to
pay an annual device fee for each slot machine, blackjack table and poker
table. The current annual state device fee is $75. The municipalities of
Central City, Black Hawk and Cripple Creek also assess and collect their own
device fees. The current annual device fee in Black Hawk is $750 per device.
There is no statutory limit on state or city device fees, which may be
increased at the discretion of the state or city. The state device fee is not
prorated; a device used at any time during the year is assessed the full state
fee. Local device fees are currently prorated according to device usage; the
city of Black Hawk prorates device fees such that any device used at any time
during a month is subject to the device fee for such month. In addition, a
business improvement fee of up to $154.08 per device and a transportation
impact fee of $77 per device also may apply depending upon the location of
licensed premises. The Isle-Black Hawk is currently not subject to the
business improvement fee of $100 per device.
Alcohol. The sale of alcoholic beverages in gaming establishments is subject
to strict licensing, control, and regulation by state and local authorities.
Alcoholic beverage licenses are revocable and non-transferable. State and
local licensing authorities have full power to deny, limit, condition, suspend
or revoke any such licenses. Persons or entities which directly or on a pass-
through basis own 10% or more of a licensee will be required to complete
applications and submit certain personal and financial information, and be
subject to investigation. Violation of the state alcoholic beverage laws may
constitute a criminal offense, and violators may be subject to criminal
prosecution, incarceration and fines.
There are various classes of alcoholic beverage licenses under the Colorado
Liquor Code. ICBH has applied for a retail gaming tavern license. In no event
may any person hold more than or have an interest in more than three retail
gaming tavern licenses. Also, a person may not have an interest in more than
one type of liquor license, so that a person with an interest in the Company
cannot have an interest in a hotel and restaurant liquor license. An
application for an alcoholic beverage license in Colorado requires notice,
posting and a public hearing before the local liquor licensing authority. The
Department's Liquor Enforcement Division also must approve the application.
Recent Developments. In 1997 the state legislature passed, but the Governor
vetoed, a bill that would have permitted video lottery terminals in dog and
horse race tracks under certain terms and conditions. In 1998, a similar bill
was presented, but not passed by the state legislature. Video lottery
terminals are games of chance, similar to slot machines, in which the player
pushes a button that causes a random set of numbers or characters to be
displayed on a video screen. Depending on the display, the player may be
awarded a ticket, which can be
22
<PAGE>
exchanged for cash or playing credit. There can be no assurance that similar
legislation permitting video lottery terminals in dog and horse race tracks or
other venues will not be considered in the future.
The Company currently holds no gaming or liquor licenses and has made
applications for both types of licenses in connection with the opening and
operation of the Isle-Black Hawk. While the Company believes that it will be
able to obtain such licenses, no assurances can be given that such licenses
will be issued or granted, or, if issued and granted, not subject to
additional material restrictions or subsequently revoked. The failure or
inability to obtain any such licenses in a timely manner, the imposition of
additional material restrictions in connection therewith, or the subsequent
revocation of any such license, would materially and adversely affect the
Isle-Black Hawk.
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 Company's Louisiana casinos and the Isle-Biloxi, respectively.
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. 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 1999. 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.
23
<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 current term of the first lease terminates on July 20, 2000.
Monthly rent is $3,166 plus an annual increase of 4%. The Company has the
option to renew for one additional three-year period. The current term of the
second lease terminates on May 17, 2000. Monthly rent is $3,898 plus an annual
increase of 4%. The Company has the option to renew for one additional three-
year term.
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, amounting to $1.4 million, the payments for which are being
applied as a rent credit ratably over
24
<PAGE>
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.
The Company is a party to 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 $75,000 per year and the lease expires in November
30, 2000. The Company has also entered a joint venture arrangement to sub-
lease property containing 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 has agreed to assign this lease and
option to a joint venture in which the Company will own a 33% interest upon
the exercise of the option by the joint venture.
25
<PAGE>
The Company also owns two additional riverboat casinos and one floating
pavilion that are currently held for 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.
The Company 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. The lease commenced on March 24, 1995 and has an initial term of
five years. The annual rent on the leased property is $850,000 for the first
four years and $1,000,000 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, whichever 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.
The Company also owns options to purchase real estate at three locations in
Central and Northern Mississippi.
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.
A subsidiary of the Company has been named, along with numerous
manufacturers, distributors and gaming operators, including many of the
country's largest gaming operators (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 discovery and preliminary motion stages. 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. However, the
Defendants are committed to vigorously defend all claims asserted in the
consolidated action.
LRGP has challenged a statute that purportedly permits the Bossier Parish
Police Jury to levy an additional $.50 boarding fee per passenger against LRGP
beginning January 1, 1996. The Company's challenge was denied
26
<PAGE>
at the state trial court level, and the Company appealed the decision. On June
26, 1998, a Louisiana State Court of Appeals reversed the trial court's
decision. However, the Bossier Parish Police Jury has filed an application for
a writ of certiorari to the Supreme Court of Louisiana. If the Police Jury
ultimately prevails, the Company would have to pay the Bossier Parish Police
Jury approximately $3.6 million as of April 26, 1998, for prior unpaid
boarding fees, plus a continuing $.50 fee per passenger at the Isle-Bossier
City. This liability has been fully recorded.
On June 11, 1998, a lawsuit was filed which seeks to nullify a contract to
which LRGP is a party. Pursuant to the contract, LRGP pays a fixed amount plus
a percent of revenue to various local governmental entities, including the
City of Bossier (the "City") and the Bossier Parish School Board (the "School
Board"), in lieu of payment of a boarding fee per passenger. The Company
intends to vigorously defend the action.
In February 1998, the Isle-Vicksburg, was named as a defendant in an action
brought by an individual who owns property adjacent to the Big Black River in
the eastern part of Warren County and several other parties. Also named as
defendants in the action are two other operators in the Vicksburg market and
one of the largest banks in the State of Mississippi. As amended, the
Complaint alleges that the defendants entered into an agreement, the effect of
which was to improperly restrain trade and hinder competition in the gaming
business by conducting a campaign in opposition to a gaming application for a
site adjacent to property owned by the Plaintiffs (the "Proposed Project").
The Plaintiffs further allege that the Defendants conspired for the purpose of
injuring the property rights of the Plaintiffs. The Plaintiffs seek
compensatory and punitive damages in the amount of $238 million from the
Defendants. The Company denies the allegations contained in the Amended
Complaint and intends to vigorously defend all claims and allegations in the
action.
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 alleged that the Company purportedly breached a contract
of employment between Mr. Greenberg and the Company concerning Mr. Greenberg's
employment as Chairman of the Board of the Company's Pompano Park subsidiary.
On or about January 7, 1998, the Company settled the suit within amounts
previously reserved.
On May 29, 1998, the Company was named as a defendant in an action brought
by several persons who owned property in Cripple Creek, Colorado which they
sold to a subsidiary of the Company in 1995. The Plaintiffs allege that the
Company breached its agreement to construct a casino facility on the property
by the end of 1995. The amount of damages claimed is not specified, the
Company denies the allegations contained in the Complaint, and it intends to
vigorously defend all claims and allegations in the action.
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 1998 fiscal year.
27
<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 fiscal
periods indicated, the high and low bid quotations for the Common Stock as
reported on the Nasdaq National Market. The quotations reflect interdealer
prices, without retail mark-up or commissions, and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
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 Ended April 26, 1998
First Quarter................................................. 2.81 1.94
Second Quarter................................................ 3.66 1.97
Third Quarter................................................. 3.19 2.38
Fourth Quarter................................................ 3.31 2.56
Fiscal Year Ending April 25, 1999
First Quarter (through July 17, 1998)......................... 4.13 3.00
</TABLE>
(b) Holders of Common Stock. As of July 17, 1998, there were 915 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 the Company's
ability to pay dividends. See "Item 8--Financial Statements and Supplementary
Data--Casino America, Inc.--Notes to Consolidated Financial Statements--Note
6." 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."
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<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>
FISCAL YEAR ENDED
---------------------------------------------
APRIL APRIL
APRIL APRIL APRIL 30, 30,
26, 1998 27, 1997 30, 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenue........................ $440,816 $373,391 $157,963 $127,537 $144,633
Operating income............... 61,102 28,523 2,378 20,154 39,915
Income (loss) before
extraordinary item............ 7,547 (8,794) 1,555 18,069 20,353
Net income (loss).............. 7,547 (21,051) 1,555 18,069 20,353
Net income (loss) before
extraordinary item per common
share
Basic........................ .32 (.39) .10 1.22 1.33
Diluted...................... .32 (.39) .10 1.17 1.26
Net income (loss) per common
share
Basic........................ .32 (.94) .10 1.22 1.33
Diluted...................... .32 (.94) .10 1.17 1.26
<CAPTION>
APRIL APRIL APRIL APRIL APRIL
26, 1998 27, 1997 30, 1996 30, 1995 30, 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets................... $615,735 $528,421 $226,474 $211,899 $176,538
Long-term debt including
current portion............... 442,095 379,522 139,778 138,857 126,649
Stockholders' equity........... 86,131 77,973 50,270 42,015 23,650
</TABLE>
The earnings per share amounts prior to fiscal 1998 have been restated as
required to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. For further discussion of earnings per common share and
the impact of Statement No. 128, see the notes to the consolidated financial
statements.
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-Lake Charles and the Isle-
Biloxi 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
29
<PAGE>
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 and the Black Hawk prospectus,
dated August 20, 1997.
GENERAL
The Company's results of operations for the fiscal year ended April 26, 1998
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"). On May 3, 1996,
the Company acquired a 50% interest in St. Charles Gaming Company ("SCGC")
(the "SCGC Acquisition"). As of May 3, 1996, the remaining 50% of SCGC was
owned by Louisiana Riverboat Gaming Partnership ("LRGP"), of which the Company
owned 50%. LRGP owns the Isle-Bossier City. Additionally, on May 3, 1996, the
Company acquired 100% of Grand Palais Riverboat, Inc. ("GPRI") (the "GPRI
Acquisition"). The SCGC and GPRI riverboat casinos operate together out of one
facility as the Isle-Lake Charles. On August 6, 1996, the Company acquired the
remaining 50% of LRGP that was held by a third party (the "LRGP Acquisition"),
which gave the Company 100% ownership in the Isle-Bossier City and the Isle-
Lake Charles, allowing the Company to consolidate its 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 26, 1998 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 comparable data for the Isle-Bossier City and
the Isle-Lake Charles has been presented giving a pro forma effect to the
acquisitions discussed above.
The Company believes that the results of operations for the fiscal years
ended April 26, 1998, April 27, 1997 and April 30, 1996 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. As the markets in which
the Company operates have matured, the Company's operating results are
affected by seasonality. Seasonality causes the operating results for the
Company's first and fourth fiscal quarters ending July and April,
respectively, to be notably better than the second and third fiscal quarters
ending October and January, respectively.
RESULTS OF OPERATIONS
Fiscal Year Ended April 26, 1998--Consolidated Company
Total revenue for the fiscal year ended April 26, 1998 was $440.8 million
which included $388.2 million of casino revenue, $9.5 million of rooms
revenue, $22.6 million of pari-mutuel commissions, simulcast fees and
admissions, and $20.5 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 and by the GPRI operations for a complete fiscal year.
Revenues do not reflect the retail value of any complimentaries. Also, as a
result of the LRGP Acquisition, management fees were not reported because
these amounts are eliminated in consolidation.
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Casino operating expenses for the fiscal year ended April 26, 1998 totaled
$76.1 million, or 19.6% of casino revenue versus 19.9% for the fiscal year
ended April 27, 1997. 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 continued expense reduction efforts.
Operating expenses for the fiscal year ended April 26, 1998 also included
room expenses of $3.3 million from the hotels at the Isle-Biloxi, the Isle-
Bossier City and the Isle-Lake Charles. These expenses reflect 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. Rooms operating expenses as a percentage of rooms revenue
increased from 24.4% for the fiscal year ended April 27, 1997 to 34.3% for the
fiscal year ended April 26, 1998. This increase is primarily related to an
increase in the rooms given to casino patrons as complimentaries.
State and local gaming taxes paid in Mississippi and Louisiana totaled $78.6
million for the fiscal year ended April 26, 1998, which is consistent with the
each states' applicable gaming tax rate for previous fiscal years.
Pari-mutuel operating costs of Pompano Park totaled $16.3 million in fiscal
1998. Such costs consist primarily of compensation, benefits, purses,
simulcast fees and other direct costs of track operations. Pari-mutuel
operating costs as a percentage of pari-mutuel revenues have decreased from
82.4% for the fiscal year ended April 27, 1997 to 72.3% for the fiscal year
ended April 26, 1998. The decrease is primarily related to the increase in
revenues from simulcasting.
Food and beverage expenses totaled $13.4 million for the fiscal year ended
April 26, 1998. These expenses are comprised primarily of the salaries, wages
and benefits, and the operating expenses of these departments. Food and
beverage operating expenses as a percentage of food, beverage and other
revenues decreased from 72.4% for the fiscal year ending April 27, 1997 to
65.3% for the fiscal year ending April 26, 1998. The decrease in food and
beverage operating expenses primarily relates to management's expense
reduction efforts, particularly with regard to product costs and more
efficient management of personnel.
Marine and facilities expenses totaled $26.2 million for the fiscal year
ended April 26, 1998 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 $132.3 million for the fiscal
year ended April 26, 1998. 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.
Marketing and administrative operating expenses as a percentage of total
revenues have decreased from 34.5% for the fiscal year ended April 27, 1997 to
30.0% for the fiscal year ended April 26, 1998. This decrease is substantially
due to the Company's continued expense reduction efforts, combined with a
complete year of direct response marketing.
Depreciation and amortization expense was $33.6 million for the fiscal year
ended April 26, 1998. These expenses relate to capital expenditures and
acquisition of leasehold improvements, and berthing and concession rights, as
well as the amortization of intangible assets.
Interest expense was $46.9 million for the fiscal year ended April 26, 1998
net of interest income of $4.7 million, and $2.7 million of capitalized
interest. Interest expense relates to the indebtedness incurred in connection
with the acquisition of property, equipment, leasehold improvements and
berthing and concession rights including indebtedness incurred by the
Company's consolidated subsidiary, Isle of Capri Black Hawk L.L.C., related to
the development of a casino in Black Hawk, Colorado, as well as indebtedness
relating to the purchase of the remaining interest in LRGP, SCGC and the
purchase of GPRI.
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For the fiscal year ended April 26, 1998, the Company recorded income tax
expense of $7.5 million. The Company's effective tax rate for the fiscal year
ended April 26, 1998 was approximately 50%, which is higher than the statutory
rate due to non-deductible amortization of certain intangible assets.
Fiscal Year Ended April 26, 1998 Compared to Fiscal Year Ended April 27,
1997--Operating Results--By Location
Isle-Biloxi
For the fiscal year ended April 26, 1998 the Isle-Biloxi had total revenue
of $91.9 million of which $78.5 million was casino revenue, compared to total
revenue of $89.5 million of which $75.3 million was casino revenue for fiscal
year 1997. The increase of $2.4 million or 2.7% in revenues relates to
increased casino traffic due to improved use of the Company's database for
managing the occupancy of its 367-room hotel. Operating income before
management fees for fiscal year 1998 totaled $15.8 million or 17.2% of total
revenue, compared to $14.4 million or 16.1% for fiscal year 1997. The increase
of $1.4 million or 9.7% in operating income and operating income margin are
primarily due to continuing cost reduction efforts and improved direct
response marketing.
Isle-Vicksburg
For fiscal year 1998, the Isle-Vicksburg had total revenue of $50.4 million
of which $48.2 million was casino revenue, compared to total revenue of $53.0
million of which $50.5 million was casino revenue for fiscal year 1997. The
decrease of $2.6 million or 4.9% in revenues relates primarily to the impact
of increased competition and the overall weakness of the market. Operating
income before management fees for fiscal year 1998 totaled $10.4 million or
20.6% of total revenue, compared to $9.1 million or 17.2%, for fiscal year
1997. The increase of $1.3 million or 14.3% in operating income and operating
income margin is primarily a result of management's efforts to reduce
operating expenses and more effective direct response marketing efforts.
Isle-Bossier City
For fiscal year 1998, the Isle-Bossier City had total revenue of $126.1
million of which $120.3 million was casino revenue, compared to total revenue
of $143.9 million of which $136.2 million was casino revenue for fiscal year
1997. The decrease in revenue of $17.8 million or 12.4% is due primarily to
increased competition among existing and new competitors in the market and the
addition of amenities at existing competitors. Operating income before
management fees for fiscal year 1998 totaled $24.5 million or 19.4% of total
revenue, which includes $1.2 million related to the Bossier City Head Tax
Case, compared to $16.7 million or 11.6% of total revenue, 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. The increase in operating income margin, before charges related to the
Louisiana Double Jackpot Dispute and the Bossier City Head Tax Case, from
18.4%, for fiscal 1997, to 20.4%, for fiscal 1998, relates to management's
continued expense reduction efforts and more effective direct response
marketing.
Isle-Lake Charles
For fiscal year 1998, the Isle-Lake Charles had total revenue of $145.7
million of which $140.9 million was casino revenue, compared to total revenue
of $128.2 million of which $124.2 million was casino revenue for fiscal year
1997. The increase of $17.5 million or 13.7% in revenues relates to a full
year of operations of GPRI which commenced July 12, 1996 and the addition of
the 241-room hotel at the Isle-Lake Charles. Operating income before
management fees for fiscal year 1998 totaled $23.4 million or 16.1% of total
revenue, compared to an operating income of $15.0 million or 11.7%, which
includes a settlement charge of $.7 million related to the Louisiana Double
Jackpot Dispute and is before preopening expenses of $2.5 million, for fiscal
year 1997. The increase in operating income of $8.4 million or 56.0% is
primarily due to the addition of the second riverboat casino, the new hotel
and management's continued efforts to reduce operating expenses combined with
improved direct response marketing.
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Pompano Park
For fiscal year 1998, the Pompano Park had total revenue of $26.4 million of
which $22.6 million was pari-mutuel commissions, simulcast fees and
admissions, compared to total revenue of $23.4 million of which $19.4 million
was pari-mutuel commissions, simulcast fees and admissions for fiscal year
1997. The increase of $3.0 million or 12.8% in revenues was substantially due
to the improved management of dark day simulcasting which began in May 1996
and the addition of a limited stakes poker room in January 1997. Operating
income for fiscal year 1998 totaled $1.6 million or 6.1% of total revenue,
compared to $0.1 million or 0.4%, for fiscal year 1997 resulting in an
increase of $1.5 million, primarily related to increased simulcasting,
combined with management's expense reduction efforts.
Fiscal Year Ended April 27, 1997--Consolidated Company
Total revenue for the fiscal year ended April 27, 1997 was $373.4 million
which included $322.7 million of casino revenue, $9.5 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 $2.3 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 related to capital expenditures and
acquisition of leasehold improvements, and berthing and concession rights, as
well as the amortization of intangible assets.
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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.
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 $2.4
million, net of taxes, a valuation charge of $4.1 million, net of taxes, 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 of
certain intangible assets and the valuation allowance.
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.
Marketing and administrative expenses totaled $58.6 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
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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
acquisition 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 investments 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 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 of $14.7 million or 19.7% 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 $14.4 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 increase of $4.0 million or 38.5% 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
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revenue, compared to $12.1 million or 20.3%, for fiscal year 1996. The
decrease of $6.6 million or 11.1% and $3.0 million or 24.8%, respectively, 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 $143.9
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 11.6% of total revenue, compared to $43.1
million or 27.9%, for fiscal year 1996. The general decrease in revenue of
$10.7 million or 6.9% and operating income of $26.4 million or 61.3%,
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.
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 of $70.9 million or 123.7% 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 increase in operating
income of $10.4 million or 226.1% is a result of 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 of $5.9 million or 33.7% 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 or a decrease of $0.2 million or 66.7%.
LIQUIDITY AND CAPITAL RESOURCES
At April 26, 1998, the Company had cash and cash equivalents of $52.5
million compared to $51.8 million at April 27, 1997 and approximately $5.5
million available under lines of credit. Fiscal 1998 operating activities
provided $65.3 million of cash flow to the Company as compared to $17.8
million in fiscal 1997. The increase in cash flow from operating activities is
due to significantly improved operating results and income tax refunds related
to prior years taxes.
The Company invested $65.5 million in property and equipment in fiscal 1998,
primarily for the construction of its 241-room Inn at the Isle hotel at the
Isle-Lake Charles which commenced operations in September 1997, and for the
development of the Isle-Black Hawk, which is currently under construction and
scheduled to open in late 1998 or early 1999. Additionally, capital
expenditures were made in connection with the completion of the remodeling of
the pavilion and the addition of Farraddays' restaurant at the Isle-Bossier
City, which opened in July 1997, the addition of Farraddays' restaurant at the
Isle-Lake Charles, which opened in September 1997, and the addition of
Farraddays' restaurants at the Isle-Biloxi and Isle-Vicksburg, which
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opened December 1997. The Company has also incurred capital expenditures of
$5.7 million related to the planned development of a 305-room all suite hotel
at the Isle-Bossier City. The all suite hotel at the Isle-Bossier City is
expected to open in the spring of 1999.
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.
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.
On August 20, 1997, Isle of Capri Black Hawk L.L.C., a joint venture of
which the Company owns 60%, issued $75 million of 13% First Mortgage Notes due
2004 with Contingent Interest, which is non-recourse debt to the Company.
Interest is payable semiannually on each February 28 and August 31, commencing
February 28, 1998. Additionally, contingent interest is payable on the First
Mortgage Notes on each interest payment date, in an aggregate principal amount
equal to 5% of that company's Consolidated Cash Flow (as defined in the
Indenture), provided that no contingent interest is payable prior to
commencement of operations and may be deferred under certain circumstances.
The net proceeds of the issuance are being used to fund the development of the
Isle of Capri casino entertainment complex in Black Hawk, Colorado. Interest
payments due on August 31, 1998 and February 28, 1999 have been placed in
escrow at the discounted amount totaling $9.1 million at April 26, 1998.
Additionally, the Company has provided a completion capital commitment of up
to $5.0 million, which is required to be paid if the facility has not
commenced operations by April 1, 1999. Construction of the facility is
expected to be completed in late 1998 or early 1999.
On April 20, 1998, the Company signed an agreement with Commodore Holdings
Limited, parent company of Commodore Cruise Line to create a joint venture to
be named Capri Cruises that will operate cruise ships in strategic markets. As
of April 26, 1998, the Company had invested $1.7 million into this joint
venture which is operating one cruise ship from the Port of New Orleans.
The Company anticipates that its principal near-term capital requirements
will relate to the completion of a 305-room hotel at the Isle-Bossier City, a
124-room hotel at the Isle-Vicksburg, and the completion of the Isle-Black
Hawk. The Company also anticipates that capital improvements approximating
$9.2 million will be made during fiscal 1999 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 a 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 has secured financing, not to
exceed $19 million, of which no funds have been drawn as of April 26, 1998,
and is currently constructing a 305-room all suite hotel, at an anticipated
cost of $38 million, at the Isle-Bossier City. Construction of this hotel
facility began on January 29, 1998, and the hotel is expected to open
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in the spring of 1999. Additionally, the Company began construction of a 124-
room hotel at the Isle-Vicksburg on April 9, 1998, which is expected to open
by the end of 1998. The hotel at the Isle-Vicksburg is expected to cost
approximately $9.2 million. The Company is currently seeking financing and/or
a joint venture partner or partners, among other alternatives, for the
development of additional hotels, and is exploring other financing
alternatives with respect to its existing hotel properties. Construction on
these hotel facilities will not begin until such financing and/or a joint
venture partner or partners are obtained.
Although the Company is not presently committed to making any significant
capital expenditures at certain of its existing properties or investment into
new gaming markets, the Company believes that, in addition to developing
hotels, it may be necessary to make certain capital improvements to its land-
based facilities at the Isle-Lake Charles 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 is considering making investments
in other gaming opportunities as well as in jurisdictions in which 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, as
well as current financing arrangements, will be adequate to fund the hotel
expansion at the Isle-Bossier City and the Isle-Vicksburg, 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 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.
YEAR 2000 COMPLIANCE
The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 issues (i.e., computer applications
that use only two digits to identify a year and could produce erroneous
results after 1999). The Company does not expect any material cost to be
incurred to modify its information technology infrastructure in order to be
Year 2000 compliant, as all software needed will be provided by the respective
information technology vendors at no charge to the Company. The Company has
obtained assurances from its software vendors with respect to Year 2000 issues
and does not anticipate any material disruption in its operations. The Company
expects to have all software modifications in place by April 1999. The date
which the Company believes it will complete the Year 2000 modifications is
based on information obtained by management from its information technology
vendors, which could be impacted if these third party companies are not
compliant in a timely manner.
38
<PAGE>
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CASINO AMERICA, INC.
Report of Independent Auditors.......................................... 40
Consolidated Balance Sheets, April 26, 1998 and April 27, 1997.......... 41
Consolidated Statements of Operations, Years ended April 26, 1998, April
27, 1997 and April 30, 1996............................................ 42
Consolidated Statements of Stockholders' Equity, Years ended April 26,
1998, April 27, 1997 and April 30, 1996................................ 43
Consolidated Statements of Cash Flows, Years ended April 26, 1998, April
27, 1997 and April 30, 1996............................................ 44
Notes to Consolidated Financial Statements.............................. 46
</TABLE>
39
<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 26, 1998 and April 27, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the years ended April 26, 1998, April 27, 1997 and April 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Casino
America, Inc. at April 26, 1998 and April 27, 1997, and the consolidated
results of its operations and its cash flows for the years ended April 26,
1998, April 27, 1997 and April 30, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
June 10, 1998
40
<PAGE>
CASINO AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL APRIL
ASSETS 26, 1998 27, 1997
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 52,460 $ 51,846
Accounts receivable:
Related parties............................................... 79 55
Other......................................................... 5,636 4,793
Income tax receivable........................................... 3,563 11,014
Deferred income taxes........................................... 3,279 5,350
Prepaid expenses and other assets............................... 4,240 5,097
-------- --------
Total current assets........................................ 69,257 78,155
Property and equipment--net....................................... 333,811 285,234
Other assets:
Investment in and advances to joint ventures.................... 1,709 --
Property held for development or sale........................... 7,943 7,943
Licenses and other intangible assets, net of accumulated
amortization of $6,058 and $2,894, respectively................ 66,833 69,997
Goodwill, net of accumulated amortization of $6,023 and $2,963,
respectively................................................... 60,028 66,297
Berthing, concession, and leasehold rights, net of accumulated
amortization of $1,836 and $1,522, respectively................ 4,432 4,746
Deferred financing costs, net of accumulated amortization of
$3,073 and $1,378, respectively................................ 15,313 11,565
Restricted cash................................................. 50,341 --
Prepaid deposits and other ..................................... 6,068 4,484
-------- --------
Total assets................................................ $615,735 $528,421
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt............................ $ 12,453 $ 14,905
Accounts payable--trade......................................... 14,365 10,871
Accrued liabilities:
Interest...................................................... 11,771 9,898
Payroll and related........................................... 17,854 16,238
Property and other taxes...................................... 10,095 6,669
Progressive jackpots and slot club awards..................... 3,505 5,566
Other......................................................... 7,912 5,391
-------- --------
Total current liabilities................................... 77,955 69,538
Long-term debt, less current maturities........................... 429,642 364,617
Deferred income taxes............................................. 16,155 16,293
Minority interest................................................. 5,852 --
Stockholders' equity:
Preferred stock, $.01 par value; 2,050,000 shares and 2,050,000
shares, respectively, authorized; none issued.................. -- --
Common stock, $.01 par value; 45,000,000 shares authorized;
shares issued and outstanding: 23,568,562 and 23,345,287,
respectively................................................... 236 233
Class B common stock, $.01 par value; 3,000,000 shares
authorized; none issued........................................ -- --
Additional paid-in capital...................................... 63,146 62,538
Retained earnings............................................... 22,749 15,202
-------- --------
Total stockholders' equity.................................. 86,131 77,973
-------- --------
Total liabilities and stockholders' equity.................. $615,735 $528,421
======== ========
</TABLE>
See notes to consolidated financial statements.
41
<PAGE>
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
APRIL APRIL APRIL
26, 1998 27, 1997 30, 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Casino........................................ $388,223 $322,677 $123,936
Rooms......................................... 9,528 9,483 4,422
Management fee--joint ventures................ -- 2,110 6,308
Pari-mutuel commissions and fees.............. 22,565 19,405 15,063
Food, beverage, and other..................... 20,500 19,716 8,234
-------- -------- --------
Total revenue............................... 440,816 373,391 157,963
Operating expenses:
Casino........................................ 76,072 64,301 26,484
Rooms......................................... 3,271 2,316 2,911
Gaming taxes.................................. 78,586 61,769 15,116
Pari-mutuel................................... 16,315 15,987 11,375
Food and beverage............................. 13,379 14,280 5,745
Marine and facilities......................... 26,203 20,717 10,109
Marketing and administrative.................. 132,300 128,849 58,625
Valuation charge.............................. -- 7,000 9,257
Restructuring charge.......................... -- -- 2,541
Preopening expenses........................... -- 2,500 1,311
Depreciation and amortization................. 33,588 27,149 12,111
-------- -------- --------
Total operating expenses.................... 379,714 344,868 155,585
-------- -------- --------
Operating income................................ 61,102 28,523 2,378
Interest expense................................ (51,579) (40,332) (15,293)
Interest income:
Unconsolidated joint ventures................. -- 203 747
Other......................................... 4,702 1,418 622
Minority interest............................... 819 -- --
Equity in income (loss) of unconsolidated joint
ventures....................................... -- (166) 16,434
-------- -------- --------
Income (loss) before income taxes and
extraordinary item............................. 15,044 (10,354) 4,888
Income tax provision (benefit).................. 7,497 (1,560) 3,333
-------- -------- --------
Income (loss) before extraordinary item......... 7,547 (8,794) 1,555
Extraordinary loss on extinquishment of debt,
net of applicable tax benefit of ($0, $6,600,
$0)............................................ -- (12,257) --
-------- -------- --------
Net income (loss)............................... $ 7,547 $(21,051) $ 1,555
======== ======== ========
Earnings per share of common stock:
Earnings per common share:
Income (loss) before extraordinary item....... $ 0.32 $ (0.39) $ 0.10
Extraordinary loss............................ $ -- $ (0.55) $ --
-------- -------- --------
Net income (loss)............................. $ 0.32 $ (0.94) $ 0.10
======== ======== ========
Earnings per common share--assuming dilution:
Income (loss) before extraordinary item....... $ 0.32 $ (0.39) $ 0.10
Extraordinary loss............................ $ -- $ (0.55) $ --
-------- -------- --------
Net income (loss)............................. $ 0.32 $ (0.94) $ 0.10
======== ======== ========
Weighted average diluted shares................. 23,465 22,483 15,650
</TABLE>
See notes to consolidated financial statements.
42
<PAGE>
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL TOTAL
COMMON COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
---------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1995... 14,853,124 $149 $ 7,168 $ 34,698 $ 42,015
Issuance of common stock
for Rights Offering.... 1,020,940 10 5,988 -- 5,998
Exercise of stock
options................ 145,218 1 566 -- 567
Issuance of stock for
compensation........... 18,100 -- 115 -- 115
Issuance of stock for
services............... 1,500 -- 20 -- 20
Net income.............. -- -- -- 1,555 1,555
---------- ---- ------- -------- --------
Balance, April 30, 1996... 16,038,882 160 13,857 36,253 50,270
Issuance of common stock
for Rights Offering.... 3,079,980 31 17,850 -- 17,881
Issuance of common stock
for acquisitions....... 4,100,000 41 27,074 -- 27,115
Issuance of warrants for
acquisitions........... -- -- 3,333 -- 3,333
Exercise of stock
options................ 65,625 1 165 -- 166
Issuance of stock for
compensation........... 60,800 -- 259 -- 259
Net loss................ -- -- -- (21,051) (21,051)
---------- ---- ------- -------- --------
Balance, April 27, 1997... 23,345,287 233 62,538 15,202 77,973
Exercise of stock
options................ 8,438 -- 8 -- 8
Issuance of stock for
deferred financing
costs.................. 174,337 2 498 -- 500
Issuance of stock for
compensation........... 40,500 1 102 -- 103
Net income.............. -- -- -- 7,547 7,547
---------- ---- ------- -------- --------
Balance, April 26, 1998... 23,568,562 $236 $63,146 $ 22,749 $ 86,131
========== ==== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
43
<PAGE>
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------
APRIL 26, APRIL APRIL
1998 27, 1997 30, 1996
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ 7,547 $(21,051) $ 1,555
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 33,588 27,149 12,111
Amortization of bond discount and deferred
financing costs............................. 1,926 1,294 705
Deferred income taxes........................ 5,303 (1,837) (1,440)
Equity in (income) loss of unconsolidated
joint ventures.............................. -- 166 (16,434)
Write-down of assets held for sale........... -- 7,000 9,257
Extraordinary item (net of taxes)............ -- 12,257 --
Minority interest............................ (819) -- --
Other........................................ -- 445 1,346
Changes in current assets and liabilities,
net of acquisitions:
Receivables................................ 6,324 (4,971) 179
Prepaid expenses and other assets.......... 1,168 (854) 675
Accounts payable and accrued expenses...... 10,272 (1,843) 3,802
--------- -------- --------
Net cash provided by operating activities...... 65,309 17,755 11,756
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............. (65,455) (21,490) (22,201)
Net cash paid for acquisitions................. -- (80,495) (7,959)
Proceeds from disposals of property and
equipment..................................... 251 739 2,767
Investments in and advances to joint ventures.. (2,628) 1,845 3,014
(Increase) decrease in restricted cash......... (50,341) -- 12,171
Deposits and other............................. (1,555) 1,976 (1,332)
--------- -------- --------
Net cash used in investing activities.......... (119,728) (97,425) (13,540)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings....................... 72,000 318,168 10,500
Principal payments on borrowings and cash paid
to retire debt................................ (14,823) (210,341) (14,908)
Deferred financing costs....................... (2,152) (12,943) (785)
Proceeds from sale of stock and exercise of
options....................................... 8 18,047 6,565
--------- -------- --------
Net cash provided by financing activities...... 55,033 112,931 1,372
--------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................... 614 33,261 (412)
Cash and cash equivalents at beginning of year. 51,846 18,585 18,997
--------- -------- --------
Cash and cash equivalents at end of year....... $ 52,460 $ 51,846 $ 18,585
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
44
<PAGE>
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------
APRIL APRIL APRIL
26 1998 27 1997 30 1996
------- ------- -------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments (receipts) for:
Interest......................................... $50,479 $37,092 $15,942
Income taxes--net of refunds..................... (4,840) 9,328 (341)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Debt issued for:
Underwriting fees on first mortgage notes........ $ 3,000 $ -- $ --
Land............................................. 7,504 -- --
Property and equipment........................... 1,615 514 4,316
Financing costs.................................. -- 1,073 855
Acquisitions:
Debt assumed..................................... -- (37,142) --
Stock issued..................................... -- (27,115) --
Warrants issued.................................. -- (3,333) --
Other:
Deferred financing costs funded through issuance
of common stock................................. 500 -- --
Construction costs funded through accounts
payable......................................... 1,614 -- --
</TABLE>
See notes to consolidated financial statements.
45
<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 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. On April 25, 1997, Isle of Capri Black Hawk L.L.C. ("ICBH"), a
Colorado limited liability company, was formed. ICBH is owned by Casino
America of Colorado, Inc. ("Casino America of Colorado"), a wholly-owned
subsidiary of the Company and a third party. ICBH is a Development Stage
Company and has not commenced gaming operations. The principal purpose of ICBH
is to develop and operate a casino entertainment complex in Black Hawk,
Colorado (the "Isle-Black Hawk"), which is anticipated to open in late 1998 or
early 1999. As of April 26, 1998, Casino America of Colorado owned 60% of
ICBH, making it a consolidated subsidiary of the Company. As such the
operating results of ICBH are reflected in the consolidated operating results
of the Company. 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 fiscal 1998 presentation.
The Company is engaged in the business of developing, owning, and operating
riverboat, dockside and land-based 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 Company, through its subsidiary, ICBH, has applied for a Colorado gaming
license.
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 ended April 26, 1998.
Cash Equivalents
The Company considers all highly liquid investments with a maturity at the
time of purchase of three months or less to be cash equivalents. Cash
equivalents are placed primarily with a high-credit-quality financial
institution. At April 26, 1998, cash equivalents were invested primarily in
short-term commercial paper and treasuries. The carrying amount of cash
equivalents approximates fair value because of the short maturity of these
instruments.
46
<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:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Leasehold improvements.............................................. 10-31
Buildings and improvements.......................................... 25
Riverboats and floating pavilions................................... 25
Furniture, fixtures, and equipment.................................. 5-10
</TABLE>
Interest capitalized during the years ended April 26, 1998, April 27, 1997
and April 30, 1996 totaled $2,699,000, $0 and $1,525,000, respectively.
Depreciation expense for the years ended April 26, 1998, April 27, 1997 and
April 30, 1996 totaled $27,125,000, $22,740,000 and $11,788,000, 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.
Other Assets
Licenses and other intangible assets--principally represent the license
value attributed to the Louisiana gaming licenses acquired through the
Company's acquisition of SCGC, GPRI and LRGP. These assets are being amortized
over a twenty-five-year period using the straight-line method.
Goodwill--reflects the excess purchase price the Company paid in acquiring
the net identifiable tangible and intangible assets of SCGC, GPRI and LRGP.
Goodwill is being amortized over a twenty-five-year period using the straight
line method.
Restricted cash--represents cash proceeds from the 13% First Mortgage Notes
due 2004 with Contingent Interest issued by ICBH (the "First Mortgage Notes")
held in trust by IBJ Schroder Bank and Trust in New York, as trustee for ICBH,
a majority owned subsidiary of the Company. These funds are held in three
separate accounts (Construction Disbursement, Completion Reserve and Interest
Reserve) with usage restricted by an indenture between ICBH and the trustee,
dated August 20, 1997 in connection with issuance of the ICBH First Mortgage
Notes (the "Indenture"). Approximately $34.7 million in the Construction
Disbursement Account will be used for the development, construction and
opening of a casino entertainment complex by ICBH in Colorado. Approximately
$5.1 million in the Completion Reserve Account will be used in the event there
are insufficient funds in the Construction Disbursement Account to complete
the casino entertainment complex. Approximately $9.1 million in the Interest
Reserve Account will be used to pay the first three fixed interest payments on
the ICBH First Mortgage Notes (the first of which was made on February 28,
1998) which were issued pursuant to the Indenture.
47
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $37,011,000,
$30,259,000 and $13,797,000 for the years ended April 26, 1998, April 27, 1997
and April 30, 1996, respectively. The estimated cost of providing such
complimentary services, which is included in casino expense, was $32,596,000,
$24,911,000 and $11,608,000 for the years ended April 26, 1998, April 27, 1997
and April 30, 1996, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the
years ended April 26, 1998, April 27, 1997 and April 30,1996 totaled
$10,696,000, $15,696,000 and $7,085,000, respectively.
Preopening Expenses
Preopening expenses, which consist principally of payroll and marketing
costs, are expensed as incurred.
Earnings per Common Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS No.
128"). SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share.
Earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS No. 128 requirements.
48
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
APRIL 26, APRIL 27, APRIL 30,
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary item. $ 7,547 $ (8,794) $ 1,555
Extraordinary loss...................... -- (12,257) --
----------- ----------- -----------
Net income (loss)....................... 7,547 (21,051) 1,555
Numerator for basic earnings per share--
income available to common
stockholders........................... 7,547 (21,051) 1,555
Effect of dilutive securities........... -- -- --
----------- ----------- -----------
Numerator for diluted earnings per
share--income available to common
stockholders after assumed
conversions.......................... $ 7,547 $ (21,051) $ 1,555
=========== =========== ===========
Denominator:
Denominator for basic earnings per
share--weighted--average shares........ 23,455,338 22,483,270 15,084,679
Effect of dilutive securities
Employee stock options................ 9,508 -- 290,766
Warrants.............................. -- -- 274,187
----------- ----------- -----------
Dilutive potential common shares........ 9,508 -- 564,953
Denominator for diluted earnings per
share--adjusted weighted--average
shares and assumed conversions....... 23,464,846 22,483,270 15,649,632
=========== =========== ===========
BASIC EARNINGS PER SHARE:
Income (loss) before extraordinary item. $ 0.32 $ (0.39) $ 0.10
Extraordinary loss...................... -- (0.55) --
----------- ----------- -----------
Net income (loss)....................... $ 0.32 $ (0.94) $ 0.10
=========== =========== ===========
DILUTED EARNINGS PER SHARE
Income (loss) before extraordinary item. $ 0.32 $ (0.39) $ 0.10
Extraordinary loss...................... -- (0.55) --
----------- ----------- -----------
Net income (loss)....................... $ 0.32 $ (0.94) $ 0.10
=========== =========== ===========
</TABLE>
Stock Options
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the market 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
Grand Palais Riverboat, Inc.
On May 3, 1996, the Company purchased all of the outstanding shares of
common stock of 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, all necessary gaming
49
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
3. ISLE OF CAPRI BLACK HAWK L.L.C.
On April 25, 1997, a subsidiary of the Company, Casino America of Colorado,
formed ICBH, a limited liability company, with Blackhawk Gold, Ltd., a wholly-
owned subsidiary of Nevada Gold and Casino, Inc. The primary purpose of ICBH
is to develop the Isle-Black Hawk, which is anticipated to open in late 1998
or early 1999. The Company's interest in the net loss of ICBH for fiscal 1998
was approximately $1.2 million, net of minority interest of $0.8 million. The
net loss is comprised solely of interest expense on the $75,000,000, 13% First
Mortgage Notes net of interest income on the restricted cash.
50
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL APRIL
26, 1998 27, 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment:
Land and land improvements........................... $ 55,800 $ 35,468
Leasehold improvements............................... 97,692 98,388
Buildings and improvements........................... 49,668 32,358
Riverboats and floating pavilions.................... 92,974 92,876
Furniture, fixtures, and equipment................... 87,902 81,214
Construction in progress............................. 33,969 3,269
-------- --------
418,005 343,573
Less: Accumulated depreciation....................... 84,194 58,339
-------- --------
$333,811 $285,234
======== ========
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash equivalents--The carrying amounts approximate fair value because of
the short maturity of these instruments.
Restricted cash--The carrying amounts approximate fair value because of the
short maturity of these instruments.
Long-term debt--The fair value of the company's long-term debt is estimated
based on the quoted market price of the underlying debt issue or the
discounted cash flow of future payments utilizing current rates available
to the company for debt of similar remaining maturities. Debt obligations
with a short remaining maturity are valued at the carrying amount.
The estimated carrying amounts and fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
APRIL 26, 1998 APRIL 27, 1997
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets
Cash equivalents.................... $ 52,460 $ 52,460 $ 51,846 $ 51,846
Restricted cash..................... 50,341 50,341 -- --
Financial liabilities
Senior Secured Notes................ $315,000 $351,225 $315,000 $315,000
First Mortgage Notes................ 75,000 76,125 -- --
Other long-term debt................ 52,095 52,095 64,522 64,522
</TABLE>
51
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL APRIL
26, 1998 27, 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
12 1/2% senior secured notes................................ $315,000 $315,000
11 1/2% note payable, due in quarterly installments of
$588,235, including interest, through June 2001............ 7,647 10,000
Variable rate note (8 1/4% at April 26, 1998 and 9 1/2% at
April 27, 1997), due in monthly installments of $196,500,
including interest, through February 2000.................. 4,320 6,678
Variable rate note (8.95% at April 26, 1998 and 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................................ 2,162 3,437
9 1/4% note payable, due in monthly installments of
$128,545, including interest, through July 1999............ 1,674 2,994
6% note payable, due in monthly installments of $165,729,
including interest, through October 1998................... 963 2,833
12 1/2% note payable, due in monthly installments of
$125,000, including interest, beginning October 1997
through October 2005....................................... 6,692 5,909
Variable rate note (10 1/2% at April 26, 1998 and April 27,
1997), due in monthly installments of $188,000, including
interest, with the remaining principal and interest due
October 2000............................................... 13,109 13,912
8% note payable, due in monthly installments of $66,667,
including interest, through July 2002...................... 2,874 3,420
8% note payable, due in monthly installments of $11,365,
including interest, through December 2015.................. 1,285 1,317
Variable rate note (9 1/2% at April 26, 1998 and 9 1/4% at
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....................... 4,028 4,445
9 1/4% note payable, due in monthly installments ranging
from $46,045 to $97,595, including interest, through
October 1999............................................... 1,995 2,706
13% First Mortgage Notes, due August 2004; non-recourse to
Casino America............................................. 75,000 --
Other....................................................... 5,346 6,871
-------- --------
442,095 379,522
Less: Current maturities.................................... 12,453 14,905
-------- --------
Long-term debt.............................................. $429,642 $364,617
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000........................................................... 106.250%
2001........................................................... 103.125%
2002 and thereafter............................................ 100.000%
</TABLE>
52
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 26, 1998, no dividends were permitted to be paid under these
restrictions.
On August 20, 1997, ICBH issued $75 million of 13% First Mortgage Notes due
2004 with Contingent Interest (the "ICBH First Mortgage Notes"), which is non-
recourse debt to the Company. Interest on the ICBH First Mortgage Notes is
payable semiannually on February 28 and August 31 of each year, commencing
February 28, 1998. Additionally, contingent interest is payable on the ICBH
First Mortgage Notes on each interest payment date, in an aggregate principal
amount of 5% of the Consolidated Cash Flow (as defined in the Indenture),
provided that no Contingent Interest is payable prior to commencement of the
facility's operations. The ICBH First Mortgage Notes are redeemable at the
option of ICBH, in whole or in part, at any time on or after August 1, 2001 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 31 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................................... 106.500%
2002........................................................... 103.200%
2003 and thereafter............................................ 100.000%
</TABLE>
Beginning with the first operating year after the Isle-Black Hawk begins
gaming operations, ICBH will be required to offer to purchase, at the price of
101% of the aggregate principal amount thereof, the maximum principal amount
of the ICBH First Mortgage Notes that may be purchased with 50% of the Isle-
Black Hawk's excess cash flow, as defined.
The Company has $5,500,000 available in bank lines of credit. As of April
26, 1998, the Company had no outstanding balances under these lines of credit.
ICBH obtained a letter of credit as a requirement to obtain a building
permit from the City of Black Hawk (the "City"). The letter of credit,
totaling $2.1 million, can be drawn upon by the City if for any reasons ICBH
fails to complete the construction project. The letter of credit is secured by
a deposit held in trust of $1.1 million, which was funded by the Company and
the balance is secured by the Company's open line of credit with the bank.
As of April 26, 1998, the Company had secured financing to fund the
development of an all-suite hotel at the Isle-Bossier City, not to exceed $19
million, of which no funds have been drawn.
Substantially all of the Company's assets are pledged as collateral for
long-term debt. At April 26, 1998, the Company was in compliance with all debt
covenants.
53
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate principal payments due on total long-term debt over the next
five fiscal years and thereafter are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEAR ENDING
--------------
(IN THOUSANDS)
<S> <C>
1999............................................................ $ 12,453
2000............................................................ 10,185
2001............................................................ 18,975
2002............................................................ 3,019
2003............................................................ 1,757
Thereafter...................................................... 395,706
--------
$442,095
========
</TABLE>
7. 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.
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 Cripple Creek Colorado
operation, the Company entered into a land lease. The lease has an initial
term of 25 years, with options to renew for seven additional terms of
54
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 26, 1998, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING
-----------
(IN THOUSANDS)
<S> <C>
1999............................................................. $ 4,286
2000............................................................. 3,200
2001............................................................. 1,940
2002............................................................. 1,451
2003............................................................. 1,395
Thereafter....................................................... 19,677
-------
$31,949
=======
</TABLE>
Rent expense for operating leases was approximately $6,829,000, $7,140,000
and $4,076,000 for the years ended April 26, 1998, April 27, 1997 and April
30, 1996, respectively. Such amounts include contingent rentals of $2,682,000,
$2,543,000 and $1,288,000 for the years ended April 26, 1998, April 27, 1997
and April 30,1996, respectively.
8. RELATED PARTY TRANSACTIONS
During the year ended April 30, 1996, the Company incurred construction
costs of approximately $2,391,000 which were paid to related parties. As of
April 26, 1998 and 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.
On January 2, 1998, the Company acquired approximately 0.7 acres of property
(the "Acquired Property") contiguous to the property being developed by ICBH.
The acquired property will be used for the expansion of the entrance and the
signage of the Isle-Black Hawk. On January 2, 1998, ICBH, as Lessee, entered
into a lease agreement with the Company for the Acquired Property and will
utilize the Acquired Property in developing the Isle-Black Hawk. The lease
payment consists of $102,000 paid upon the inception of the lease and $17,000
per
55
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
month, commencing July 15, 1998, and continuing until December 31, 2002, and
thereafter on a year to year basis. During the term of the lease, ICBH has the
right to purchase the property for $1,500,000 plus all interest and out-of-
pocket costs that the Company incurred in connection with the purchase and
ownership of the land, less any payments made by ICBH, as lessee.
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 statements of
operations.
9. INCOME TAXES
Income tax expense (benefit) consist of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------
APRIL 26, APRIL 27, APRIL 30,
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................... $1,131 $(6,219) $ 3,976
State..................................... 1,063 (104) 797
------ ------- -------
2,194 (6,323) 4,773
Deferred:
Federal................................... 4,841 (1,569) (1,561)
State..................................... 462 (268) 121
------ ------- -------
5,303 (1,837) (1,440)
------ ------- -------
$7,497 $(8,160) $ 3,333
====== ======= =======
</TABLE>
A reconciliation of income tax expense (benefit) to the statutory corporate
federal tax rate of 35% is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------
APRIL 26, APRIL 27, APRIL 30,
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory tax expense (benefit)............ $5,265 $(10,224) $1,181
Effects of:
State taxes.............................. 991 (68) 1,048
Goodwill................................. 1,327 834 --
Valuation allowance...................... -- 903 --
Adjustment to prior years' taxes......... -- -- 720
Other--Net............................... (86) 395 384
------ -------- ------
$7,497 $ (8,160) $3,333
====== ======== ======
</TABLE>
56
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's net deferred income tax liability
are as follows:
<TABLE>
<CAPTION>
APRIL APRIL
26, 1998 27, 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Property and equipment.............................. $ 29,078 $ 30,646
Other............................................... 1,402 1,042
-------- --------
Total deferred tax liabilities........................ 30,480 31,688
Deferred tax assets:
Dividends........................................... 350 496
Write-down of assets held for sale.................. 5,690 5,690
Preopening costs.................................... 291 2,514
Accrued expenses.................................... 3,837 5,836
Charitable contribution carryover................... 434 --
Alternative minimum tax credit...................... 3,353 3,775
Net operating losses................................ 16,218 17,591
Other............................................... 493 1,600
-------- --------
Total deferred tax assets............................. 30,666 37,502
Valuation allowance on deferred tax assets............ (13,062) (16,757)
-------- --------
Net deferred tax assets............................... 17,604 20,745
-------- --------
Net deferred tax liabilities.......................... $ 12,876 $ 10,943
======== ========
</TABLE>
At April 26, 1998, the Company's alternative minimum tax credit can be
carried forward indefinitely to reduce future regular tax liabilities.
Additionally, as of April 26, 1998, the Company has federal net operating loss
carry-forwards of $38,410,000 for income tax purposes, with expiration dates
from 2008 to 2012. Approximately $31,320,000 of net operating losses are
subject to limitation under the income tax regulations, which may limit the
amount ultimately utilized.
The utilization of pre-acquisition net operating losses of approximately
$3.3 million, during fiscal 1998, resulted in a reduction to goodwill.
9. 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.
57
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock options outstanding are as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
1998 EXERCISE 1997 EXERCISE 1996
OPTIONS PRICE OPTIONS PRICE OPTIONS
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Outstanding options at
beginning of fiscal year... 1,980,138 $6.49 1,518,188 $8.30 1,327,599
Options granted............. 1,096,500 3.41 777,500 3.56 493,375
Options exercised........... (8,438) 0.89 (65,625) 3.86 (145,218)
Options canceled............ (350,001) 6.78 (249,925) 9.06 (157,568)
--------- --------- ---------
Outstanding options at end
of fiscal year............. 2,718,199 $5.24 1,980,138 $6.49 1,518,188
========= ========= =========
</TABLE>
Weighted average fair value of options granted during fiscal 1998 and 1997
was $2.35 and $4.54, respectively.
The following table summarizes information about stock options outstanding
at April 26, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------- --------------------
WEIGHTED WEIGHTED
RANGES OF WEIGHTED AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
--------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .89-$ 5.69 1,907,937 8.60 years $ 3.55 340,962 $ 4.41
5.88- 11.25 546,762 7.43 7.00 274,868 7.28
11.56- 18.00 263,500 5.55 13.81 258,000 13.85
--------- -------
$ .89-$18.00 2,718,199 8.07 $ 5.24 873,830 $ 8.10
========= =======
</TABLE>
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standard No. 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 years 1998, 1997 and 1996 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:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------
APRIL 26, APRIL 27, APRIL 30,
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
NET INCOME (LOSS)
As reported............................... $7,547 $(21,051) $1,555
Pro forma................................. $6,798 $(21,527) $1,470
EARNINGS PER COMMON SHARE
Basic
As reported............................... $ 0.32 $ (0.94) $ 0.10
Pro forma................................. $ 0.29 $ (0.96) $ 0.10
Diluted
As reported............................... $ 0.32 $ (0.94) $ 0.10
Pro forma................................. $ 0.29 $ (0.96) $ 0.09
</TABLE>
The earnings per common share amounts prior to fiscal 1998 have been
restated as required to comply with Statement of Financial Accounting
Standards No. 128, Earnings Per Share.
58
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 1998, 1997 and 1996: options vest at 25% per year for four
years beginning with the grant date dividend yield of 0%; weighted average
expected volatility of .74, .85, and .85, respectively; risk-free interest
rate of 5.3%, 7.1% and 6.9%, respectively ; and expected lives of 6 years.
The pro forma effect on net income (loss) for fiscal 1998, 1997 and 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:
<TABLE>
<CAPTION>
NUMBER OF
EXPIRATION ---------------- EXERCISE
DATE ISSUED DATE WARRANTS SHARES PRICE
----------- -------------- -------- ------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
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.
11. 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 publicly
announces its intention to commence a tender
59
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
12. 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 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 negotiations with potential buyers. These assets have a
net carrying value of approximately $5,000,000. The Company is actively
marketing these assets for sale.
Additionally, during fiscal 1997, the Company wrote off $1,000,000 of design
and development costs related to a project for which the Company revised the
original scope.
13. 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.
14. 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:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
APRIL 30, 1996
--------------
(IN THOUSANDS)
<S> <C>
Total revenue.............................................. $150,846
Operating income........................................... 38,381
Net income................................................. 34,453
</TABLE>
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 ($7,647,000 outstanding at April 26, 1998) to the
seller. The note bears interest at 11 1/2% and requires equal quarterly
principal payments commencing June 1996 through June 2001 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.
60
<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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Total revenue.............................................. $57,263
Operating loss............................................. (643)
Net loss................................................... (5,346)
</TABLE>
15. 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
$609,000, $633,000 and $328,000 for the years ended April 26, 1998, April 27,
1997 and April 30, 1996, respectively. The Company's contribution is based on
a percentage of employee contributions and may include an additional
discretionary amount.
16. LITIGATION
A subsidiary of the Company has been named, along with numerous
manufacturers, distributors and gaming operators, including many of the
country's largest gaming operators (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 discovery and preliminary motion stages. 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. However, the
Defendants are committed to vigorously defend all claims asserted in the
consolidated action.
LRGP has challenged a statute that purportedly permits the Bossier Parish
Police Jury to levy an additional $.50 boarding fee per passenger against LRGP
beginning January 1, 1996. The Company's challenge was denied at the state
trial court level, and the Company appealed the decision. On June 26, 1998, a
Louisiana State Court of Appeals reversed the trial court's decision. However,
the Bossier Parish Police Jury may appeal that decision and if it ultimately
prevails, the Company would have to pay the Bossier Parish Police Jury
approximately $3.6 million as of April 26, 1998, for prior unpaid boarding
fees, plus a continuing $.50 fee per passenger at LRGP. This liability has
been fully recorded.
On June 11, 1998, a lawsuit was filed which seeks to nullify a contract to
which LRGP is a party. Pursuant to the contract, LRGP pays a fixed amount plus
a percent of revenue to various local governmental entities, including the
City of Bossier (the "City") and the Bossier Parish School Board (the "School
Board"), in lieu of payment of a boarding fee per passenger. The School Board
also seeks to have the City pay the School Board fifteen (15%) percent of all
revenues derived by the City to date, less any previous payments. The Company
intends to vigorously defend the action.
In a complaint filed on February 23, 1998, Riverboat Corporation of
Mississippi--Vicksburg, which operates the Isle-Vicksburg, was named as a
defendant in an action brought by an individual who owns property
61
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
adjacent to the Big Black River in the eastern part of Warren County. Also
named as defendants in the action are two other operators in the Vicksburg
market and one of the largest banks in the State of Mississippi. The plaintiff
alleges that the defendants entered into an agreement, the effect of which was
to improperly restrain trade and hinder competition in the gaming business by
conducting a campaign in opposition to a gaming application for a site
adjacent to property owned by the Plaintiff (the "Proposed Project"). The
plaintiff further alleges that the defendants conspired for the purpose of
injuring the property rights of the plaintiff. On February 27, 1998, an
Amended Complaint was filed reasserting the claims set forth in the original
complaint and adding similar claims by additional plaintiffs who allegedly had
equity interests in the Proposed Project. The Plaintiffs seek compensatory and
punitive damages in the amount of $238 million from the defendants. The
Company denies the allegations contained in the Complaint and Amended
Complaint and intends to vigorously defend all claims and allegations in the
action.
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 purportedly breached a contract
of employment between Mr. Greenberg and the Company concerning Mr. Greenberg's
employment as Chairman of the Board of the Company's Pompano Park subsidiary.
On or about January 7, 1998, the Company has settled the suit within amounts
previously reserved.
On May 29, 1998, the Company was named as a defendant in an action brought
by several persons who owned property in Cripple Creek, Colorado which they
sold to a subsidiary of the Company in 1995. The Plaintiffs allege that the
Company breached its agreement to construct a casino facility on the property
by the end of 1995. The amount of damages claimed is not specified, the
Company denies the allegations contained in the Complaint, and it intends to
vigorously defend all claims and allegations in the action.
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.
62
<PAGE>
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL QUARTERS ENDED 1998
------------------------------------
OCTOBER JANUARY
JULY 27 26 25 APRIL 26
-------- -------- -------- --------
(IN THOUSAND)
<S> <C> <C> <C> <C>
Revenue................................. $111,737 $106,273 $105,819 $116,987
Operating income........................ 16,027 13,932 12,219 18,924
Net income.............................. 2,948 1,077 260 3,262
Net income per common share
Basic................................. 0.13 0.05 0.01 0.14
Diluted............................... 0.13 0.05 0.01 0.14
<CAPTION>
FISCAL QUARTERS ENDED 1997
------------------------------------
OCTOBER JANUARY
JULY 31 31 31 APRIL 27
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue................................. $ 48,117 $106,059 $109,817 $109,398
Operating income........................ 4,178 4,957 12,885 6,503
Net income (loss) before extraordinary
item................................... 2,917 (4,957) 769 (7,527)
Net income (loss)....................... 2,917 (17,210) 769 (7,527)
Net income (loss) per share before
extraordinary item
Basic................................. 0.15 (0.21) 0.03 (0.32)
Diluted............................... 0.14 (0.21) 0.03 (0.32)
Net income (loss) per common share
Basic................................. 0.15 (0.74) 0.03 (0.32)
Diluted............................... 0.14 (0.74) 0.03 (0.32)
</TABLE>
Quarterly data may not necessarily sum to the full year data reported in the
Company's consolidated financial statements.
The fiscal 1997 and first two quarters of fiscal 1998 earnings per common
share have been restated to comply with Statement of Financial Accounting
Standards No. 128, Earnings Per Share.
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.
63
<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 26, 1998 and April 27, 1997
Consolidated Statements of Operations--Years ended April 26, 1998,
April 27, 1997 and April 30, 1996
Consolidated Statements of Stockholders' Equity--Years ended April
26, 1998 and April 27, 1997 and April 30, 1996
Consolidated Statements of Cash Flows--Years ended April 26, 1998,
April 27, 1997 and April 30, 1996
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.
64
<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.
By: /s/ Bernard Goldstein
------------------------------
Bernard Goldstein
Chairman of the Board, Chief
Executive Officer, and Director
Dated: July 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE DATE
/s/ Bernard Goldstein Chairman of the July 24, 1998
- ----------------------------------- Board, Chief
Bernard Goldstein Executive Officer
and Director
(Principal
Executive Officer)
/s/ John M. Gallaway President, Chief July 24, 1998
- ----------------------------------- Operating Officer
John M. Gallaway and Director
/s/ Rexford A. Yeisley Chief Financial July 24, 1998
- ----------------------------------- Officer (Principal
Rexford A. Yeisley Financial and
Accounting Officer)
/s/ Allan B. Solomon Executive Vice July 24, 1998
- ----------------------------------- President,
Allan B. Solomon Secretary, General
Counsel and Director
/s/ Emanuel Crystal Director July 24, 1998
- -----------------------------------
Emanuel Crystal
/s/ Robert S. Goldstein Director July 24, 1998
- -----------------------------------
Robert S. Goldstein
/s/ Alan J. Glazer Director July 24, 1998
- -----------------------------------
Alan J. Glazer
/s/ Randolph Baker Director July 24, 1998
- -----------------------------------
Randolph Baker
65
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- ----------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation of Casino America, Inc., as amended.(5)
3.2 Bylaws of Casino America, Inc., as amended.(5)
3.2A Amendments to Bylaws of Casino America, Inc. dated as of February 7,
1997.(15)
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)
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)
</TABLE>
66
<PAGE>
EXHIBIT
NUMBER EXHIBIT
------- -------
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)
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)
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 Terryss Hicks.(4)
67
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- ----------------------------------------------------------------------
<C> <S>
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)
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)
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)
</TABLE>
68
<PAGE>
EXHIBIT
NUMBER EXHIBIT
------- -------
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. (15)
10.48 Employment Agreement dated March 17, 1997 between Casino America, Inc.
and James Guay. (15)
10.49 Employment Agreement dated April 7, 1997 by and between Casino
America, Inc. and Timothy M. Hinkley. (15)
10.50 Management Agreement dated April 28, 1997 between Casino America, Inc.
and Riverboat Corporation of Mississippi. (15)
10.51 Management Agreement dated as of April 28, 1997 between Casino
America, Inc. and Riverboat Corporation of Mississippi--Vicksburg.
(15)
10.52 Management Agreement dated April 25, 1997 between Casino America, Inc.
and ICB, L.L.C. (15)
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. (15)
10.54 Amended Casino America, Inc. 1992 Stock Option Plan.(12)
10.55 Amended Casino America, Inc. l993 Stock Option Plan.(12)
10.56 Management Agreement dated July 29, 1997 between Casino America, Inc.
and Isle of Capri Black Hawk, L.L.C. (17)
10.57 Loan Agreement dated December 9, 1997 between Hibernia National Bank
and Isle of Capri Hotels--Bossier City, L.L.C.
10.58 Manager Managed Limited Liability Company Operating Agreement between
Wilmorite, Inc. and PPI, Inc.
10.59 Joint Venture Agreement of Capri Cruises between Commodore Cruises
Limited and Isle of Capri Casino Corporation.
10.60 Amended Casino America, Inc. 1993 Stock Option Plan (16)
21 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule (1996).
27.2 Financial Data Schedule (1997 and 1998)
- --------
(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.
69
<PAGE>
(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.
(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 fiscal year
ended April 30, 1996, by reference.
(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.
(15) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended April 27, 1997, by reference.
(16) Filed as an exhibit to the Company's Proxy Statement for the fiscal year
ended April 27, 1997, by reference.
(17) Filed as an exhibit to the Isle of Capri Black Hawk L.L.C./Isle of Capri
Black Hawk Capital Corp. Registration Statement on Form S-4 (registration
number 333-38093), and incorporated into the Company's Form 10-K for the
year ended April 26, 1998, by reference.
* Management contract or compensatory plan.
70
<PAGE>
EXHIBIT 10.57
LOAN AGREEMENT
Among
ISLE OF CAPRI HOTELS - BOSSIER CITY, L.L.C.,
as Borrower
AND
HIBERNIA NATIONAL BANK,
as Bank
$19,000,000 CONSTRUCTION AND TERM LOANS
Dated: DECEMBER 9, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE 1 GENERAL TERMS.................................................. 1
Section 1.01 Terms Defined Above.................................... 1
Section 1.02 Certain Definitions.................................... 1
Section 1.03 Accounting Terms and Determinations.................... 7
ARTICLE 2 THE CREDIT..................................................... 7
Section 2.01 Commitment to Lend..................................... 7
Section 2.02 Interest Rates......................................... 9
Section 2.03 Borrower's Equity Contribution......................... 9
Section 2.04 Construction Advances................................. 10
Section 2.05 Borrowing Procedure for Construction Costs............. 10
Section 2.06 Requests for Advances.................................. 11
Section 2.07 Retainage Advance...................................... 12
Section 2.08 Modified Advance Procedure............................. 13
Section 2.09 Borrowing Procedure for Advances for Equipment......... 13
Section 2.10.[INTENTIONALLY LEFT BLANK]............................. 14
Section 2.11 Prepayments............................................ 14
Section 2.12 Commitment Fees........................................ 14
Section 2.13 Business Days.......................................... 15
Section 2.14 Nature of Commitment................................... 15
Section 2.15 Payments............................................... 15
Section 2.16 Use of Proceeds........................................ 15
Section 2.17 Closing of the Construction Loan....................... 15
Section 2.18 Closing and Funding of the Term Loan................... 17
ARTICLE 3 SECURITY FOR THE OBLIGATIONS................................... 17
Section 3.01 Security............................................... 18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES................................. 18
Section 4.01 Existence.............................................. 18
Section 4.02 Power and Authorization................................ 18
Section 4.03 Binding Obligations.................................... 18
Section 4.04 No Legal Bar or Resultant Lien......................... 19
Section 4.05 No Consent............................................. 19
Section 4.06 Financial Condition.................................... 19
Section 4.07 Litigation............................................. 19
Section 4.08 Solvency............................................... 19
Section 4.09 Taxes and Governmental Charges......................... 20
Section 4.10 Defaults............................................... 20
Section 4.11 Casualties and Condemnation............................ 20
<PAGE>
Section 4.12 Use of Proceeds; Margin Stock.......................... 20
Section 4.13 Compliance with the Law................................ 20
Section 4.14 ERISA.................................................. 20
Section 4.15 No Material Misstatements.............................. 20
Section 4.16 Utility or Investment Company.......................... 21
Section 4.17 Title to Collateral.................................... 21
Section 4.18 Environmental Matters.................................. 21
Section 4.19 Governmental Requirements.............................. 21
Section 4.20 Continuing Accuracy.................................... 22
Section 4.21 Construction........................................... 22
ARTICLE 5 AFFIRMATIVE COVENANTS.......................................... 22
Section 5.01 Financial Statements and Reports....................... 22
Section 5.02 Taxes and Other Liens.................................. 23
Section 5.03 Maintenance of Existence............................... 23
Section 5.04 Further Assurances..................................... 24
Section 5.05 Performance of Obligations............................. 24
Section 5.06 Reimbursement of Expenses.............................. 24
Section 5.07 Insurance.............................................. 24
Section 5.08 Accounts and Records................................... 27
Section 5.09 Right of Inspection.................................... 27
Section 5.10 Notice of Certain Events............................... 27
Section 5.11 ERISA Information and Compliance....................... 27
Section 5.12 Maintenance of Bank Accounts.......................... 27
Section 5.13 Indemnification........................................ 27
Section 5.14 Compliance with Laws and Covenants..................... 28
Section 5.15 Environmental Indemnity................................ 28
Section 5.16 Financial Covenants.................................... 28
Section 5.17 Construction Covenants................................. 29
Section 5.18 Appraisal.............................................. 31
Section 5.19 Escrow Account......................................... 31
Section 5.20 Signage................................................ 31
Section 5.22 Subordination of Management Fees....................... 31
ARTICLE 6 NEGATIVE COVENANTS............................................. 31
Section 6.01 Liens on the Collateral................................ 32
Section 6.02 Sale of the Collateral................................. 32
Section 6.03 Nature of the Business................................. 32
Section 6.04 Loans.................................................. 33
Section 6.05 Acquisitions or Bulk Sales............................. 33
Section 6.06 Change of Office....................................... 33
Section 6.07 Fiscal Year; Accounting Methods........................ 33
Section 6.08 Debts.................................................. 33
Section 6.09 Acquisition of Real Estate............................. 33
<PAGE>
ARTICLE 7 CONDITIONS OF LENDING.......................................... 33
Section 7.01 Conditions to Making the Initial Advance (Construction) 33
Section 7.02 Additional Conditions Precedent to Initial Advances.... 37
Section 7.03 Each Additional Advance................................ 37
ARTICLE 8 DEFAULT........................................................ 37
Section 8.01 Events of Default...................................... 37
Section 8.02 Remedies............................................... 39
Section 8.03 Set-Off................................................ 40
ARTICLE 9 MISCELLANEOUS.................................................. 40
Section 9.01 Notices................................................ 40
Section 9.02 Invalidity............................................. 41
Section 9.03 Survival of Agreements................................. 41
Section 9.04 Successors and Assigns................................. 41
Section 9.05 Renewal, Extension or Rearrangement.................... 41
Section 9.06 Waivers................................................ 42
Section 9.07 Cumulative Rights...................................... 42
Section 9.08 Singular and Plural.................................... 42
Section 9.09 Construction........................................... 42
Section 9.10 Titles of Articles, Sections and Subsections........... 42
Section 9.11 Limitation of Bank's Liability......................... 42
Section 9.12 Relationship Between the Parties....................... 42
Section 9.13 Amendment.............................................. 42
Section 9.14 Entire Agreement....................................... 42
Section 9.15 Time of the Essence.................................... 42
Section 9.16 Purposes of Inspections................................ 43
Section 9.17 Third-Party Beneficiaries.............................. 43
Section 9.18 Submission to Jurisdiction, Jury Trial Waiver.......... 43
Section 9.19 Preparation............................................ 44
Section 9.20 Form of Documents...................................... 44
Section 9.21 Counterparts........................................... 45
EXHIBITS
Exhibit A - Description of Property
Exhibit B - Borrower's Request for Advance
Exhibit C - Compliance Certificate
<PAGE>
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT ("Agreement"), dated effective as of December 9,
1997 (the "Effective Date"), is made between ISLE OF CAPRI HOTELS - BOSSIER
CITY, L.L.C. ("Borrower"), a Louisiana limited liability company, and HIBERNIA
NATIONAL BANK, a national banking association (the "Bank"), who agree as
follows:
ARTICLE 1
---------
GENERAL TERMS
-------------
Section 1.01 TERMS DEFINED ABOVE. As used in this Agreement, the terms
"Agreement," "Effective Date," "Borrower," and "Bank" shall have the meanings
indicated above.
SECTION 1.02 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Advance" shall mean a disbursement of the loan proceeds under a Loan
and all or any portion of such disbursement so long as same remains
outstanding and unpaid.
"Affiliate" shall mean Person with respect to which (i) Casino
America, either directly or indirectly, owns 20% or more of the outstanding
shares or other equity, or (ii) Casino America has the power to control the
management decisions.
"Anticipated Appraised Value" shall mean the appraisal of the Property
and Improvements as set forth in that certain appraisal issued by PFK
Consultants, Inc., to the Bank, regarding the proposed Improvements, as the
same may be amended or supplemented from time to time.
"Appraised Value" shall mean the fair market value of the Property,
including the Improvements once completed, as determined by an appraiser
selected and approved by the Bank.
"Architect" shall mean the architectural or engineering firm
designated by the Borrower to prepare the Plans and inspect and monitor the
progress of construction of the Improvements on behalf of the Borrower.
"Bank Inspector" shall mean the inspector designated by Bank
(including an officer or employee of Bank) to inspect and monitor the
progress of construction of the Improvements on behalf of the Bank.
"Bank's Office" shall mean the Bank's office located at 333 Travis
Street, Shreveport, Louisiana, or such other office as the Bank may
designate from time to time.
Loan Agreement--Page 1
<PAGE>
"Borrower's Account" means the demand deposit account to be
established pursuant hereto, or any successor account, with the Bank.
"Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday for commercial banks in Shreveport, Louisiana.
"Borrower's Equity" shall mean the sum of $18,000,000 to be paid by
the Borrower for the Construction Costs which payments are approved by the
Bank pursuant to Requests for Payments and Request for Advances and which
payments are made with funds other than Advances under a Loan.
"Cash Collateral Account" shall mean an interest-bearing account
maintained at the Bank, the funds in which shall be invested as agreed
between the Borrower and the Bank and into which a Deficiency [as defined
in Section 2.05(b)] shall be deposited and on which the Bank shall have the
sole right to draw.
"Casino" shall mean the gaming casino known as the "Isle of Capri"
located in Bossier City, Louisiana, which is owned by LRGP.
"Casino America" means Casino America, Inc., a Delaware corporation.
"Casino America Agreements" means the Room Guaranty Agreement referred
to in Section 2.17(b)(xv), the Registration Rights Agreement and the Casino
America Guaranty referred to in Section 2.17(b)(xvii) and "Casino America
Agreement" means any one of the Casino America Agreements.
"Closing Date" shall mean the date on which all of the documents and
conditions specified in Section 2.17 are duly executed, delivered and
satisfied by the Borrower; provided, however, in no event shall the Closing
Date be later than December 9, 1997.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall mean the properties described in the Collateral
Documents as security for the Obligations.
"Collateral Documents" shall mean collectively the documents required
by the Bank to obtain the security interests in the Collateral, as
described in Section 3.01.
"Commercial Guaranty Agreement" shall mean the guaranty agreement to
be executed by Casino America and delivered to the Bank.
"Commitment Letter" means that certain commitment letter dated October
16, 1997, signed by the Bank and the Borrower regarding the Loans.
Loan Agreement--Page 2
<PAGE>
"Companies" shall mean collectively the Borrower, Casino America and
LRGP and "Company" shall mean any one of the Companies.
"Completion of the Improvements" shall have the meaning ascribed to it
in Section 5.17(a).
"Contractor" shall mean Keating Building Corporation, a Pennsylvania
corporation, or such other contractor that may be designated by the
Borrower to construct the Improvements which Contractor is acceptable to
the Bank.
"Construction Contract" shall mean the agreement to be executed by
the Borrower and Contractor providing for the construction of the
Improvements contemplated by the Plans, the terms of which agreement shall
be acceptable to the Bank.
"Construction Costs" shall mean costs and expenses set forth in the
Development Expense Schedule which are paid pursuant to Requests for
Payments or Requests for Advances as approved by the Bank.
"Construction Loan" shall mean the construction loan to be made by the
Bank to the Borrower as specified in Section 2.01(a).
"Construction Note" shall mean the promissory note of the Borrower
evidencing the Construction Loan as specified in Section 2.01(a).
"Construction Completion Schedule" shall have the meaning ascribed to
it in Section 7.01(f).
"Debt" shall mean any and all amounts and/or liabilities owing from
time to time by any Company to any Person, including the Bank, direct or
indirect, liquidated or contingent, now existing or hereafter arising,
which are classified under GAAP as liabilities on a balance sheet,
including without limitation (i) indebtedness for money borrowed; (ii)
unfunded portions of commitments for money to be borrowed; (iii) the
amounts of all standby and commercial letters of credit and bankers
acceptances, matured or unmatured, issued on behalf of such Company; (iv)
guaranties of the obligations of any other Person, whether direct or
indirect, whether by agreement to purchase the indebtedness of any other
Person or by agreement for the furnishing of funds to any other Person
through the purchase or lease of goods, supplies or services (or by way of
stock purchase, capital contribution, advance or loan) for the purpose of
paying or discharging the indebtedness of any other Person, or otherwise;
and (v) the present value of all obligations for the payment of rent or
hire of property of any kind (real or personal) under leases or lease
agreements required to be capitalized under GAAP; provided that in no event
shall the term "Debt" include trade indebtedness incurred in the ordinary
course of business which such trade indebtedness has a maturity of less
than one year, nor any guaranty under the Indenture.
Loan Agreement--Page 3
<PAGE>
"Default" shall mean the occurrence of any of the events specified in
Article 8, whether or not any requirement for notice or lapse of time or
other condition precedent has been satisfied.
"Development Expense Schedule" shall mean the detailed line item cost
breakdown of land costs, Construction Costs (hard costs), costs of the
Equipment and all other related indirect development costs (soft costs)
submitted to and approved by Bank.
"Deficiency" shall mean the amount, as determined by the Bank from
time to time, by which the (i) the costs to complete the Improvements
pursuant to the Plans exceed (ii) the sum of the (x) the Construction Loan
and (y) the Borrower's Equity.
"Drawdown Termination Date" shall mean the earlier of (a) the date on
which the Retainage Advance is funded; or (b) eighteen (18) months
following the Closing Date.
"Equipment" means any equipment, furniture, machinery or any other
movable property, including, without limitation, the furniture, furnishings
and equipment to be used in connection with the operation of the
Improvements.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" shall mean the occurrence of any of the events
specified in Article 8, provided that any requirement for notice or lapse
of time or any other condition precedent has been satisfied.
"GAAP" shall mean generally accepted accounting principles in the
United States as in effect from time to time.
"Improvements" shall mean the 305-room hotel and other structures to
be constructed on the Property (including offsite and onsite constructions)
adjacent to the Casino in accordance with the Plans, the cost of which are
to be paid for, in part, with the Advances on the Construction Loan.
"Index" shall mean the rate of interest established from time to time
by The Chase Manhattan Bank, N.A., New York, New York, as its index or
prime lending rate. The Index is not necessarily the lowest rate charged by
The Chase Manhattan Bank, N.A., or by the Bank on their loans. If the Index
becomes unavailable during the term of a Loan, the Bank may designate as a
substitute a reasonably comparable index after notice to Borrower. The Bank
will inform the Borrower of the current Index rate upon the Borrower's
request. The Borrower understands that Bank may make loans based on other
rates as well. The interest rate change will not occur more often than each
day. The Index currently is 8.5% per annum.
"Indenture" shall mean that certain Indenture dated as of August 1,
1996, between Casino America et. al and Fleet Bank National Association, as
trustee, regarding the 12%
Loan Agreement--Page 4
<PAGE>
Senior Secured Notes due in the year 2003 issued by Casino America in the
aggregate sum of $315,000,000.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether
such interest is based on jurisprudence, statute or contract, and including
but not limited to the lien or security interest arising from a mortgage,
encumbrance, pledge, security agreement, conditional sale or trust receipt
or a lease, consignment or bailment for security purposes. The term "Lien"
shall include reservations, exceptions, encroachments, easements,
servitudes, usufructs, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting property. For
the purposes of this Agreement, a Company shall be deemed to be the owner
of any property which it has accrued or holds subject to a conditional sale
agreement, financing lease or other arrangement pursuant to which title to
the property has been retained by or vested in some other Person for
security purposes.
"Loans" shall mean collectively the Construction Loan or the Term Loan
and "Loan" shall mean any one of the Loans.
"Loan Documents" shall mean this Agreement, the Notes, the Collateral
Documents and the documents to be executed by LRGP and Casino America
pursuant to the terms of this Agreement.
"LRGP" means Louisiana Riverboat Gaming Partnership, a Louisiana
general partnership.
"Management Agreement" shall mean an agreement between Borrower and
any third party to manage the Improvements, which agreement shall be in a
form and substance and with a third party acceptable to the Bank or an
Affiliate.
"Mortgage" shall mean the mortgage described in Section 3.01 hereof.
"Net Income" shall mean the gross revenues for the applicable
accounting period less all expenses and income taxes generally deducted
under GAAP in calculating net income.
"Net Operating Income" shall mean, for the applicable accounting
period, Net Income to which are added: (i) Pre-opening Expenses incurred
during that accounting period; (ii) Non-cash Charges incurred during that
accounting period; (iii) interest expenses; and (iv) income taxes generally
deducted under GAAP in calculating Net Income; provided however no more than
$500,000 of aggregate Pre-opening Expenses may be added to the calculation of
Net Operating Income.
"Non-cash Charges" shall mean, for any period, the aggregate
depreciation, amortization and other non-cash charges for such period, as
determined in accordance with GAAP (excluding any non-cash charge which
required an accrual or reserve for cash charges for any future period).
Loan Agreement--Page 5
<PAGE>
"Notes" shall mean collectively the Construction Note and the Term
Note and "Note" shall mean any one of the Notes.
"Obligations" shall mean any and all amounts and/or liabilities owing
from time to time by any of the Companies to the Bank and whether such
amounts or liabilities be liquidated or unliquidated, now existing or
hereafter arising.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political
subdivision thereof, or any other form of entity.
"Plan" shall mean any plan subject to Title IV of ERISA and maintained
by any Company or any such plan to which any Company is required to
contribute on behalf of its employees.
"Plans" shall mean the final architectural and engineering drawings
and specifications, including any revisions, amendments and addenda
required to complete the construction of the Improvements, including
offsite and onsite work.
"Post-Default Rate" means, in respect of the principal amount of the
Note or any other amount payable under any other Loan Document which is not
paid when due (whether at the stated maturity, by acceleration or
otherwise), an interest rate on such principal amount per annum during the
period commencing on the due date until such amount is paid in full equal
to three percentage points over the interest rate specified in the Note
which rate was in effect immediately prior to default.
"Pre-opening Expenses" mean those expenses incurred by the Borrower in
connection with the opening of the Improvements which are classified as
pre-opening expenses under GAAP.
"Prohibited Transaction" shall mean any transaction set forth in
Section 406 of ERISA or Section 4979 of the Code.
"Property" shall mean the immovable property covered by the Collateral
Documents on which the Improvements are or shall be located, which property
is more fully described on Exhibit A attached hereto, together with the
Improvements to be constructed thereon.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated December 9, 1997, between Casino America and the Bank.
"Reportable Event" shall have the meaning set forth in Title IV of
ERISA.
"Request for Advance" shall mean the Borrower's written request for an
Advance in the form of Exhibit B attached hereto.
Loan Agreement--Page 6
<PAGE>
"Request to Make Payment" shall have the meaning ascribed to it in
Section 2.03 of this Agreement.
"Retainage Advance" shall mean the final Advance for construction of
the Improvements and the payment of the retainages, if any, due under the
Construction Contract.
"SEC" shall mean the Securities and Exchange Commission.
"Shares" shall have the meaning ascribed to it in Section 7.01(gg).
"Tax Distributions" shall mean the dividends or distribution of
capital by the Borrower to its members, in the amount equal to such
members' federal and state income tax liability arising from their
respective allocable share of the Borrower's taxable income so long as the
Borrower has made an election to be treated as an "S" corporation or
otherwise is taxed as a partnership under the Code (such distributions
being the "Tax Distributions"); provided, however, that: (i) each Person's
federal and state income tax liability shall be computed on the basis of
the actual marginal combined tax rate possible under the Code and Louisiana
law; (ii) Tax Distributions shall be paid in estimated quarterly
installments contemporaneously with such Persons' obligations to pay
estimated income taxes based upon the Borrower's taxable income through the
end of its fiscal quarter immediately preceding such tax installment's due
date and also contemporaneously with any such persons' filing of its
federal and state income tax returns if the estimated Tax Distributions
paid for any of the Borrower's fiscal years are not sufficient to pay such
persons' actual income tax liability arising from such persons' share of
the Borrower's actual taxable income for such fiscal year as disclosed by
copies of the Borrower's tax returns and related Schedules K-1 for such
fiscal year delivered to the Bank pursuant to this Agreement; and (iii) if
the Tax Distributions actually paid with respect to any of the Borrower's
fiscal years exceed the Tax Distributions permitted by this Section based
upon the Borrower's actual taxable net income as disclosed by copies of
such tax returns and schedules described above, then the Borrower shall
immediately recover the excess amount from the recipient and shall not pay
any further Tax Distribution to any person until such excess amount is
recovered.
"Term Loan" shall mean the term loan to be made by the Bank to the
Borrower as specified in Section 2.01(b).
"Term Note" shall mean the term note of the Borrower evidencing the
Term Loan as specified in Section 2.01(b).
"Termination Event" shall mean (i) a Reportable Event described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation under such regulations), or (ii) the
withdrawal of any Company from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, or (iii)
the filing of a notice of intent to terminate a Plan or the treatment of a
Plan amendment as a termination under
Loan Agreement--Page 7
<PAGE>
Section 4041 of ERISA, or (iv) the institution of proceedings to terminate
a Plan by the Pension Benefit Guaranty Corporation under Section 4042 of
ERISA, and in each case in clauses (i) through (iv) above, such event or
condition, together with all other events or conditions, is likely to
constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Plan.
SECTION 1.03 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP on
a basis consistent (except for changes approved by independent public
accountants for a Company) with the most recent audited consolidated financial
statements of such Company.
ARTICLE 2
---------
THE CREDIT
----------
Section 2.01 COMMITMENT TO LEND.
(a) Construction Loan Commitment. Subject to and upon the terms and
conditions contained in this Agreement, and relying on the representations and
warranties contained in this Agreement, the Bank agrees to make a loan available
to the Borrower to construct the Improvements and acquire Equipment in the
maximum aggregate principal amount of the lesser of (i) $19,000,000, or (ii) a
sum equal to sixty percent (60%) of the Anticipated Appraised Value of the
Property and Improvements; provided however, of the aggregate amount of this
Construction Loan, the Bank will advance up to $5,000,000 thereof for the
acquisition of Equipment and the Bank will advance the balance of such a Loan
for the Construction Costs. This Construction Loan shall be represented by a
promissory note in the principal amount of $19,000,000, payable to the order of
the Bank on which interest shall accrue at the rate set forth in Section 2.02.
Such interest shall be payable monthly on the first day of each month beginning
on the first day of the calendar month following the date on which the initial
Advance is made hereunder by the Bank. All principal and the balance of all
accrued but unpaid interest on the Construction Note shall mature and be payable
in full on the Drawdown Termination Date. The Bank shall not be required to
make any Advance under the Construction Loan until such time as Borrower has
paid $5,000,000 of the Construction Costs pursuant to Section 2.03. After the
requirements of Section 2.03 have been satisfied, and subject to the terms and
conditions hereof, the Bank will advance only one-third (1/3) of each subsequent
Request for Advance for Construction Costs or Equipment until such time as
Borrower has paid the aggregate of $18,000,000 for the Construction Costs in
accordance with the Development Expense Schedule. Thereafter, subject to the
terms and conditions hereof, the Bank will make Advances equal to 100% of the
Requests for Advances until such time as the Bank has made Advances in the full
amount of the Construction Loan.
(b) Term Loan. Subject to and upon the terms and conditions contained in
this Agreement and relying on the representations and warranties contained in
this Agreement, the Bank agrees to make a Term Loan available to the Borrower in
the maximum aggregate principal amount not to exceed the
Loan Agreement--Page 8
<PAGE>
lesser of (i) $19,000,000, or (ii) the outstanding principal balance on the
Construction Note immediately following the funding of the Retainage Advance.
The Term Loan shall be represented by a promissory note in the principal amount
of the Term Loan, payable to the order of the Bank on which interest shall
accrue at the rates set forth in Section 2.02. Principal on the Term Loan shall
be payable in monthly installments equal to l/12th of the principal that would
be payable each loan year if the total principal balance was fully amortized in
level payments of principal and interest over fifteen (15) years at the interest
rate on the Term Loan as selected by Borrower pursuant to Section 2.02; provided
however, if the Borrower elects a variable rate pursuant to Section 2.02(b), the
monthly installment due hereunder will be recalculated with each change in
Index. Monthly installments of principal and interest shall be payable on the
first day of each month beginning with the first calendar month following the
funding of the Retainage Advance and continuing on the first day of each
succeeding month, with the balance of all outstanding and unpaid principal and
accrued interest of the Term Loan being due and payable May 15, 2003. The
regular installments of principal and interest shall be applied first to accrued
unpaid interest on the Term Loan and then to principal.
(c) Concurrently with the delivery of the certificate to be delivered to
the Bank pursuant to Section 5.01(h), but in no event later than forty five (45)
days after the end of each quarter of the Term Loan commencing with the last day
of the first quarter of the Term Loan, the Borrower shall pay to the Bank a sum
equal to 100% of the Net Operating Income of Borrower determined with respect to
the quarter ending less and except: (i) sums paid or accrued under the Term Note
during such quarter; (ii) Tax Distributions made to the members of the Borrower
during such quarter or direct payments of income taxes; (iii) escrow deposits
made pursuant to Section 5.19 during such quarter; and (iv) any capital
expenditures (as defined under GAAP) which the Bank, in its sole discretion,
authorizes the Borrower to deduct from the sums otherwise payable pursuant to
this Section 2.01 (c). Each such payment shall be in addition to all monthly
installment payments made in, or accrued for that, quarter with respect to the
Term Note. Any payments made pursuant to this Section 2.01(c) will not relieve
the Borrower of the Borrower's obligation to continue to make regularly
scheduled payments pursuant to the Term Note. Any such payments will instead
reduce the principal balance due under the Note, and Borrower may be required to
make fewer payments under the Term Note.
(d) If the Borrower is in default of the provisions of both Section
5.16(a)(i) and (ii), the Bank, at its sole election, may, as to each such
default, require the Borrower within sixty (60) days notice to pay to the Bank
an amount sufficient to reduce the outstanding principal balance of the Loan to
an amount that is less than or equal to seventy percent (70%) of the Appraised
Value of the Property.
SECTION 2.02 INTEREST RATES.
(a) The Construction Loan shall bear interest at an annual rate equal to
one and one-half percentage points in excess of the Index as it may change
from time to time.
(b) Borrower shall have the option, exercisable once prior to the execution
of the Term Note, to have the principal balance of the Term Note bear interest
at either: (i) a variable rate adjusted daily equal to one and one-half of
percentage points in excess of the Index as it may change from time to time;
or (ii) a fixed rate equal to 375 basis points in excess of the corresponding
5-year Treasury Rate
Loan Agreement--Page 9
<PAGE>
(ask price) quoted by the Wall Street Journal thirty (30) days prior to the date
of the Term Note. The Borrower shall notify the Bank of the Borrower's election
under this Subsection 2.02(b) not less than five (5) Business Days prior to the
funding of the Term Note. If the variable rate specified in Subsection
2.02(b)(i) is selected hereunder, the Bank may require the Borrower to obtain
interest rate protection satisfactory to the Bank.
(c) All payments of interest shall be computed on the per annum basis of a
year of 360 days for the actual number of days (including the first day but
excluding the last day) elapsed.
(d) If the Borrower fails to pay any payment under a Note within ten (10)
days of when due, the Borrower shall pay to Bank a late payment fee in an
amount equal to ten percent (10%) of the delinquent interest due.
(e) Notwithstanding the foregoing, the Borrower shall pay to Bank interest
on a Loan at the Post-Default Rate on any principal amount, and (to the fullest
extent permitted by law) on any other amount payable by the Borrower under any
Loan Document to or for account of Bank, which was not paid in full when due
(whether at the stated maturity, by acceleration or otherwise), for the period
commencing on the date Bank declares that a Loan is accelerated until the same
is paid in full. Accrued interest payable at the Post-Default Rate shall be
payable from time to time on demand. The Post-Default Rate shall not be
applicable unless and until the Bank declares that the Loan is accelerated as a
result of an Event of Default.
SECTION 2.03 BORROWER'S EQUITY CONTRIBUTION. The Bank shall have no
obligation to make any Advance until such time as the Borrower has paid the
first $5,000,000 of the Construction Costs in accordance with the terms hereof.
Before making any payment for the Construction Costs, whether to the Contractor
or otherwise, the Borrower shall submit to Bank a request to make such a
payment (herein referred to as a "Request to Make Payment") which request shall
be in the same form as and shall contain all of the same materials as a Request
for Advance, or shall be in such other form and contain such information as the
Bank may require. Without limiting the foregoing, the provisions of Sections
2.04, 2.05 and 2.06 shall apply to Requests to Make Payment. Bank shall review
the request in the same manner as a Request for Advance. As to that portion of
the Request to Make Payment which is approved by the Bank, the Borrower shall
deliver to the Bank for deposit into Borrower's Account an amount equal to the
approved Request to Make Payment and the Borrower shall only use the funds so
deposited to pay the approved Request to Make Payments. Only those Requests to
Make Payments which have been approved by the Bank shall be applied in
calculating whether the Borrower has paid the first $5,000,000 of the
Construction Costs.
SECTION 2.04 CONSTRUCTION ADVANCES. The Bank agrees to make Advances
to the Borrower for Construction Costs from time to time on any Business Day in
accordance with the provisions of Section 2.05 hereof up to the maximum amount
of the Construction Loan less any Advances made to purchase Equipment. The
Bank shall make such Advances by check payable jointly to the Borrower and the
Contractor to the extent such an Advance is due and payable to the Contractor
under the Construction Contract. The credit advice resulting from the deposit
of the proceeds of any disbursement into the Borrower's Account or the Bank's
copy of any check representing all or any part of the proceeds or a
Loan Agreement--Page 10
<PAGE>
disbursement shall be deemed prima facie evidence of the indebtedness of the
Borrower to the Bank on the Construction Loan.
SECTION 2.05 BORROWING PROCEDURE FOR CONSTRUCTION COSTS. (a) The
proceeds of the Construction Loan for the Construction Costs shall be advanced
by the Bank not more than once per month (or more frequently at the sole option
of the Bank) as construction of the Improvements progresses pursuant to the
following procedures:
(i) the Borrower shall submit a Request for Advance to the Bank at least
ten (10) Business Days prior to the proposed funding date specifying the
total amount of the proposed Advance and the proposed date on which said
Advance is to be made;
(ii) each Request for Advance shall be in substantially the form prescribed
by the Bank;
(iii) within ten (10) Business Days of its receipt of a Request for
Advance, the Bank will notify the Borrower by telephone as to whether the
Bank will advance funds with respect to all or a portion of such a Request
and the Bank will, within that same period, make an Advance as to that
portion of the Request approved by the Bank;
(iv) each Advance shall be funded at the Bank's Office in strict accordance
with the Development Expense Schedule and shall be credited to the
Borrower's Account with the Bank; and
(iv) upon the occurrence of a Deficiency, the Borrower shall not be
entitled to request or receive any Advances until such time as the
Deficiency has been cured to the satisfaction of the Bank.
Notwithstanding the foregoing, the Bank shall be authorized to debit the
Borrower's Account to pay interest on the Loan when due or to fund an Advance to
pay interest on a Loan when due, in either case without the requirement of a
Request for Advance.
(b) If at any time during the term of the Construction Loan the Bank
determines that a Deficiency exists, then the Bank shall have the right, in its
sole option, to require the Borrower to deposit all or a portion of the amount
of such Deficiency into the Cash Collateral Account upon 10 days notice by the
Bank to the Borrower. No additional Advances on the Loan shall be made until
either the Deficiency is cured to the satisfaction of the Bank or until the full
or partial amount of such Deficiency shall be deposited as aforesaid. Any funds
in the Cash Collateral Account shall be disbursed by the Bank in the same manner
as Advances, and those funds shall be disbursed prior to funding of additional
Advances.
(c) Advances for Construction Costs shall be made only to the extent that
the work is actually completed in accordance with the Plans and in place and
approved by the Bank, including materials actually incorporated in the
Improvements or stored on site, but excluding materials stored elsewhere.
Loan Agreement--Page 11
<PAGE>
(d) The Bank shall have no obligation to disburse any funds in excess of
the budgeted line item amount provided in the Development Expense Schedule, and
funds may not be transferred among line items in the Development Expense
Schedule without prior approval by the Bank.
(e) The amount of each Advance shall be computed so that a portion of the
Construction Costs included in the Request for Advance equal to the retainage
provided in the Construction Contract (as approved by the Bank) will be retained
by the Bank until the release of the Retainage Advance.
SECTION 2.06 REQUESTS FOR ADVANCES. (a) Each Request for Advance for
Construction Costs shall be submitted to the Bank in duplicate and shall be
accompanied by the following:
(i) AIA Documents. Application and Certificate for Payment (AIA
Documents G-702 and G-703) signed by the Architect and Contractor and properly
notarized;
(ii) Development Expense Schedule. An updated copy of the Development
Expense Schedule in a form prescribed by the Bank showing all changes since the
date of the last Advance, accompanied by supporting invoices for costs other
than interest and construction costs;
(iii) Title Endorsements. If required by the Bank, a certificate
from the title insurance company (a) stating that since the date of the most
recent construction Advance, there have been no intervening mortgages, liens,
privileges, encumbrances or conveyances recorded against the Property; (b) if
necessary, increasing the aggregate amount of insurance by an amount equal to
the proposed construction Advance; (c) insuring that the lien of the Collateral
Documents as to such construction Advance will continue to be superior to all
laborers, materialmen and other mechanics liens affecting the Property; and (d)
describing any matters affecting the Property which appear in the public records
since the date of the title policy;
(iv) Insurance. If required by the Bank, evidence satisfactory to the
Bank that the required insurance remains in full force and effect;
(v) Lien Waivers. Waivers of liens and receipts for payment by the
Contractor, sub-contractors and suppliers; and
(vi) Other Documents. Such other instruments, documents, certificates,
endorsements, invoices and opinions as the Bank or the title insurance company
may reasonably require.
(b) Prior to funding a Request for Advance, the Bank must obtain the report
of the Bank's Inspector, which report shall be in force and substance
satisfactory to the Bank and shall state (i) that the work completed under the
Construction Contract as of the date of the inspection has been performed and
constructed in accordance with the Plans, (ii) that the work is progressing such
that the Improvements will be completed on or before the Drawdown Termination
Date, and (iii) that the disbursements to date (including the current Request
for Advance) plus retainage correspond with the percentage of work completed
and/or in place as of the Request for Advance. If the Bank's Inspector does not
approve an item of work, the Bank, in the exercise of its reasonable judgment,
may withhold from the amount
Loan Agreement--Page 12
<PAGE>
requested an amount which in the Bank's opinion shall be sufficient to remedy
the item of work until the non-complying item of work is remedied.
(c) If the full amount of the Construction Loan (other than the retainages
and any funds in the Cash Collateral Account) has been disbursed by the Bank,
the Borrower shall be obligated to pay all of the remaining costs to construct
and complete of the Improvements in accordance with the Plans, the Construction
Completion Schedule and the Development Expense Schedule delivered by the
Borrower to the Bank pursuant to Article 7; provided, however, that before the
Borrower makes such payment of any Construction Costs to the Contractor or
otherwise, the payment must be approved by the Bank following receipt of all of
the documents described in this Section 2.06.
SECTION 2.07 RETAINAGE ADVANCE. In the case of the Retainage Advance,
and in addition to the requirements for each Advance as set forth above, the
final Request for Advance shall be submitted to the Bank in duplicate and shall
be accompanied by the following:
(a) Certificate of Occupancy. If required under applicable law, a
certificate of occupancy issued by the appropriate governmental authority
consenting to the use and occupancy of the Improvements;
(b) Certificate of Substantial Completion. A Certificate Of Substantial
Completion (AIA Form G-704) signed by the Borrower, the Contractor and the
Architect;
(c) As-Built Survey. A survey of the Property and all Improvements,
including completed buildings, and pertinent grade and floor elevations;
(d) Lien and Privilege Certificate. A lien and privilege certificate issued
by the appropriate clerk of court or recorder of mortgages which lists no Liens
against the Property other than the Mortgage;
(e) Inspection. A final report of the Bank's Inspector in form and
substance satisfactory to the Bank stating that the Improvements have been
completed under the Construction Contract in accordance with the Plans; and
(f) Affidavit of Cancellation. Affidavit of cancellation and lien waiver
executed by the Contractor.
SECTION 2.08 MODIFIED ADVANCE PROCEDURE. The Bank reserves the right to
modify the foregoing procedures and to disburse Advances for Construction Costs
as follows:
(a) Advances to the Contractor. At its option, the Bank may make any and
all Advances when due under the Construction Contract directly to the Contractor
or to subcontractors and suppliers through the Contractor, in the reasonable
judgment of the Bank, to prevent a default under the Construction Contract. For
these purposes, the Borrower hereby irrevocably makes, nominates, constitutes,
and appoints the Bank, in its place and stead acting through any of its
directors, officers, or other agents, as Borrower's true and lawful agent and
attorney in fact with full power of substitution, to
Loan Agreement--Page 13
<PAGE>
make such Advances directly to the Contractor, subcontractor and suppliers. The
foregoing mandate or agency shall be an irrevocable power of attorney, that is,
a power coupled with an interest which cannot be revoked by the Borrower, with
the Bank having direction and authorization to so make such Advances, and no
further direction or authorization from the Borrower shall be necessary to
warrant such direct construction Advances, and all such Advances shall satisfy
pro tanto the obligations of the Bank and shall constitute Advances hereunder
and shall be secured by the Collateral Documents as fully as if made to the
Borrower, regardless of the disposition thereof by the Contractor,
subcontractors, or suppliers.
(b) Advances to the Title Company. The Bank, at its option, may also
disburse Advances to the Contractor through a title insurance company or its
authorized agent; provided, however, that the title insurance company shall bear
sole and complete responsibility for the disbursement of such Advances to the
Contractor, and the Borrower shall hold the Bank harmless and indemnify it from
any liability in connection therewith. In addition, each Advance so disbursed to
the title insurance company shall be accompanied by an endorsement to the title
policy in form and content satisfactory to the Bank (i) stating that since the
date of the most recent Advance, there have been no intervening mortgages,
liens, privileges, encumbrances or conveyances recorded against the Property,
(ii) describing any matters affecting the Property which appear in the public
records since the date of the title policy, (iii) insuring the aggregate of all
Advances secured by the Collateral Documents, and (iv) updating the title
insurance policy as of the date of such Advance.
SECTION 2.09 BORROWING PROCEDURE FOR ADVANCES FOR EQUIPMENT.
(a) Subject to and upon the terms and conditions contained in this
Agreement and relying on the representations and warranties contained in this
Agreement, the Bank agrees to make Advances to the Borrower for costs of
purchasing Equipment from time to time on any Business Day in accordance with
the provisions of this Section 2.09 hereof up to the maximum amount of
$5,000,000. The Bank shall make such Advances by check payable jointly to the
Borrower and the vendor of such Equipment to the extent such sums are due to
such a vendor. The credit advice resulting from the deposit of the proceeds of
any disbursement in the Borrower's Account or the Bank's copy of any check
representing all or any part of the proceeds or a disbursement shall be deemed
prima facie evidence of the indebtedness of the Borrower to the Bank on the
Construction Loan.
(b) The Borrower shall have delivered to Bank a Request for Advance for the
payment of the Equipment at least ten (10) Business Days prior to the date of
such an Advance, and the Borrower shall have obtained Bank's approval for such
Advance. The Borrower shall not submit a Request for Advance for Equipment to
the Bank more than once per month (or more frequently at the sole option of the
Bank) which will be submitted concurrently with a Request for Advance submitted
under Section 2.05.
(c) The Borrower shall deliver to Bank with each Request for Advance for
Equipment copies of the invoices for such Equipment which will be purchased or
paid for with the Advance. Before approving such a Request, the Bank may, at
its election, require that the Bank Inspector verify that the Equipment has been
delivered and/or installed on the Property and Improvements.
Loan Agreement--Page 14
<PAGE>
(d) If requested by Bank, the Borrower shall deliver to Bank a security
agreement and UCC-1, in a form, substance and content acceptable to Bank, under
the terms of which, the Borrower grants to Bank a first priority security
interest in and to the Equipment to be acquired with the Advance.
SECTION 2.10. [INTENTIONALLY LEFT BLANK]
SECTION 2.11 PREPAYMENTS.
(a) The Borrower shall not have the right to prepay the Loan except
pursuant to the terms of this Section 2.11.
(b) The Borrower may not prepay the Loan at any time prior to the second
anniversary date of the Term Note. Thereafter, the Borrower may, upon at least
sixty (60) days prior written notice to the Bank, prepay the entire unpaid
balance of the Loan if the payments of all principal and accrued interest due
under the Loan are accompanied by a prepayment premium equal to the following
sums: (i) a sum equal to two percent (2%) of the outstanding principal balance
of the Term Loan, if the notice of the prepayment is given after the second
anniversary date of the Term Note, but before the third anniversary date of the
Term Note; and (ii) a sum equal to one percent (1%) of the outstanding
principal balance of the Term Loan, if the notice of the prepayment is given at
any time after the third anniversary date of the Term Note but before the fourth
anniversary date of the Term Note. After such fourth anniversary date, the
Borrower may prepay all or any portion of the Term Loan without penalty or
premium.
(c) The Borrower may without penalty or premium prepay all or any portion
of the Loan with funds obtained from Net Operating Income of the Companies.
SECTION 2.12 COMMITMENT FEES. The Borrower shall pay to the Bank a
commitment fee in the amount of $190,000 (the "Commitment Fee") payable as
follows:
(a) The Borrower paid $95,000.00 to the Bank upon the Borrower's acceptance
of the Commitment Letter. That payment is deemed to be earned and non-
refundable. That portion of the Commitment Fee was paid to the Bank as agreed
upon compensation for work the Bank would do and expenses the Bank would incur
in connection with reviewing and underwriting Borrower's loan request.
(b) The Borrower shall pay to the Bank on the Closing Date the remaining
one-half of the Commitment Fee. If the Construction Loan is not closed, this
remaining one-half of the Commitment Fee shall not be due or payable by
Borrower.
SECTION 2.13 BUSINESS DAYS. If the date for any payment due under the
Agreement falls on a day which is not a Business Day, then for all purposes of
this Agreement the same shall be deemed to have fallen on the next following
Business Day, and such extension of time shall in such case be included in the
computation of payments of interest.
SECTION 2.14 NATURE OF COMMITMENT. With respect to all Advances hereunder,
the Bank's obligation to make such Advances shall be deemed to be a transaction
made pursuant to a contract to
Loan Agreement--Page 15
<PAGE>
make a loan or extend debt financing or financial accommodations to the Borrower
within the meaning of Sections 365(c)(2) and 365(e)(2)(B) of the Bankruptcy Code
of the United States.
SECTION 2.15 PAYMENTS. The Borrower shall make each payment hereunder
and under the Note not later than 1:00 P.M. (Shreveport time) on the day when
due in lawful money of the United States of America to the Bank's Office or
P.O. Box 8218, Shreveport, Louisiana, 71148, in same day funds. The Borrower
hereby authorizes the Bank, if and to the extent payment is not made when due
hereunder or under a Note, to charge from time to time against the Borrower's
accounts with the Bank any amount so due.
SECTION 2.16 USE OF PROCEEDS. The Borrower shall use the proceeds of
the Loan to construct the Improvements, the Equipment and for other costs
approved by the Bank in the Development Expense Schedule.
SECTION 2.17 CLOSING OF THE CONSTRUCTION LOAN (a) The Closing of the
Construction Loan shall be held on or before December 9, 1997 (the "Closing
Date") at the offices of the Bank in Shreveport, Louisiana, or at such other
location as the Bank and the Borrower may mutually agree.
(b) At the Closing of the Construction Loan, the Companies shall deliver
to the Bank the following:
(i) Loan Agreement. Duly executed counterparts of this Agreement signed
by all the parties hereto;
(ii) Construction Note. The duly executed Construction Note dated as of
the Closing Date;
(iii) Collateral Documents. Duly executed counterparts of the Collateral
Documents;
(iv) Secretary's Certificate. Certificate of the Secretary of each of the
Companies setting forth (a) resolutions of its board of directors (or
other governing body) in form and substance satisfactory to the Bank
with respect to the authorization of the Loan Documents, as the case
may be, by such Company; (b) the officers or members authorized to
sign such instruments; and (c) copies of the articles of
incorporation and by-laws or other governing document of each Company;
(v) Good Standing Certificate. Certificates of good standing of each of
the Companies issued by the Secretary of State of its state of
incorporation or formation;
(vi) Borrower's Organizational Documents. All instruments regarding the
formation, organization and governance of the Borrower which shall be
in a form and substance acceptable to the Bank and its legal counsel;
(vii) Expenses. Payment of any expenses incurred by the Bank and payable
by the Borrower under Section 5.06;
Loan Agreement--Page 16
<PAGE>
(viii) Opinions. Favorable opinion of Phelps Dunbar, L.L.P. and of Boles,
Boles & Ryan, counsel for the Companies, in form and substance
satisfactory to the Bank;
(ix) Environmental Engineering Report. A report acceptable to the Bank,
conducted by an environmental engineer, to determine whether
hazardous substances are or could be present on the Property;
(x) [INTENTIONALLY LEFT BLANK]
(xi) Gaming License. Evidence satisfactory to the Bank and its legal
counsel that LRGP is in full compliance with all federal, state and
local laws regarding its gaming operations and has obtained all
governmental permits, licenses and authorizations required to
operate the Casino in the State of Louisiana;
(xii) Gaming Board Approval. Evidence satisfactory to the Bank and its
legal counsel that the Louisiana Gaming Board has issued any
requisite approvals and consents with respect to the construction of
the Improvements and the Loans.
(xiii) Site Inspection Affidavit. If requested by the Bank, a certified
copy of an affidavit from a licensed architect, surveyor or civil
engineer that no work has begun and no materials have been delivered
on the Property as of Closing, which affidavit must be recorded with
Mortgage;
(xiv) Officers' Certification. Certification executed on behalf of each of
the Companies by an officer of each Company to the effect that as of
the Closing, no Default exists under this Agreement or any of the
Collateral Documents and that there has been no material adverse
change in the business operations or financial condition of each
such Company;
Loan Agreement--Page 17
<PAGE>
(xv) Room Guaranty Agreement. An agreement between Borrower, Casino
America and the Bank, in a form and substance acceptable to the
Bank and its counsel;
(xvi) Registration Rights Agreement . The Registration Rights Agreement
duly executed by Casino America and the Bank;
(xvii) Casino America Guaranty. A guaranty in a form and substance
acceptable to the Bank under the terms of which Casino America
guarantees the first $5,500,000 of the Construction Loan until such
Completion of the Improvements and the funding of the Retainage
Advance; and
(xviii) Conveyance of the Property. Evidence satisfactory to the Bank
that the Borrower has acquired merchantable title to the Property.
Loan Agreememt--Page 18
<PAGE>
(c) Notwithstanding the Closing of the Construction Loan, no Advances will
be made unless and until all of the terms and conditions of this Agreement
regarding the prerequisites for the Bank to make an Advance, including but not
limited to, those specified in Sections 2.05, 2.06, 2.09 and 7.01 are fulfilled
to the satisfaction of the Bank.
(d) If the Companies fail to comply with the provisions of Section 2.17(b)
by December 9, 1997, the Bank may, at its sole discretion, elect to terminate
this Agreement by written notice to the Borrower and Casino America. If the
Bank makes such an election, the Bank may retain all fees previously paid to it
by the Companies or any one of them, and Borrower, upon demand, shall reimburse
the Bank for all sums reimbursable or payable under the provisions Section 5.06.
SECTION 2.18 CLOSING AND FUNDING OF THE TERM LOAN. The Closing of the
Term Loan shall be held immediately following the funding of the Retainage
Advance at the offices of the Bank in Shreveport, Louisiana, or at such other
location as the Bank and the Borrower may mutually agree.
(b) At the Closing of the Term Loan, the Borrower shall deliver to the
Lender the following:
(i) Term Note. The duly executed Term Note in a principal amount
equal to the Term Loan;
(ii) Secretary's Certificate. Certificate of the Secretary of each
of the Companies setting forth (A) resolutions of its board of
directors (or other governing body) in form and substance
satisfactory to the Bank with respect to the authorization of
the Term Note and the Loan Documents, as the case may be, by such
Company; and (B) the officers authorized to sign such
instruments;
(iii) Confirmations. If requested by the Bank, instruments duly
executed by each of the Companies, in a form and substance
acceptable to the Bank and its legal counsel, in which each
confirms that the Loan Documents to which each is a party is
valid and in effect;
(iv) Opinions. Favorable opinion of Phelps Dunbar, L.L.P., counsel
for the Companies, in form and substance satisfactory to the
Bank, regarding the Term Note, the other Loan Documents and other
matters requested by the Bank; and
(v) Escrow Account. All agreements duly executed the Borrower in a
form and substance acceptable to the Bank which the Bank requires
to establish the Escrow Account required under Section 5.19.
Loan Agreement--Page 19
<PAGE>
ARTICLE 3
SECURITY FOR THE OBLIGATIONS
Section 3.01 SECURITY. The Obligations shall be secured by the following:
(a) Mortgage by Borrower granting to the Bank a first priority security
interest in and to the Property and Improvements, together with a first priority
assignment of leases and rents thereon;
(b) Subject to the provisions of Sections 3.01(c) and (d), a security
agreement executed by the Borrower granting to the Bank a first priority
security interest in and to all present or future movable property of the
Borrower, including, without limitation, all accounts receivable, inventory,
contract rights, general intangibles, management agreement rights, reserves,
escrows, insurance policies and proceeds, condemnation awards, deposits,
furnishings, fixtures and equipment and all proceeds therefrom, together with
appropriate UCC-1 Financing Statements;
(c) To the extent permitted under applicable law, a security agreement and
collateral assignment executed by the Borrower granting to the Bank a first
priority security interest in and to all present and future contracts, licenses,
and warranties issued with respect to the operation of the Improvements,
including, but not limited to, any Management Agreements and all food, liquor
and beverage licenses; and
(d) To the extent permitted under the Indenture, a security agreement
executed by the Borrower granting to the Bank a first priority security interest
in all present or future trademarks, tradenames and franchise rights of
Borrower.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement, the Borrower
represents and warrants to the Bank that:
SECTION 4.01 EXISTENCE. (a) The Borrower is a limited liability company,
duly organized, legally existing and in good standing under the laws of
Louisiana. Borrower has obtained all permits, licenses and other governmental
permits necessary to conduct the business it transacts.
(b) The chief executive office of Borrower is located at 711 Isle of Capri
Boulevard, Bossier City, Louisiana 71111.
SECTION 4.02 POWER AND AUTHORIZATION. The Companies are duly authorized
and empowered to execute, deliver and perform the Loan Documents executed by
them, as the case may be. All action on the part of the Companies requisite for
the due creation and execution of the Loan Documents, as the case may be, has
been duly and effectively taken.
SECTION 4.03 BINDING OBLIGATIONS. The Loan Documents constitute valid
and binding obligations of the Companies, as the case may be, enforceable in
accordance with their terms (except that
Loan Agreement--Page 20
<PAGE>
enforcement may be subject to any applicable bankruptcy, insolvency or similar
laws generally affecting the enforcement of creditors' rights).
SECTION 4.04 NO LEGAL BAR OR RESULTANT LIEN. The Loan Documents do not
and will not violate any provisions of the Companies' articles of incorporation
or bylaws or other governance documents, will not violate any contract,
agreement, debenture, law, regulation, order, injunction, judgment, decree or
writ to which any of the Companies is subject, and will not result in the
creation or imposition of any Lien upon any property of the Companies, as the
case may be, other than as contemplated by this Agreement.
SECTION 4.05 NO CONSENT. The Companies' execution, delivery and
performance of the Loan Documents executed by them, as the case may be, either
(i) do not require the consent or approval of any other Person, including
without limitation any regulatory authority or governmental body of the United
States or any state thereof or any political subdivision of the United States or
any state thereof, or (ii) if any such consent is required, it has been
obtained.
SECTION 4.06 FINANCIAL CONDITION. The financial statements of the
Companies for their fiscal years most recently ended which have been delivered
to the Bank, are complete and correct, have been prepared in accordance with
GAAP, consistently applied, and fully and accurately reflect in all material
respects the financial condition and results of the operations of the Companies
as of the date or dates and for the period or periods stated. The Companies have
not made investments in, advances to or guaranties of the obligations of any
Person, except for an investment in Isle of Capri Black Hawk, L. L. C. and as
otherwise reflected in said financial statements or as permitted by this
Agreement. The Companies do not have any material (individually or in the
aggregate) liabilities, direct or contingent, except as disclosed or referred to
in said financial statements. To the best of the Borrower's knowledge, no
material adverse change has since occurred in the condition, financial or
otherwise, of the Companies, except as disclosed to the Bank in writing. All of
the materials which the Companies have submitted to the Bank constitute a
complete and accurate presentation of all facts material to the Bank's agreement
to execute this Agreement. None of the Companies has ever been the debtor in any
insolvency proceedings.
SECTION 4.07 LITIGATION. Except as referred to in the financial
statements described in Section 4.06, there is no litigation, legal or
administrative proceeding, investigation or other action of any nature pending
or, to the knowledge of the Borrower threatened against or affecting the
Companies which involves the possibility of any judgment or liability not fully
covered by insurance, and which may materially and adversely affect the business
or the property of the Companies or their ability to carry on business as now
conducted.
SECTION 4.08 SOLVENCY. Each of the Companies will receive a reasonably
equivalent value in exchange for the obligations of all of the Companies under
the Loan Documents. The execution and performance of the Loan Documents by all
of the Companies: (i) are not being made with any intent to hinder, delay or
defraud any entity to which any of the Companies is indebted; (ii) will not
result in any of the Companies becoming insolvent or having an unreasonably
small capital for the business in which such entities are engaged; and (iii)
will not cause the Borrower to incur debts that would be beyond the ability of
the Companies to pay as such debts mature.
Loan Agreement--Page 21
<PAGE>
SECTION 4.09 TAXES AND GOVERNMENTAL CHARGES. The Companies have filed
all tax returns and reports required to be filed and have paid all taxes,
assessments, fees and other governmental charges levied upon them or upon their
respective property or income which are due and payable, including interest and
penalties, or have provided adequate reserves for the payment thereof.
SECTION 4.10 DEFAULTS. None of the Companies is in default (in any
respect which materially and adversely affects its business, property,
operations or condition, financial or otherwise) under any indenture, mortgage,
deed of trust, agreement or other instrument to which any of the Companies is a
party or by which it is bound, except as disclosed to the Bank in writing on or
prior to the Closing Date.
SECTION 4.11 CASUALTIES AND CONDEMNATION. Since the date of the most
recent financial statements furnished to the Bank prior to the Closing Date,
neither the business nor the property of the Companies has been materially and
adversely affected as a result of any fire, explosion, earthquake, flood,
drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of property or cancellation of contracts, permits or
concessions by any domestic or foreign government or any agency thereof, riot,
activities of armed forces or acts of God or of any public enemy, except as
disclosed in writing to the Bank on or prior to the Closing Date.
SECTION 4.12 USE OF PROCEEDS; MARGIN STOCK. The proceeds of the Loan
will be used by the Borrower for the purposes listed in Article 2 hereof. None
of such proceeds will be used for the purpose of, and the Borrower is not
engaged in the business of extending credit for the purpose of, purchasing or
carrying any "margin stock" as defined in Regulation U of the Board of Governors
of the Federal Reserve System (12 C.F.R. Part 221), or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry a margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of said Regulation U. Neither
the Borrower nor any Person acting on behalf of the Borrower has taken or will
take any action which might cause this Agreement to violate Regulation U or any
other regulation of the Board of Governors of the Federal Reserve System or to
violate the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereinafter be in
effect.
SECTION 4.13 COMPLIANCE WITH THE LAW. To the best of Borrower's
knowledge, the Companies: (i) are not in violation of any law, judgment, decree,
order, ordinance, or governmental rule or regulation to which the Companies or
any of their property are subject; and (ii) have not failed to obtain any
license, permit, franchise or other governmental authorization necessary to the
ownership of any of their property or the conduct of their business.
SECTION 4.14 ERISA. The Companies are in compliance in all material
respects with the applicable provisions of ERISA, and no "reportable event," as
such term is defined in Section 4043 of ERISA, has occurred with respect to any
Plan of any of the Companies.
SECTION 4.15 NO MATERIAL MISSTATEMENTS. No information, exhibit or
report furnished by the Companies to the Bank in connection with this Agreement
or in the negotiation of this Agreement contained any material misstatement of
fact or omitted to state a material fact necessary to make the statement
contained therein not misleading.
Loan Agreement--Page 22
<PAGE>
SECTION 4.16 UTILITY OR INVESTMENT COMPANY. None of the Companies is
engaged in the generation, transmission, or distribution and sale of electric
power; transportation, distribution and sale through a local distribution system
of natural or other gas for domestic, commercial, industrial, or other use;
ownership or operation of a pipeline for the transmission or sale of natural or
other gas, crude oil or petroleum products to other pipeline companies,
refineries, local distribution systems, municipalities, or industrial consumers;
provision of telephone or telegraph service to others; production, transmission,
or distribution and sale of steam or water; operation of a railroad; or
provision of sewer service to others. None of the Companies is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
SECTION 4.17 TITLE TO COLLATERAL. Borrower has good and merchantable
title to the Property, free of all liens and encumbrances except (i) those
created in favor of the Bank, (ii) liens for taxes, assessments, or other
governmental charges not yet due or which are being contested in good faith by
appropriate action promptly initiated and diligently conducted, if such reserve
as shall be required by GAAP shall have been made therefore, and (iii) any
exceptions shown on the title policy referred to Section 7.01 and agreed to by
the Bank.
SECTION 4.18 ENVIRONMENTAL MATTERS. To the best of Borrower's knowledge,
no asbestos, or any substance containing asbestos deemed hazardous by federal or
state regulations on the date of this Agreement, has been installed in or on the
Property. Such Property is not in violation of or subject to any existing,
pending, or, to the best of Borrower's knowledge, threatened investigation or
inquiry by any governmental authority or to any remedial obligations under any
applicable laws pertaining to health or the environment (hereinafter sometimes
collectively called "Applicable Environmental Laws"), including without
limitation the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of
1986 (as amended, hereinafter called "CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980 the Solid
Waste Disposal Act Amendments of 1980, and the Hazardous and Solid Waste
Amendments of 1984 (as amended, hereinafter called "RCRA"), except as disclosed
in writing to the Bank on or prior to the Closing Date, and this representation
and warranty would continue to be true and correct following disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Property and known to the owners
thereof. The Borrower has not obtained and, to the best of the Borrower's
knowledge, is not required to obtain any permits, licenses or similar
authorizations to construct, occupy, operate or use any buildings, improvements,
fixtures and equipment forming a part of the Property by reason of any
Applicable Environmental Laws. To the best of the Borrower's knowledge, no
hazardous substances or solid wastes have been disposed of or otherwise released
on or to the Property. The use which the Borrower makes and intends to make of
the Property will not result in the disposal or other release of any hazardous
substance or solid waste on or to the Property. The terms "hazardous substance"
and "release" as used in this Agreement shall have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have
the meanings specified in RCRA; provided, in the event that the laws of the
State of Louisiana establish a meaning for "hazardous substance," "release,"
"solid waste" or "disposal" which is broader than that specified in either
CERCLA or RCRA, such broader meaning shall apply.
Loan Agreement--Page 23
<PAGE>
SECTION 4.19 GOVERNMENTAL REQUIREMENTS. The Property is in compliance
with all current governmental requirements affecting the Property, including,
without limitation, all current zoning and land use regulations, building codes
and all restrictions and requirements imposed by applicable governmental
authorities with respect to the construction of any improvements on the Property
and the contemplated use of the Property.
SECTION 4.20 CONTINUING ACCURACY. All of the representations and
warranties contained in this Article or elsewhere in this Agreement shall be
true through and until the later of the date on which all obligations of
Borrower under this Agreement and the other Loan Documents are fully satisfied,
or Borrower shall promptly notify Bank of any event which would render any of
said representations and warranties untrue or misleading. Each Request for
Advance which Borrower delivers to Bank shall be deemed to be Borrower's
restatement and reaffirmation of the representations and warranties contained in
this Article 4 and elsewhere in this Agreement.
SECTION 4.21 CONSTRUCTION. The Borrower hereby represents and warrants
to the Bank: (i) the Plans, together with the anticipated use of the Property,
will not violate any restrictive covenant applicable to the Property; (ii) the
Borrower will obtain all permits and approvals necessary to construct the
Improvements from all applicable governmental authorities; and (iii) the
Development Expense Schedule will contain a true and accurate estimate of the
cost of the Improvements and the Equipment.
ARTICLE 5
AFFIRMATIVE COVENANTS
Unless the Bank's prior written consent to the contrary is obtained,
the Borrower will at all times comply with, and will cause the other Companies
to comply with, the covenants contained in this Article 5, from the date hereof
and for so long as any part of the Obligations are outstanding.
SECTION 5.01 FINANCIAL STATEMENTS AND REPORTS. Borrower will promptly
furnish to the Bank such information regarding the business and affairs and
financial condition of the Companies as the Bank may reasonably request, and
Borrower will furnish to the Bank:
(a) Annual Audited Statements of Casino America. As soon as available and
in any event within one hundred five (105) days after the close of each fiscal
year (commencing with the fiscal year ending on April 26, 1998) the
consolidated balance sheet and income statement of Casino America and its
subsidiaries for the year end setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year accompanied by the
unqualified opinion of an independent certified public accountant acceptable to
the Bank;
(b) Monthly Occupancy Reports. As soon as available and in any event
within forty-five (45) days after the last day of each calendar month,
occupancy reports (including the average daily rate) of the Property and the
Improvements in a form satisfactory to the Bank;
Loan Agreement--Page 24
<PAGE>
(c) Monthly Reports. As soon as available and in any event within forty-
five (45) days after the last day of each calendar month, the balance sheets and
income statements of the Borrower for such month, setting forth the income and
expenses from the operations of the Borrower for such month and for the calendar
year through the last day of such month;
(d) Form 10K Report. As soon as available and in any event within one
hundred and twenty days (120) after the end of each fiscal year, the Form 10K
filed by Casino America with the SEC;
(e) Form 10Q Report. As soon as available and in any event within sixty
(60) days after the end of each fiscal quarter in each fiscal year, the Form 10Q
filed by Casino America with the SEC;
(f) Compliance Certificates Simultaneously with the furnishing of the
financial statements required by Item (c) hereof, the certificate of the chief
financial officer of the Borrower (in the form of Exhibit C hereto), (i)
certifying that to the best of his knowledge no Default has occurred, or if a
Default has occurred, specifying the nature and extent thereof and the steps
that the Borrower or Casino America proposes to take to cure such Default, and
(ii) providing a calculation of the financial covenants set forth in Section
5.16;
(g) [INTENTIONAL LEFT BLANK]; and
(h) Quarterly Certificate of Net Operating Income. As soon as available,
but in no event later than forty five (45) days after the end of each three
month period of the Term Loan commencing with the last day of the third month of
the Term Loan, a certificate with respect to the quarter ending which certifies
as to the Net Operating Income due and payable hereunder to the Bank [Such a
certificate shall be certified as correct by the chief financial officer of the
Borrower or other officer acceptable to the Bank, setting forth information as
may be required by the Bank].
All such financial statements, reports and certificates referred to above and in
Section 5.16 shall be in such detail as the Bank may reasonably request and
shall conform to GAAP applied on a basis consistent with those of the financial
statements described in Section 4.06.
SECTION 5.02 TAXES AND OTHER LIENS. The Borrower will file all tax
returns required by law before the due date thereof (as validly extended) and
pay and discharge promptly when due all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or upon any of its property
as well as all claims of any kind (including claims for labor, materials,
supplies and rent) which, if unpaid, might become a Lien upon any of the
Collateral; provided, however, Borrower shall not be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
diligently conducted and if the contesting party shall have set up reserves
therefor adequate under GAAP. The Borrower shall furnish the Bank with proof of
payment of all taxes, assessments, charges, levies or claims against the
Property not later than the date on which penalties might attach thereto, or in
the event that the Borrower contests any such taxes, assessments, charged,
levies or claims in accordance with this Section, the Borrower shall furnish
Bank with a description of the contested matter and all actions taken by the
Borrower in connection with such contest.
Loan Agreement--Page 25
<PAGE>
SECTION 5.03 MAINTENANCE OF EXISTENCE. Each Company will: (i) maintain
its corporate, partnership or limited liability company existence; (ii) observe
and comply (to the extent necessary so that any failure will not materially and
adversely affect its business) with all valid laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
certificates, franchises, permits, licenses, authorizations, directions and
requirements (including without limitation applicable statutes, regulations/
orders and restrictions relating to gambling) of all federal, state, county,
municipal and other governments, departments, commissions, boards, courts,
authorities, officials and officers, domestic or foreign; (iii) maintain its
properties (and any property leased by or consigned to it or held under title
retention or conditional sales contracts) in generally good and workable
condition at all times and make all repairs, replacements, additions,
betterments and improvements to their properties to the extent necessary so that
any failure will not materially and adversely affect the business of the
Borrower; and (iv) continue to conduct its business in the manner currently
conducted.
SECTION 5.04 FURTHER ASSURANCES. The Borrower will promptly (and in no
event later than 30 days after written notice from the Bank is received) cure
any defects in the creation, execution and delivery of this Agreement, the Notes
or the Loan Documents. The Borrower will promptly execute and/or deliver to the
Bank upon request all such other and further documents, agreements and
instruments in compliance with or accomplishment of the covenants and agreements
of the Companies in this Agreement, the Notes or in the Loan Documents or to
further evidence and more fully describe the Collateral, or to correct any
omissions in the Loan Documents, or more fully state the security obligations
set out herein or in any of the Loan Documents, or to perfect, protect or
preserve any Liens created pursuant to any of the Loan Documents, or to make any
recordings, to file any notices, or obtain any consents as may be necessary or
appropriate in connection with the transactions contemplated by this Agreement.
SECTION 5.05 PERFORMANCE OF OBLIGATIONS. The Borrower will repay the
Loans according to the reading, tenor and effect of the Notes and this
Agreement. The Borrower will do and perform every act required of it by this
Agreement, the Notes or in the Collateral Documents at the time or times and in
the manner specified.
SECTION 5.06 REIMBURSEMENT OF EXPENSES. (a) The Borrower shall pay all
reasonable legal fees, title insurance premiums, brokerage fees, appraisal fees,
inspection fees, travel and other expenses incurred by the Bank in connection
with the preparation, execution and filing of the Loan Documents (including any
amendments); provided however, the attorneys fees incurred by the Bank in
negotiating and closing the Loan, the fees related to the filing of the mortgage
and financing statements and the cost of a policy of title insurance to be
obtained by Bank (mortgagee's policy) with respect to the Property shall not
exceed the sum of $110,000. The foregoing limit on closing costs does not apply
to: (i) lien searches or any other third party costs incurred by the Bank in
connection with the Loan; (ii) any legal fees incurred by the Bank in connection
with the Loan after the Closing Date; (iii) any legal fees resulting from
opinions of the Borrower's legal counsel which are required by the Bank in
connection with the closing of the Loan; (iv) any fees and costs referred to
above in other sections of this Agreement; or (v) any legal fees incurred by
the Bank in connection with unreasonable or inordinate negotiations by the
Borrower and/or its legal counsel in connection with the Loan Documents.
Loan Agreement--Page 26
<PAGE>
(b) Following five (5) days notice to the Borrower (unless the Bank
reasonably deems such payment must be paid more promptly), the Borrower shall
reimburse the Bank for all payments expended, advanced or incurred by the Bank
to satisfy any obligation of the Borrower under this Agreement, or to protect
the property or business of the Borrower or to collect the Obligations, or to
enforce the rights of the Bank under the Loan Documents, which amounts will
include all court costs, attorneys' fees, fees of auditors and accountants, and
investigation expenses reasonably incurred by the Bank in connection with any
such matters, together with interest at 12% per annum on each such amount from
the date that the same is expended, advanced or incurred by the Bank until the
date of reimbursement to the Bank.
SECTION 5.07 INSURANCE. (a) The Borrower shall procure and maintain for
the benefit of the Bank original paid up insurance policies from insurance
companies acceptable to the Bank, in amounts, in form and substance, and with
expiration dates acceptable to the Bank and containing a non-contributory
standard mortgagee clause or its equivalent in a form satisfactory to the Bank,
or the statutory mortgagee clause, if any, required in the state where the
Property is located, or a mortgagee's loss payable endorsement, in favor of the
Bank, providing the following types of insurance on the Property and
Improvements:
(i) Builders All-Risk and Multi-Peril Hazard Insurance. For the
Property during the construction of the Improvements thereon,
builders all-risk insurance, and upon substantial completion of
the Improvements, multi-peril hazard insurance, in each case
affording insurance against loss or damage by fire, lightning,
explosion, collapse, theft, sprinkler leakage, vandalism and
malicious mischief and such other perils as are included in so-
called "all-risks" or "extended coverage" and against such other
insurable perils as, under good insurance practices, from time to
time are insured against for properties of similar character and
location; such insurance to be not less than 100% of the full
replacement cost of the Improvements without deduction for
depreciation;
(ii) Flood Insurance. If the Property is located in a flood zone A or
B, flood insurance in an amount not less than 100% of the full
replacement cost of the Improvements or the maximum amount
available, whichever is lesser;
(iii) Comprehensive General Liability Insurance. Comprehensive public
liability insurance with respect to the Property and the
operations related thereto, whether conducted on or off the
Property, against liability for personal injury (including bodily
injury and death) and property damage, of not less than
$40,000,000 combined single limit bodily injury and property
damage; such comprehensive public liability insurance to be on a
per occurrence basis and to specifically include but not be
limited to water damage liability, products liability, motor
vehicle liability for all owned and non-owned vehicles, including
rented and leased vehicles, and contractual indemnification;
Loan Agreement--Page 27
<PAGE>
(iv) Worker's Compensation and General Liability. Workers compensation
and general liability insurance against loss, damage or injury to
employees, agents or representatives of any contractor, or
insurance against loss, damage or injury caused by any employees,
agents or representatives of any contractor;
(v) Business Interruption Insurance. Upon substantial completion of
the Improvements, business interruption insurance in an amount up
to maximum coverage of $6,000,000; and
(vi) Other Insurance. Such other insurance, including, without
limitation, architect's errors and omissions insurance, on the
Property or any replacements or substitutions therefor and in
such amounts as may from time to time be reasonably required by
Bank against other insurable casualties which at the time are
commonly insured against in the case of premises similarly
situated, due regard being given to the height and type of the
Improvements on the Property, its construction, location, use and
occupancy, or any replacements or substitutions therefor.
(b) All of the foregoing policies shall contain an agreement by the insurer
not to cancel or amend the policies without giving the Bank at least 30 days'
prior written notice of its intention to do so.
(c) The Borrower shall deliver original or certified policies to the Bank,
and the Borrower shall deliver original or certified renewal policies with
satisfactory evidence of payment not less than 15 days in advance of the
expiration date of the existing policy or policies. In the event the Borrower
should, for any reason whatsoever, fail to keep the Property or any part thereof
so insured, or to keep said policies so payable, or fail to deliver to the Bank
the original or certified policies of insurance and the renewals thereof upon
demand, then the Bank, if it so elects, may itself have such insurance effected
in such amounts and in such companies as it may deem proper and may pay the
premiums therefor. The Borrower shall reimburse the Bank upon demand for the
amount of premium paid, together with interest thereon at 12% percent per annum
from date until paid.
(d) The Borrower agrees to notify the Bank immediately in writing of any
material fire or other casualty to or accident involving the Property, whether
or not such fire, casualty or accident is covered by insurance. The Borrower
further agrees to notify promptly the Borrower's insurance company and to submit
an appropriate claim and proof of claim to the insurance company if the Property
is damaged or destroyed by fire or other casualty.
(e) The Bank is hereby authorized and empowered, at its option, to collect
and receive the proceeds from any policy or policies of insurance, and each
insurance company is hereby authorized and directed to make payment of all such
losses directly to the Bank instead of to the Borrower and the Bank jointly. The
Bank shall apply the net proceeds thereof, in accordance with subsections (f)
and/or (g) of this Section 5.07.
Loan Agreement--Page 28
<PAGE>
(f) If there is a fire or casualty loss which damages all or a portion of
the Improvements on the Property, then the proceeds of the insurance shall be
deposited into the Cash Collateral Account and such proceeds will be applied to
the payment of the cost of restoration of the Improvements upon such terms and
conditions as the Bank may deem necessary or appropriate in its reasonable
discretion; provided, however, that (i) such insurance proceeds must be adequate
to cover the cost of restoration of the Improvements, or if the proceeds are
insufficient, then the Borrower shall give the Bank such adequate protection and
assurance as the Bank may, in its reasonable discretion require, that additional
funds will be provided by the Borrower in order to complete the restoration of
the Improvements and the furnishings thereof, (ii) the Borrower shall have
provided the Bank with such adequate protection and assurance as the Bank may,
in its reasonable discretion require, that the Borrower has sufficient funds on
hand to pay interest and principal on the Loan during the restoration period,
(iii) no Default has occurred, and (iv) the first priority of the Collateral
Documents in the Collateral is not impaired. If all of the conditions set forth
in the preceding sentence are not satisfied, then the insurance proceeds shall
be applied to the payment of the Obligations. In connection with any
restoration of the Improvements, the Borrower shall provide the Bank with a
detailed cost breakdown showing by line item all costs projected for such
restoration and a revised and updated cost breakdown shall be furnished by the
Borrower to the Bank on a monthly basis.
(g) If there is a fire or casualty loss which causes the proceeds of any
business interruption insurance to be payable, such proceeds shall be paid to
the Bank and (i) so long as no Event of Default exists, applied to the payment
of the installments of principal and interest on the Loan, ad valorem real
estate taxes and special assessments and operating expenses of the Property as
they respectively become due, or (ii) if an Event of Default exists, applied to
the payment of the Obligations as the Bank may in its sole discretion elect.
SECTION 5.08 ACCOUNTS AND RECORDS. The Borrower will keep books of
record and accounts in which true and correct entries will be made as to all
material matters of all dealings or transactions in relation to its business and
activities, in accordance with GAAP.
SECTION 5.09 RIGHT OF INSPECTION. The Borrower will permit any officer,
employee or agent of the Bank to visit and inspect any of the Borrower's
property, examine its books of record and accounts, take copies and extracts
therefrom, and discuss its affairs, finances and accounts with its officers,
accountants and auditors, all at such reasonable times and on reasonable notice
and as often as the Bank may reasonably desire.
SECTION 5.10 NOTICE OF CERTAIN EVENTS. The Borrower shall promptly
notify the Bank if the Borrower learns of the occurrence of any event which
constitutes a Default, together with a detailed statement by a responsible
officer of Borrower of the steps being taken to cure the effect of such Default.
SECTION 5.11 ERISA INFORMATION AND COMPLIANCE. The Borrower will
promptly furnish to the Bank (i) promptly after the filing thereof with the
United States Secretary of Labor or the Pension Benefit Guaranty Corporation,
copies of each annual and other report with respect to each Plan or any trust
created by the Companies, and (ii) immediately upon becoming aware of the
occurrence of any "reportable event," as such term is defined in Section 4043 of
ERISA, or of any "prohibited transaction,"
Loan Agreement--Page 29
<PAGE>
as such term is defined in Section 4975 of the Internal Revenue Code of 1986, as
amended, in connection with any Plan or any trust created by any of the
Companies, a written notice signed by the president or the principal financial
officer of such Company specifying the nature thereof, what action the Companies
are taking or proposes to take with respect thereto, and, when known, any action
taken by the Internal Revenue Service with respect thereto. The Companies will
comply with all of the applicable funding and other requirements of ERISA as
such requirements relate to the Plan of any of the Companies.
SECTION 5.12 MAINTENANCE OF BANK ACCOUNTS. The Borrower shall maintain
all of its accounts with the Bank, including without limitation, its
construction, escrow, reserve and operating accounts.
SECTION 5.13 INDEMNIFICATION. (a) The Borrower will indemnify the Bank
and hold the Bank harmless from claims of brokers with whom the Borrower has
dealt in the execution hereof or the consummation of the transactions
contemplated hereby.
(b) The Borrower will indemnify the Bank and hold the Bank harmless from
any and all liabilities, obligations, losses, damages, penalties, claims,
actions, suits, costs and expenses (including, without limitation, costs of
suit, reasonable attorneys' fees and fees of expert witnesses) of whatever kind
or nature which may be imposed on, incurred by or asserted at any time against
the Bank in any way relating to, or arising in connection with, the use or
occupancy of any of the Collateral.
(c) The Borrower shall indemnify and fully protect the Bank from any
allegation or charge whatsoever of negligence, misfeasance, or nonfeasance of
the Bank in whole or in part, pertaining to any defect in the Property, and
particularly, any failure of the Bank or the Bank's Inspector, or any agent,
officer, employee or representative of the Bank, to note any defect in materials
or workmanship or of physical conditions or failure to comply with any Plans,
specifications, drawings, ordinances, statutes or other governmental
requirements, or to call to the attention of any person whatsoever, or take any
action, or to demand that any action be taken, with regard to any such defect or
failure or lack of compliance.
SECTION 5.14 COMPLIANCE WITH LAWS AND COVENANTS. The Borrower shall
observe and comply with all laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, certificates, franchises,
permits, licenses, authorizations, directions and requirements of all federal,
state, county, municipal and other governments, departments, commissions,
boards, courts, authorities, officials and officers domestic or foreign,
applicable to the Borrower, the Property or the Improvements.
SECTION 5.15 ENVIRONMENTAL INDEMNITY. (a) The Borrower shall defend,
indemnify and hold Bank and its directors, officers, agents and employees
harmless from and against all claims, demands, causes of action, liabilities,
losses, costs and expenses (including, without limitation, costs of suit,
reasonable attorneys' fees and fees of expert witnesses) arising from or in
connection with (i) the presence on or under the Property of any hazardous
substances or solid wastes (as defined elsewhere in this Agreement), or any
releases or discharges of any hazardous substances or solid wastes on, under or
from the Property, (ii) any activity carried on or undertaken on or off the
Property, whether prior to or during the term of this Agreement and whether by
Borrower or any predecessor in title or any officers,
Loan Agreement--Page 30
<PAGE>
employees, agents, contractors or subcontractors of Borrower or any predecessor
in title, or any third persons at any time occupying or present on the Property,
in connection with the handling, use, generation, manufacture, treatment,
removal, storage, decontamination, clean-up, transport or disposal of any
hazardous substances or solid wastes at any time located or present on or under
the Property, or (iii) any breach of any representation, warranty or covenant
under Section 4.18 of this Agreement. The foregoing indemnity shall further
apply to any residual contamination on or under the Property, or affecting any
natural resources, and to any contamination of any property or natural resources
arising in connection with the generation, use, handling, storage, transport or
disposal of any such hazardous substances or solid wastes, and irrespective of
whether any of such activities were or will be undertaken in accordance with
applicable laws, regulations, codes and ordinances. Without prejudice to the
survival of any other agreements of the Borrower hereunder, the provisions of
this Section 5.15 shall survive the final payment of all Obligations and the
termination of this Agreement and shall continue thereafter in full force and
effect.
(b) The Borrower shall observe and comply with all laws, ordinances,
orders, decrees, rules and regulations of all federal and state governments
relating to environmental matters, including without limitation the removal from
or under all Collateral constituting immovable property of any hazardous
substances or solid wastes (as defined elsewhere in this Agreement).
SECTION 5.16 FINANCIAL COVENANTS. (a) From the date hereof and for so
long as any part of the Obligations are outstanding, the Borrower shall maintain
the following:
(i) Debt Service Coverage Ratio - During the term of the Term Note,
Borrower shall maintain a ratio of Net Operating Income to Debt
Service of not less than 1.3 to 1.0 ["Debt Service" for purpose of
this Subsection 5.16(a) shall mean the sum of principal and interest
payments contractually due under the Notes. Debt Service Coverage
Ratio shall be tested as follows for the periods indicated: (A) this
ratio will be tested at the end of the first fiscal year of Borrower
that begins following the date of the Term Note; and (B) thereafter,
Debt Service Coverage Ratio will be tested at the end of each fiscal
year of Borrower.] and
(ii) Loan to Value - The aggregate outstanding principal amount of a Loan
shall not exceed throughout the term of such Loan seventy percent
(70%) of the Appraised Value as most recently determined.
(b) From the date hereof and for so long as any part of the Obligations
are outstanding, Casino America must maintain the following:
(i) Debt to EBITDA - Casino America shall maintain a ratio of (x) Debt
(as defined by GAAP, but excluding Nonrecourse Debt [as defined
below]) to (y) Restricted EBITDA (as defined below) of not greater
than 4.75:1.00, calculated quarterly on a rolling 12 months basis;
Loan Agreement--Page 31
<PAGE>
(ii) Debt Service Coverage Ratio - Casino America shall maintain a ratio
of EBITDA to Debt Service (as defined below) of not less than
1.50:1.00, calculated quarterly on a rolling 12 months basis; and
(iii) For purposes of this Subsection 15.16 (b): "Nonrecourse Debt" means
the Loan and any Debt (as defined by GAAP) of a subsidiary of Casino
America for which there is no recourse against Casino America;
"EBITDA" shall mean gross earnings less all expenses generally
deducted under GAAP in calculating net earnings except interest
expense, income taxes and Non-cash Charges, provided however, Pre-
opening Expenses and extraordinary non-recurring gains and losses
shall be excluded from this calculation of EBITDA; "Restricted EBITDA"
means the EBITDA of Casino America, calculated on a consolidated
basis, less 100% of the EBITDA of any subsidiary of Casino America for
which there is Nonrecourse Debt; and "Debt Service" means the sum of
interest and principal payments made on all Debt, excluding
Nonrecourse Debt, payable during the applicable period.
Notwithstanding the fact that Casino America is not a party to this Agreement,
the failure of Casino America to comply with the provisions of this Subsection
5.16(b) shall constitute a Default.
SECTION 5.17 CONSTRUCTION COVENANTS. In addition to the covenants of the
Borrower otherwise set forth in this Agreement, the Borrower hereby agrees that,
so long as any part of the Obligations are outstanding, unless compliance shall
have been waived in writing by the Bank, the Borrower shall at all times comply
with the following covenants:
(a) Commencement and Completion of Improvements. The Borrower (i) will
cause the construction of the Improvements to be prosecuted with diligence and
continuity in accordance with the Plans and the Construction Completion
Schedule, (ii) will promptly correct or cause to be corrected any defect in the
Improvements, any material departure in the construction of the Improvements
from the Plans, governmental requirements, or any encroachment by any part of
the Improvements or any other structure located on the Property on any building
line, easement, property line, or restricted area, (iii) will guarantee to the
Bank that the Improvements will be completed in good and workmanlike manner in
accordance with the Plans, (iv) will promptly notify the Bank of any Lien filed
by the Contractor, any subcontractor, supplier or laborer or of the Borrower's
knowledge that the Contractor or any sub-contractor, has failed to pay amounts
due following the funding of any Advance for the payment of same, and (v) will
complete the construction of the Improvements in accordance with the Plans on or
before the eighteenth-month following the Closing Date, provided that such date
may be extended to the extent necessary to complete the Improvements (but in no
event later than twenty one months after the Closing Date) if the completion of
the Improvements cannot be accomplished by the eighteen-month anniversary of the
Closing Date as a result of factors beyond the reasonable control of the
Borrower. Notwithstanding anything to the contrary in this Agreement, the
Improvements shall not be deemed to have been completed (the "Completion of the
Improvements") until (1) the Improvements contain all Equipment required for the
use and operation of the Improvements as a hotel and/or which may be required by
governmental authorities and/or by any law, regulation or rule of any
governmental authority, (2) permanent certificates of occupancy and all other
necessary certificates, licenses, consents and other
Loan Agreement--Page 32
<PAGE>
approvals of governmental authorities have been issued or made with respect to
the Improvements, and (3) the Bank has funded the Retainage Advance.
(b) Survey. In addition to any survey required by this Agreement, the
Borrower will furnish the Bank with three copies of each of the following
surveys:
(i) Foundation Survey. Within 10 days after completion of the
foundation of the Improvements, the Borrower shall furnish the
Bank with a survey showing all existing on-site Improvements,
plus the location and dimensions of perimeter foundations and
high point relative elevation of adjacent streets to insure
compliance with final working drawings and set-back lines of each
building and first floor elevations.
(ii) As-Built Survey. Prior to the disbursement of the Retainage
Advance, the Borrower shall furnish the Bank with a survey
delineating all completed Improvements on the Property and
pertinent grade and floor elevations.
(c) Change Orders. The Borrower will not cause or permit any changes in
the Construction Contract except pursuant to a change order approved in writing
by the Bank, the Borrower and the Contractor; provided, however, that the
Borrower shall have the right to enter into and authorize the execution and
implementation of change orders without the prior written consent of the Bank,
subject to the following conditions: (i) no such change order shall affect the
structural integrity of the Improvements or make substantial changes in the
Construction Contract; (ii) no such change orders shall extend the completion
date beyond eighteen months following the Closing Date; (iii) no such change
order shall result in an increase in costs under the Construction Contract of
more than $50,000 as to that one change order and of no more than the lesser of
the (x) the contingency expense as provided in the Development Expense Schedule
or (y) $1,500,000 when such change order is aggregated with any prior change
orders; (iv) the Borrower shall promptly deliver to the Bank and the Bank's
Inspector copies of such change orders not later than three (3) Business Days
after the execution thereof; (v) if required by the Contractor's payment and
performance bonds or the documents executed in connection therewith, such change
orders must be approved in writing by the surety issuing such payment and
performance bonds; and (vi) evidence of builders risk insurance for any
increased amount.
(d) Subcontractor Verifications. Within 10 days after request by the
Bank, the Borrower shall furnish the Bank with copies of all subcontracts then
in existence, and/or a certificate, in form prescribed by the Bank, signed by
all existing subcontractors and material suppliers as to the existence, amount
and retainage of any subcontracts and materials supplies agreements.
(e) Inspection Fees and Expenses of Bank's Inspector. The Borrower shall
reimburse the Bank for all reasonable fees and expenses of the Bank's Inspector.
On the first day of each calendar month commencing with the month in which the
first Request to Make Payment is submitted to the Bank and continuing until the
funding of the Retainage Advance, the Borrower shall pay to the Bank a monthly
review fee of $500.00. In addition, commencing upon the date of the Term Note
and on each
Loan Agreement--Page 33
<PAGE>
anniversary thereof until the Term Loan is paid in full, Borrower shall to the
Bank on each such date, in advance, an annual inspection fee of $350.00. These
fees are in addition to any other fees referred to in this Agreement which may
be due from Borrower to Bank.
SECTION 5.18 APPRAISAL. The Bank shall have the right to reappraise the
Appraised Value of the Property at any time and from time to time during the
term of the Loan, but only once prior to an Event of Default at the expense of
Borrower.
SECTION 5.19 ESCROW ACCOUNT. Concurrently with the delivery of the Term
Note the Borrower shall establish and thereafter maintain with the Bank a
replacement reserve account into which the Borrower shall deposit an amount
equal to 3% of Borrower's prior quarter's gross revenues, commencing with the
revenues received by the Borrower during the first quarter of the Term Loan.
Each deposit will be made within 60 days after each quarter-end. Borrower shall
make written requests for withdrawals from the escrow account and the Borrower
shall follow procedures which are standard in loan documentation for similar
escrow accounts maintained with the Bank or which in the Bank's sole discretion
are advisable or required for purposes of the Loan.
SECTION 5.20 SIGNAGE. During the construction of the Improvements, the
Borrower shall permit the Bank to erect a sign on the Property, in a location
acceptable to the Bank, reflecting the Bank having furnished the financing for
the construction of the Improvements. Such a sign shall not be larger than four
feet by four feet, not including its elevation off of the ground level to a
height satisfactory to the Bank.
SECTION 5.22 SUBORDINATION OF MANAGEMENT FEES. All management fees paid
by the Borrower to any Affiliate under any Management Agreement or otherwise
shall be subordinated to the Obligations pursuant to documentation in a form and
substance satisfactory to the Bank.
SECTION 5.23 IDENTITY OF THE MANAGER. If the Improvements are not
operated under a franchise agreement (i.e. does not have a "hotel flag"), the
Borrower will enter into a Management Agreement with a management company
approved in advance by the Bank or an Affiliate.
ARTICLE 6
NEGATIVE COVENANTS
Unless the Bank's prior written consent to the contrary is obtained
(which consent will not be unreasonably withheld or delayed), the Borrower will
at all times comply with the covenants contained in this Article 6, from the
date hereof and for so long as any part of the Obligations are outstanding.
SECTION 6.01 LIENS ON THE COLLATERAL. The Borrower will not create,
incur, assume or permit to exist any Lien on any of the Collateral, except for:
(a) Liens in favor of the Bank to secure the Obligations;
Loan Agreement--Page 34
<PAGE>
(b) Liens for taxes, assessments or other governmental charges; not yet
due or which are being contested in good faith by appropriate action promptly
initiated and diligently conducted if such reserve as shall be required by
generally accepted accounting principles shall have been made therefor;
(c) Liens of landlords, vendors, carriers, warehousemen, mechanics,
laborers and materialmen arising by law in the ordinary course of business for
claims either not yet due or being contested in good faith by appropriate action
promptly initiated and diligently conducted if such reserve as shall be required
by generally accepted accounting principles shall have been made therefor;
(d) Inchoate liens arising under ERISA to secure the contingent liability
of the Borrower; and
(e) Any exceptions shown on the title policy referred to in Section 7.01
hereof to which the Bank consents in writing.
SECTION 6.02 SALE OF THE COLLATERAL. The Borrower will not sell,
exchange, lease (except for leases acceptable to the Bank), assign, transfer,
convey or otherwise dispose of any of the Collateral or any part thereof, except
for the sale or other disposition of equipment in the ordinary course of
business.
SECTION 6.03 NATURE OF THE BUSINESS.
(a) The Borrower will be a single-purpose entity such that it will not
conduct any business of any type whatsoever other than the ownership and
operation of the Property as a hotel. The Borrower shall not acquire any assets
other than property which is related to or arises from the Property and the
Improvements or the operations thereof as a hotel.
(b) The Bank further acknowledges the Borrower's intention to have the
Loans operated effectively on a non-recourse basis with respect to the Borrower
by the Borrower agreeing not to acquire any assets other than property which is
related to or arises from the Property and the Improvements, and the Borrower's
operations thereon; provided, however, that the Bank shall not have any
responsibility or obligations to any third parties in connection therewith.
(c) The Bank acknowledges that the Bank does not intend to have any
recourse against the property or assets of Casino America, Inc. or its
subsidiaries (other than the Borrower), except (i) recourse arising under any
of the Casino America Agreements, and/or (ii) recourse arising in connection
with any legal claim or proceeding based in whole or in part upon, or related
to, the Casino America Agreements or any judgment obtained against Casino
America, its subsidiaries or its property or assets in connection with such a
proceeding or claim.
SECTION 6.04 LOANS. The Borrower shall not make any loans which in the
aggregate exceed the sum of $50,000 in any one fiscal year.
Loan Agreement--Page 35
<PAGE>
SECTION 6.05 ACQUISITIONS OR BULK SALES. The Borrower shall not enter into
a merger or consolidation or acquire all or a substantial part of the assets of
any person or entity, or sell, lease or otherwise dispose of all, or any
substantial part, of its assets.
SECTION 6.06 CHANGE OF OFFICE. The Borrower shall not change its federal
taxpayer identification number or the address of its chief executive office,
without providing ten (10) days prior notice to the Bank.
SECTION 6.07 FISCAL YEAR; ACCOUNTING METHODS. The Borrower shall not change
its fiscal year or its accounting methods or procedures currently employed by
it.
SECTION 6.08 DEBTS. The Borrower shall not create, incur or assume any Debt
other than the Loan and intercompany debt.
SECTION 6.09 ACQUISITION OF REAL ESTATE. The Borrower will not acquire
any interests in real estate other than the Property without giving the Bank at
least fifteen (15) days prior notice of the Borrower's intent to acquire such
interests.
ARTICLE 7
CONDITIONS OF LENDING
The obligation of the Bank to make extensions of credit under this
Agreement is subject to the accuracy of each and every representation and
warranty of the Borrower made or referred to in this Agreement, or in any
certificate delivered to the Bank pursuant to or in connection with this
Agreement, to the performance by the companies of their respective obligations
to be performed under the Loan Documents on or before the date of such
extensions of credit, and to the satisfaction of the following conditions:
SECTION 7.01 CONDITIONS TO MAKING THE INITIAL ADVANCE (CONSTRUCTION).
The Bank shall have received on or before January 31, 1998, the following, all
of which shall be reviewed by the Bank and be in a form and substance acceptable
to the Bank, its legal counsel and the title insurance company:
(a) No Material Adverse Charge. There shall have occurred, in the opinion
of the Bank, no material adverse changes, either individually or in the
aggregate, in the assets, liabilities, financial conditions, business
operations, affairs or circumstances of any of the Companies from those
reflected in the most recent financial statements furnished to the Bank prior to
the Closing Date, except to the extent that such changes are permitted by this
Agreement; furthermore, no Default shall, in the opinion of the Bank, have
occurred and be continuing;
(b) Architect' s Contract. If requested by the Bank, an agreement between
Architect and Borrower outlining specific duties Architect will perform;
Loan Agreement--Page 36
<PAGE>
(c) Building Permit. Appropriate building permit and such other licenses
and permits prerequisite to authorize construction of the Improvements in
accordance with the Plans;
(d) Construction Contract. The Construction Contract between Contractor
and Borrower stating the specific duties the Contractor will perform according
to Plans and terms of payment, completion of the Improvements, change orders and
retainage;
(e) Contractor's Financial Statements. Financial statements of the
Contractor;
(f) Construction Completion Schedule. Schedule of all construction and
delivery of materials from beginning of construction of the Improvements through
completion (the "Construction Completion Schedule");
(g) Development Expense Schedule. The detailed line item cost breakdown of
land costs, Construction Costs (hard costs), the Equipment, and all other
related indirect development costs (soft costs) of the Improvements;
(h) Disbursement Schedule. Schedule of the Borrower's anticipated
Advances;
(i) Payment and Performance Bond(s). Statutory form of bond from surety
company approved by the Bank and naming the Bank and the title insurance company
as a co-obligee, guaranteeing that the Improvements will be completed according
to the terms and conditions of the Construction Contract and that subcontractors
and suppliers will be paid;
(j) Plans. Final architectural and engineering drawings and
specifications, including any revisions, amendments and addenda, required to
complete the construction of the Improvements;
(k) Schedules of Values (AIA Form G702-G703). Line item hard costs
breakdowns;
(l) Soil Test Report. Report by a firm acceptable to the Bank, reflecting
conditions of the soil at the Property, in form and substance satisfactory to
the Bank;
(m) Subcontracts. If required by the Bank, copies of all subcontracts and
material supply agreements in existence, in form and substance satisfactory to
the Bank;
(n) Utility Letters. Letter from all applicable utility companies that all
of the necessary utilities (water, sewer, gas, electricity and telephone) for
the operation of the Property are or will be available at completion;
(o) Zoning Certificate. Proof satisfactory to the Bank that the Property
is zoned to permit construction of the Improvements in accordance with the Plans
and use of the Property and Improvements for their intended purpose;
Loan Agreement--Page 37
<PAGE>
(p) Assignment of Construction Contract. Agreement by the Borrower in
favor of the Bank, assigning the Borrower's right in Construction Contract and
authorizing the Bank to assume the Borrower's contractual position and complete
development under existing Construction Contract, upon an Event of Default under
this Agreement;
(q) Contractor's Consent and Certification. Agreement from the Contractor
to the Bank consenting to the Assignment of Construction Contract and providing
that disbursement procedures in this Agreement shall govern if they conflict
with Construction Contract, no change orders may be made without the Bank's
prior written consent, no termination of Construction Contract without notice to
the Bank and opportunity to cure, and agreeing to continue Construction Contract
for benefit of the Bank, upon an Event of Default under this Agreement;
(r) Assignment of Architect's Contract and Plans. Agreement by the
Borrower in favor of the Bank assigning the Borrower's right in the
Architect's contract and Plans and authorizing the Bank to take over and
complete project under existing Architect's agreement, and to use all Plans,
together with any and all modifications thereof, upon an Event of Default under
this Agreement;
(s) Architect's Consent and Certification. Agreement from the Architect to
the Bank consenting to the assignment of Architect's contract and Plans, and
certifying that Plans conform to all codes, ordinances and adequate utilities
are available, and agreeing to continue the Architect's Contract for Bank's
benefit and to make Plans available to the Bank, upon an Event of Default under
this Agreement;
(t) Corp. of Engineer's Approval. All authorizations, approvals and
permits, if any, which are required by the Corp. of Engineers in connection with
the construction of the Improvements on the Property;
(u) [INTENTIONALLY LEFT BLANK];
(v) [INTENTIONALLY LEFT BLANK];
(w) Material Contracts. All contracts and agreements which are material to
the operation of the Improvements including without limitation, all management
contracts, all leases and all operating contracts;
(x) [INTENTIONALLY LEFT BLANK];
(y) Title Insurance Policy. Policy (on ALTA Loan Policy Form - 1970)
issued pursuant to the title insurance commitment insuring the Mortgage in the
full amount of the Construction Loan as first lien on the Property in the full
amount of the Construction Loan, subject only to liens, encumbrances and
exceptions approved by the Lender. (The policy must provide affirmative lien
protection and must include such other special endorsements as the Bank may
require.);
Loan Agreement--Page 38
<PAGE>
(z) Subordination Agreements. Subordination Agreements executed by Casino
America and, an if requested by the Bank, by all of its subsidiaries, including
without limitation, LRGP, by which each subordinates all amounts or liabilities
owing from time to time by the Borrower to Casino America and LRGP, as the case
may be, to all sums owed by the Borrower to the Bank;
(aa) ATM Agreement. A mutually agreeable agreement with a term of not
less than five years under the terms of which the Bank has the exclusive right
to maintain all automated teller machines located at the Casino and at the
Property;
(bb) Opinion of Companies' Counsel. Favorable opinion of Phelps, Dunbar,
L.L.P., counsel for the Companies, in a form and substance satisfactory to the
Bank;
(cc) Environmental Letter. Letter from Jones Environmental stating that
the Bank may rely on the Phase I Environmental Site Assessment dated July 26,
1996, issued to LRGP;
(dd) Reciprocal Servitudes. If requested by the Bank, reciprocal servitudes
or similar agreements between the Borrower and LRGP regarding the joint use of
property owned by LRGP which may be necessary to the operation of the
Improvements;
(ee) Survey. Three (3) copies of a survey performed by a surveyor
acceptable to the Bank, in form and substance satisfactory to the Bank;
(ff) Insurance Policies. The insurance policies or certificates otherwise
required by this Agreement or the Bank;
(gg) Delivery of Shares. Casino America shall grant and deliver to the
Bank 174,337 shares of common stock of Casino America (the "Shares") [The
Shares will be (a) issued to the Bank on or before December 29, 1997 (although
the certificate representing those Shares may not be delivered until on or
before January 31, 1998, (b) fully paid, (c) non-assessable and (d) not subject
to any limitations, restrictions or requirements on the right of the holder to
sell such Shares except as set forth in the Registration Rights Agreement and
except as reflected in any legend required under law to be placed upon stock
certificates in connection with companies engaged in gaming operations.];
(hh) Tax Identification Number. The Tax Identification Number of the
Borrower; and
(ii) Title Insurance Commitment. Commitment from a title insurance company
approved by Bank to insure the mortgage on the Property in the full amount of
the Construction Loan, subject only to liens, encumbrances and title exceptions
approved by Bank (copies of which must be attached).
UNLESS OTHERWISE EXTENDED BY THE MUTUALLY AGREEMENT OF THE BANK AND THE
BORROWER, IF ALL OF THE PROVISIONS OF SECTION 7.01 ARE NOT FULFILLED TO THE
SATISFACTION OF THE BANK BY NO LATER THAN JANUARY 31, 1998, THE BANK MAY
THEREAFTER, AT ITS SOLE DISCRETION, ELECT TO TERMINATE THIS AGREEMENT BY WRITTEN
NOTICE TO THE BORROWER AND CASINO AMERICA. IF THE BANK MAKES SUCH AN ELECTION,
THE BANK MAY
Loan Agreement--Page 39
<PAGE>
RETAIN ALL FEES PREVIOUSLY PAID TO IT BY THE COMPANIES, OR ANY ONE OF THEM, AND
BORROWER, UPON DEMAND, SHALL REIMBURSE THE BANK FOR ALL SUMS REIMBURSABLE OR
PAYABLE UNDER THE PROVISION OF SECTION 5.06.
Section 7.02 ADDITIONAL CONDITIONS PRECEDENT TO INITIAL ADVANCES. In
addition to the provisions of Section 7.01, the Bank shall not be obligated to
make the initial Advance under the Construction Loan until the following
conditions are satisfied to the reasonable satisfaction of the Bank:
(a) Proof of Prior Disbursements in the Aggregate Amount of $5,000,000.
Applications and Certificates for Payment (AIA Documents G-702 and G-703) signed
by the Architect and Contractor and properly notarized indicating approval and
payment by the Borrower to the Contractor, plus corresponding retainage, of a
sum in the amount of at least $5,000,000, together with an updated copy of the
Development Expense Schedule in a form prescribed by the Bank, accompanied by
supporting invoices for costs other than interest and construction costs, all in
accordance with the provisions of Section 2.03; and
(b) Bank Inspector's Report. The report of the Bank's Inspector, which
report shall be in force and substance satisfactory to the Bank and shall state
(i) that the work completed under the Construction Contract as of the date of
the inspection has been performed and constructed in accordance with the Plans,
(ii) that the work is progressing on schedule, and (iii) that the disbursements
to date by the Borrower plus retainage are in an amount of not less than
$5,000,000 and correspond with the percentage of work completed and/or in place
as of the date of the initial Request for Advance.
Section 7.03 EACH ADDITIONAL ADVANCE. The obligations of the Bank to
make additional Advances on the Construction Loan, or to make the Term Loan, are
subject to the satisfaction of each of the following conditions:
(a) Each of the representations and warranties of the Borrower contained
in this Agreement shall be true and correct on and as of the date of such
subsequent Advance, except as such representations and warranties relate to
matters that are permitted by this Agreement; and
(b) There shall have occurred, in the opinion of the Bank, no material
adverse changes, either individually or in the aggregate, in the assets,
liabilities, financial conditions, business operations, affairs or circumstances
of the Companies from those reflected in the most recent financial statements
furnished to the Bank prior to the Closing Date, except to the extent that such
changes are permitted by this Agreement; furthermore, no Default shall, in the
opinion of the Bank, have occurred and be continuing.
Loan Agreement--Page 40
<PAGE>
ARTICLE 8
DEFAULT
Section 8.01 EVENTS OF DEFAULT. Any of the following events shall be
considered an "Event of Default" as that term is used herein:
(a) Principal and Interest Payments. The Borrower fails to make payment
when due of any principal or interest installment on any Loan, any commitment
fee or any other Obligation owed to the Bank, and such failure continues for a
period of ten (10) days;
(b) Room Guaranty Agreement. Casino America fails to make any payment
when due under the Room Guaranty Agreement referred to in Section 2.17, and such
a failure continues for ten (10) days;
(c) Representations and Warranties. Any representation or warranty made by
the Borrower proves to have been incorrect in any material respect as of the
date thereof; or any representation, statement (including financial statements),
certificate or data furnished or made by the Companies (or any officer,
accountant or attorney of the Companies) under this Agreement, proves to have
been untrue in any material respect, as of the date as of which the facts
therein set forth were stated or certified;
(d) Covenants. Any of the Companies defaults in the observance or
performance of any of the covenants or agreements contained in the Loan
Documents, to be kept or performed by any of the Companies, as the case may be
(other than a default under Sections 8.01(a) or (b) hereof), and such default
continues unremedied for a period of thirty (30) days after the earlier of (i)
notice thereof being given by the Bank to the Companies, or (ii) such default
otherwise becoming known to the president or chief financial officer of such
Company;
(e) Other Debt to Bank. An Event of Default occurs under the terms or any
of the covenants or agreements of any credit agreements, notes, loans or other
obligations owed by any of the Companies to the Bank (other than those set forth
in the Loan Documents), and such an Event of Default continues unremedied for a
period of thirty (30) days after the earlier of (i) notice thereof being given
by the Bank to the Companies, or (ii) such default otherwise becoming known to
the president or chief financial officer of the Companies;
(f) Other Debt to Other Lenders. Any of the Companies defaults in the
payment of any amounts due to any Person or in the observance or performance of
any of the covenants or agreements contained in any credit agreements, notes,
leases, collateral, indenture or other documents relating to any Debt of the
Companies to any Person, including, but not limited to, the Indenture and any
such creditor exercises any of its contractual or legal remedies with respect to
such a Debt;
(g) Involuntary Bankruptcy or Receivership Proceedings. A receiver,
conservator, liquidator or trustee of any of the Companies, or of any of their
property is appointed by order or decree of any court or agency or supervisory
authority having jurisdiction; or an order for relief is entered against any of
the Companies, under the Federal Bankruptcy Code; or any of the Companies is
adjudicated bankrupt or insolvent; or any material portion of the properties of
any of the Companies is sequestered by court order and such order remains in
effect for more than thirty (30) days after such party obtains knowledge
thereof; or a petition is filed against any of the Companies under any state,
reorganization, arrangement,
Loan Agreement--Page 41
<PAGE>
insolvency, readjustment of debt, dissolution, liquidation or receivership law
of any jurisdiction, whether now or hereafter in effect, and such petition is
not dismissed within sixty (60) days;
(h) Voluntary Petitions. Any of the Companies files a case under the
Federal Bankruptcy Code or seeks relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any case or petition against it under any such law;
(i) Assignments for Benefit of Creditors. Any of the Companies makes an
assignment for the benefit of its creditors, or admits in writing its inability
to pay its debts generally as they become due, or consents to the appointment of
a receiver, trustee or liquidator of the any of the Companies or of all or any
part of their respective property;
(j) Undischarged Judgments. Judgment for the payment of money in excess of
$100,000 (which is not covered by insurance) is rendered by any court or other
governmental body against any of the Companies, and such Company does not
discharge the same or provide for its discharge in accordance with its terms, or
procure a stay of execution thereof within thirty (30) days from the date of
entry thereof, and within said period of thirty (30) days from the date of entry
thereof or such longer period during which execution of such judgment shall have
been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal while providing such reserves therefor as may be required
under generally accepted accounting principles;
(k) Attachment. A writ or warrant of attachment, seizure or any similar
process shall be issued by any court against the Property or all or any material
portion of the remaining property of any of the Companies, and such writ or
warrant of attachment or any similar process is not released or bonded within
twenty (20) days after its entry;
(l) Change of Ownership. Casino America shall cease to own at least 51%
of the Borrower ;
(m) Nature of Business. LRGP, or another entity controlled by Casino
America, ceases to have a valid gaming license granted by the State of Louisiana
which license authorizes it to operate the Casino, or otherwise ceases gaming
operations in the Casino for any reason other than that specified in Section
8.01(n); or
(n) Removal of the Boat. The gaming boat on which the Casino's gaming
operations are conducted is removed from its current location for a period of 90
consecutive days (provided however, if the boat is removed in connection with U.
S. Coast Guard Inspections, the applicable period will be 180 consecutive days.
SECTION 8.02 REMEDIES. (a) Upon the happening of any Event of Default
specified in Section 8.01 (other than Sections 8.01(g) or 8.01(h) hereof), (i)
all obligations, if any, of the Bank to make Advances to the Borrower, shall
immediately cease and terminate; and (ii) the Bank may by written notice to the
Borrower declare the entire principal amount of all Obligations then
outstanding, including
Loan Agreement--Page 42
<PAGE>
interest accrued thereon, to be immediately due and payable without presentment,
demand, protest, notice of protest or dishonor or other notice of default of any
kind, all of which are hereby expressly waived by the Borrower.
(b) Upon the happening of any Event of Default specified in Sections
8.01(g) or 8.01(h), (i) all obligations, if any, of the Bank to make Advances to
the Borrower, shall immediately cease and terminate; and (ii) the entire
principal amount of all Obligations then outstanding including interest accrued
thereon shall, without notice or action by the Bank, be immediately due and
payable without presentment, demand, protest, notice of protest or dishonor or
other notice of default of any kind, all of which are hereby expressly waived by
the Borrower.
(c) In addition to the foregoing, the Bank may exercise any of the rights
or remedies provided in the Loan Documents or avail itself of any other rights
and remedies provided by applicable law.
SECTION 8.03 SET-OFF. (a) Upon the occurrence of any Event of Default,
the Bank shall have the right to set-off any funds of the Borrower in the
possession of the Bank against any amounts then due by the Borrower to the Bank.
(b) The Borrower agrees that any holder of a participation in a Note may
exercise any and all rights of counter-claim, set-off, banker's lien and other
liens with respect to any and all monies owing to the Borrower by such holder as
fully as if such holder of a participation were a holder of such a Note in the
amount of such participation.
ARTICLE 9
MISCELLANEOUS
Section 9.01 NOTICES. Any notice or demand which, by provision of this
Agreement, is required or permitted to be given or served by the Bank to or on
the Borrower shall be deemed to have been sufficiently given and served for all
purposes (if mailed) seven (7) calendar days after being deposited, postage
prepaid, in the United States Mail, registered or certified mail, or (if
delivered by express courier) one Business Day after being delivered to such
courier, or (if delivered in person) the same day as delivery, in each case
addressed (until another address or addresses is given in writing by Borrower to
Bank) as follows:
To Borrower: Isle of Capri Hotels - Bossier City, L.L.C.
711 Washington Loop
Biloxi, Mississippi 39530
Attn: Mr. Rexford A. Yeisley, Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary
Loan Agreement--Page 43
<PAGE>
With a simultaneous copy to:
Casino America, Inc.
2200 Corporate Boulevard, N. W., Suite 310
Boca Raton, Florida 33433
Attn: Mr. Allan Solomon, Executive Vice President, General
Counsel and Secretary
Any notice or demand which, by any provision of this Agreement, is
required or permitted to be given or served by the Borrower to or on Bank shall
be deemed to have been sufficiently given and served for all purposes (if
mailed) three calendar days after being deposited, postage prepaid, in the
United States Mail, registered or certified mail, or (if delivered by express
courier) one Business Day after being delivered to such courier, or (if
delivered in person) the same day as delivery, in each case addressed (until
another address or addresses are given in writing by Bank to Borrower) as
follows:
Hibernia National Bank
333 Travis Street
Third Floor
Shreveport, Louisiana 7110
Attention: Corporate Lending
SECTION 9.02 INVALIDITY. In the event that any one or more of the
provisions contained in the Loan Documents shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of the Loan Documents.
SECTION 9.03 SURVIVAL OF AGREEMENTS. All representations and warranties
of the Borrower herein, and all covenants and agreements herein not fully
performed before the effective date of this Agreement shall survive such date.
SECTION 9.04 SUCCESSORS AND ASSIGNS. (a) All covenants and agreements
contained by or on behalf of the Borrower in the Loan Documents shall bind their
successors and assigns and shall inure to the benefit of the Bank and its
successors and assigns.
(b) This Agreement is for the benefit of the Bank and for such other
Person or Persons as may from time to time become or be the holders of any of
the Obligations, and this Agreement shall be transferrable and negotiable, with
the same force and effect and to the same extent as the Obligations may be
transferrable, it being understood that, upon the transfer or assignment by the
Bank of any of the Obligations, the legal holder of such Obligations shall have
all of the rights granted to the Bank under this Agreement.
(c) Borrower hereby recognizes and agrees that the Bank may, from time to
time, one or more times, transfer any portion (but not all) of the Obligations
to one or more third parties, provided that the Bank retains a portion of the
Obligations. Such transfers may include, but are not limited to, sales of a
participation interests in such Obligations in favor of one or more third party
lenders, provided that the
Loan Agreement--Page 44
<PAGE>
Bank remains the lead bank. The Borrower specifically agrees and consents to all
such transfers and assignments, and the Borrower further waives any subsequent
notice of and right to consent to any such transfers and assignments as may be
provided under applicable Louisiana law. The Borrower additionally agrees that
the purchaser of a participation interest in the Obligations will be considered
as the absolute owner of a percentage interest of such Obligations, and that
such a purchaser will have all of the rights granted to the purchaser under any
participation agreement governing the sale of such a participation interest. The
Borrower further waives any right of offset that the Borrower may have against
the Bank and/or any purchaser of such a participation interest in the
Obligations and the Borrower unconditionally agrees that either the Bank or such
a purchaser may enforce Borrower's Obligations under this Agreement,
irrespective of the failure or insolvency of the Bank or any such purchaser.
SECTION 9.05 RENEWAL, EXTENSION OR REARRANGEMENT. All provisions of this
Agreement relating to a Note shall apply with equal force and effect to each and
all promissory notes or security instruments hereinafter executed which in whole
or in part represent a renewal, extension for any period, increase or
rearrangement of any part of such a Note.
SECTION 9.06 WAIVERS. No course of dealing on the part of the Bank its
officers, employees, consultants or agents, nor any failure or delay by the Bank
with respect to exercising any of its rights, powers or privileges under the
Loan Documents shall operate as a waiver thereof.
SECTION 9.07 CUMULATIVE RIGHTS. The rights and remedies of the Bank
under the Loan Documents shall be cumulative, and the exercise or partial
exercise of any such right or remedy shall not preclude the exercise of any
other right or remedy.
SECTION 9.08 SINGULAR AND PLURAL. Words used herein in the singular,
where the context so permits, shall be deemed to include the plural and vice
versa. The definitions of words in the singular herein shall apply to such words
when used in the plural where the context so permits and vice versa.
SECTION 9.09 CONSTRUCTION. This Agreement is, and the other Loan
Documents will be made under and shall be construed in accordance with and
governed by the laws of the United States of America and the State of Louisiana.
SECTION 9.10 TITLES OF ARTICLES, SECTIONS AND SUBSECTIONS. All titles
or headings to articles, sections, subsections or other divisions of this
Agreement or the exhibits hereto are only for the convenience of the parties and
shall not be construed to have any effect or meaning with respect to the other
content of such articles, sections, subsections or other divisions, such other
content being controlling as to the agreement between the parties hereto.
Unless the context otherwise requires, any reference to an Article, Section or
Subsection, shall be to the corresponding Article, Section or Subsection of this
Agreement.
SECTION 9.11 LIMITATION OF BANK'S LIABILITY. By acceptance of the
Loan, the Borrower agrees that for the payment of any claim or the performance
of any obligations hereunder resulting from any default by the Bank under the
Loan Documents, resort shall be had solely to the assets and property
Loan Agreement--Page 45
<PAGE>
of the Bank, its successors and assigns, and no shareholder, officer, employee
or agent of the Bank shall be personally liable therefor.
SECTION 9.12 RELATIONSHIP BETWEEN THE PARTIES. The relationship between
the Bank and the Borrower shall be solely that of lender and borrower, and such
relationship shall not, under any circumstances whatsoever, be construed to be a
joint venture, joint adventure, or partnership.
SECTION 9.13 AMENDMENT. Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated orally or in any manner
other than by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought.
SECTION 9.14 ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement of the Bank and the Borrower with respect to the Loan and supersedes
all prior written or oral understandings with respect thereto; provided,
however, that all written and oral representations, warranties and
certifications made by the Companies to the Bank with respect to the Loan and
the security therefor shall survive the execution of this Agreement.
SECTION 9.15 TIME OF THE ESSENCE. Time shall be deemed of the essence
with respect to the performance of all of the terms, provisions and conditions
on the part of the Borrower and the Bank to be performed hereunder.
SECTION 9.16 PURPOSES OF INSPECTIONS. The sole purpose and function of
the provisions of this Agreement authorizing the Bank, the Bank's Inspector, or
any agent, officer, employee or representative of the Bank to enter upon the
Property to make inspections of the Improvements, materials, Plans, shop
drawings, workmanship and construction of the Improvements or to enter into
possession of the Property upon any default and perform any work necessary or
desirable to complete the Improvements and to take all other action in
connection therewith, is to obtain information and to afford the Bank the
opportunity to:
(a) verify whether any Advances the Bank is obligated to make under this
Agreement are due, and the correct amount of such Advances;
(b) determine whether there has been or may be any default of the
Obligations of Borrower under this Agreement; and
(c) take any necessary or appropriate action to protect and preserve the
Bank's security for the Loan and all Advances made hereunder.
None of the aforesaid actions by the Bank, the Bank's Inspector, or any agent,
officer, employee or representative of the Bank, shall be or may be construed in
such a manner as to impose any duty or obligation whatsoever on the Bank, the
Bank's Inspector, or any agent, officer, employee or representative of the Bank,
to protect or represent any owner, borrower, contractor, surety, or any other
person whatsoever and shall not be considered or construed as having made any
warranty whatsoever, whether express or implied, as to the adequacy, quality of
fitness or purpose of any physical conditions, materials, workmanship, Plans,
specifications, drawings or other requirements pertaining to the
Loan Agreement--Page 46
<PAGE>
construction of the Improvements, or whether any such physical conditions,
materials or workmanship comply with any Plans, specifications, drawings,
ordinances statutes, or other governmental requirements pertaining to the
Property. Bank shall have no liability, obligation or responsibility whatsoever
with respect to the construction of the Improvements except to advance the Loan
pursuant to this Agreement. Bank shall not be obligated to inspect the Property
or the construction of the Property, nor be liable for the performance or
default of Borrower, Contractor, any architect, sub-contractor or materialmen,
or any other party, or for any failure to construct, complete, protect, or
insure the Improvements, or for the payment of costs of labor, materials, or
services supplied for the Improvements, or for the performance of any obligation
of Borrower whatsoever. Nothing, including without limitation, any Advance or
acceptance of any document or instrument, shall be construed as a representation
or warranty, express or implied, to any party by Bank.
SECTION 9.17 THIRD-PARTY BENEFICIARIES. All conditions to the
obligation of the Bank to make Advances hereunder are imposed solely and
exclusively for the benefit of the Bank. No other person shall have standing to
require satisfaction of such condition or be entitled to assume that the Bank
will not refuse to make the Advance in the absolute strict compliance with any
or all thereof, and no other person shall, under any circumstances, be deemed to
be a beneficiary of such conditions, any or all of which may be freely waived,
in whole or in part, by the Bank at any time in its sole discretion.
SECTION 9.18 SUBMISSION TO JURISDICTION, JURY TRIAL WAIVER. (a) Any
legal action or proceeding with respect to the Loan Documents shall be brought
in the courts of the State of Louisiana or of the United States of America for
the Western District of Louisiana, and, by execution and delivery of this
Agreement, the Borrower hereby accepts for itself and (to the extent permitted
by law) in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid court. The Borrower hereby irrevocably waives any
objection, including, without limitation, any objection to the laying of venue
or based on the grounds of forum non coveniens, which it may now or hereafter
have to the bringing of any such action or proceeding in such respective
jurisdictions. This submission to jurisdiction is non-exclusive and does not
preclude the Bank from obtaining jurisdiction over in any court otherwise having
jurisdiction.
(b) BOTH THE BORROWER AND THE BANK HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY LOAN DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT
NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE NOTE AND
THE COLLATERAL DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
PROVISION. NO OFFICER OF THE BANK HAS THE
Loan Agreement--Page 47
<PAGE>
AUTHORITY TO WAIVE, CONDITION OR MODIFY THIS PROVISION EXCEPT UPON THE EXPRESS
AUTHORITY OF THE BANK'S BOARD OF DIRECTORS.
SECTION 9.19 PREPARATION. No implication or reference shall be drawn
from the fact that any party prepared or proposed portions of or the entirety of
the Loan Documents, and the same shall be construed to have been drafted by and
for the benefit of the Bank and the Borrower equally.
SECTION 9.20 FORM OF DOCUMENTS. Each agreement, document, instrument,
certificate or other writing to be furnished to the Bank under any provision of
this Agreement, including but not limited to the Note or the Collateral
Documents, must be in form and substance satisfactory to the Bank and its
legal counsel.
SECTION 9.21 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof;
each counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.
BORROWER: ISLE OF CAPRI HOTELS - BOSSIER CITY, L.L.C.
- --------
By:
-----------------------------------------
Name: Rexford A. Yeisley
Title: Vice President, Chief Financial
Officer, Treasurer and Assistant
Secretary
Loan Agreement--Page 48
<PAGE>
BANK: HIBERNIA NATIONAL BANK
- ----
By:
------------------------------------------
Name: Christopher K. Haskew
Title: Assistant Vice President
Loan Agreement--Page 49
<PAGE>
EXHIBIT "A"
DESCRIPTION OF THE PROPERTY
Lots 91-99, inclusive, Riverside Subdivision, a subdivision in the City of
Bossier City, Bossier Parish, Louisiana, as per plat thereof recorded in Map
Book 60, page 157, of the Conveyance Records of Bossier Parish, Louisiana, and a
certain tract of land located in Section 32, Township 18 North, Range 13 West,
Bossier Parish, Louisiana, said tract being more fully described as follows:
From the Northeast corner of said Section 32, Township 18 North, Range 13
West, Bossier Parish, Louisiana,
run thence South a distance of 1,058.85 feet;
run thence West a distance of 437.00 feet;
run thence South 29 degrees 52'00" West a distance of 330.00 feet;
continue thence South 29 degrees 52'00" West a distance of 40.68 feet;
run thence South 76 degrees 00'00" West a distance of 135.40 feet;
run thence South 45 degrees 29'00" West a distance of 69.60 feet;
run thence North 85 degrees 05'00" West a distance of 40.90 feet;
run thence South 52 degrees 51'00" West a distance of 164.35 feet;
run thence South 32 degrees 24'00" West a distance of 105.80 feet;
run thence South 49 degrees 59'00" West a distance of 124.70 feet;
run thence South 68 degrees 34'00" West a distance of 178.27 feet;
run thence South 77 degrees 51'00" West a distance of 273.20 feet;
run thence South 83 degrees 04'00" West a distance of 177.40 feet;
run thence North 11 degrees 48'00" West a distance of 34.35 feet;
run thence Northwesterly along the high bank of Red River a distance of
724.10 feet;
run thence North 27 degrees 47'20" East a distance of 975.00 feet to the
point of beginning of the tract herein described;
run thence North 27 degrees 54'48" East a distance of 99.40 feet to a point
on the South side of Riverside Drive, as dedicated;
run thence South 61 degrees57'22" East a distance of 50.05 feet;
run thence North 62 degrees 06'04" East a distance of 200.30 feet;
run thence North 62 degrees 06'13" East a distance of 120.27 feet;
run thence North 62 degrees 30'52" East a distance of 231.54 feet;
(the preceding four (4) courses being along the South line of Riverside
Drive, as dedicated);
run thence South 04 degrees 27'21" West a distance of 251.53 feet;
run thence South 34 degrees 59'44" West a distance of 76.94 feet;
run thence South 04 degrees 35'37" West a distance of 16.90 feet;
run thence South 52 degrees 40'18" West a distance of 181.87 feet;
run thence South 36 degrees 41'12" East a distance of 165.62 feet along a
line 1" inside of an existing concrete wall;
run thence South 08 degrees 17'08" West a distance of 115.57 feet along a
line 1" inside of an existing concrete wall;
run thence North 82 degrees 06'22" West a distance of 44.20 feet along a
line 1" inside of the pavilion wall;
run thence South 07 degrees 59'31" West a distance of 136.29 feet along a
line 1" inside of the pavilion wall;
run thence North 82 degrees 00'29" West a distance of 126.50 feet;
run thence North 38 degrees 33'09" West a distance of 498.45 feet;
run thence North 27 degrees 47'20" East a distance of 100.00 feet to the
point of beginning;
containing 261,422.00 square feet, or 6.00 acres.
<PAGE>
EXHIBIT "B"
BORROWER'S REQUEST FOR ADVANCE
Borrower:___________________________ Date: ________________
Project:_____________________ Request No.: ________________
Loan No.: ____________ Period ______ to ______ Amount: ________
- --------------------------------------------------------------------------------
In connection with and in order to induce Hibernia National ("HNB") to
advance the amount requested, Borrower hereby represents, warrants and
stipulates as follows:
1. The work listed in this Request for Advance has been completed in
accordance with the Loan Agreement, all obligations for work submitted and
received on previous Borrower's Request for Advance have now been paid in
full (except for retainage), the funds requested at this time shall be
applied only to the obligations for work set forth in this Request, and all
policies as required by the Loan Agreement and the Mortgage are in full
force and effect.
2. Copies of all required insurance policies, licenses, permits and contracts,
with contractors, subcontractors, suppliers and materialmen responsible for
performing each approved budgeted item in the Development Expense Schedule
have been delivered to HNB if not previously sent.
3. No changes have been made in the approved plans and specifications, except
as have been previously approved in writing by HNB.
4. The amounts and percentages set forth on the attached schedules, along with
supporting documentation for each budgeted item, are true and correct to
the best of the Borrower's knowledge.
5. The undersigned represents, warrants and certifies it is entitled to
receive the subject Advance under the terms and conditions of the Loan
Agreement.
THE FOLLOWING (IF CHECKED) ARE INCLUDED AS PART OF THIS REQUEST FOR ADVANCE:
___ Application and Certificate for Payment (AIA G702 and G703) executed by the
General Contractor and the Architect for Project and notarized.
___ Development Expense Schedule
___ Invoices for stored materials on job site.
___ Lien Waivers Major Subcontractors with insurance, licenses and permits,
Soft Cost Invoices - identified with line item #'s/ Title Endorsement
Update/requested to be forward by Title Co.
___ Survey (Foundation or As Built)
___ Change Orders and required back up documents
___ Increase to Payment & Performance Bond $________
<PAGE>
___ Increase to Builders Risk Coverage $______
___ Invoices for Equipment
Retainage Items:
---------------
___ Substantial Completion Certificate (AIA Form G704)
___ Clear L & P Certificate
___ Affidavit of Cancellation
___ Certificate of Occupancy
Other Construction Items (if applicable):
------------------------
___ Building Permit - on each Contract Phase - No. _____
___ Contract(s) on each Contract Phase - No. ___
___ Schedule of Values (G702 & G703)
___ Payment & Performance Bond on Phase No. ___
BY: ________________________________
NAME: ________________________________
TITLE: ________________________________
COMPLETED BY: __________________________
DATE: ________________________________
<PAGE>
EXHIBIT "C"
COMPLIANCE CERTIFICATE
The undersigned hereby certifies (i) that he is the chief financial
officer of ISLE OF CAPRI HOTELS - BOSSIER CITY, L.L.C. (the "Borrower"), (ii)
that as such each is authorized to execute this certificate on behalf of the
Borrower and (iii) that a review of the activities of the Borrower has been made
under the supervision of the undersigned with a view to determining whether the
Borrower has fulfilled its obligations under the Loan Agreement (the "Loan
Agreement") dated December 9, 1997, between the Borrower and Hibernia National
Bank ("Bank"). The undersigned further certifies, represents and warrants to the
Bank as follows (each capitalized term used herein having the same meaning given
to it in the Loan Agreement unless otherwise specified):
1. The representations and warranties of the Borrower contained in the Loan
Agreement and otherwise made in writing by or on behalf of the Borrower pursuant
to the Loan Agreement were true and correct when made and are repeated at and as
of the time of delivery hereof and are true and correct at and as of the time of
delivery hereof, except as such representations and warranties relate to matters
that are permitted by the Loan Agreement or by the Bank pursuant to the Loan
Agreement.
2. The Borrower has performed and complied with all agreements and conditions
contained in the Loan Agreement required to be performed or complied with by
them prior to or at the time of delivery hereof.
3. The Borrower has not incurred any material liabilities, direct or
contingent, since the last day of the fiscal year of Borrower for which
financial statements have been furnished to the Bank pursuant to the Loan
Agreement, except those consented to by the Bank or as otherwise permitted by
the Loan Agreement.
4. No material adverse changes have occurred, either in any case or in the
aggregate, in the assets, liabilities, financial condition, business,
operations, affairs or circumstances of the Borrower from those reflected in the
financial statements referred to in Paragraph 3 hereof.
5. There exists no Default under the Loan Agreement.
6. None of the Companies is in default in the payment of any amounts due to
any Person or in the observance or performance of any of the covenants or
agreements contained in any credit agreements, notes, leases, collateral,
indenture or other documents relating to any Debt of the Companies to any Person
as a result of which the respective creditor has exercised any of its
contractual or legal remedies with respect to such Debt.
<PAGE>
7. The attached calculations of the financial covenants specified in Section
5.16 of the Loan Agreement are true and correct and have been calculated in
accordance with the Loan Agreement.
DATED: ______________________ ISLE OF CAPRI HOTELS - BOSSIER CITY, L.L.C.
By: ___________________________________
Name: _____________________________
Title:_____________________________
<PAGE>
MANAGER MANAGED
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
WILMORITE, INC.
and
PPI, INC.
<PAGE>
INDEX TO
OPERATING AGREEMENT
EXPLANATORY STATEMENT...................................................... 1
ARTICLE I - DEFINED TERMS.................................................. 1
ARTICLE II - FORMATION AND NAME: OFFICE; PURPOSE; TERM..................... 8
2.1 Organization......................................................... 8
2.2 Name of the Company.................................................. 8
2.3 Purpose.............................................................. 8
2.4 Term................................................................. 8
2.5 Registered Agent..................................................... 8
2.6 Members.............................................................. 8
ARTICLE III - MEMBERS; CAPITAL; CAPITAL ACCOUNTS........................... 8
3.1 Initial Capital Contributions........................................ 8
3.2 Additional Capital Contributions..................................... 9
3.3 No Interest on Capital Contributions.................................10
3.4 Return of Capital Contributions......................................10
3.5 Form of Return of Capital............................................10
3.6 Capital Accounts.....................................................11
3.7 Loans................................................................11
ARTICLE IV - PROFIT, LOSS AND DISTRIBUTIONS................................11
4.1 Distributions of Cash Flow and Allocations of Profit or Loss Other
than Capital Transactions............................................11
4.1.1. Profit or Loss Other than from a Capital Transaction..........11
4.1.2. Cash Flow.....................................................11
4.2 Distribution of Capital Proceeds and Allocation of Profit or Loss
From Capital Transactions............................................11
4.2.1. Profit........................................................11
4.2.2. Loss..........................................................12
4.2.3. Capital Proceeds..............................................12
4.3 Regulatory Allocations...............................................13
4.3.1. Qualified Income Offset.......................................13
4.3.2. Minimum Gain Chargeback.......................................13
4.3.3. Contributed Property and Book-ups.............................14
4.3.4. Code Section 754 Adjustment...................................14
4.3.5. Nonrecourse Deductions........................................14
4.3.6. Member Loan Nonrecourse Deductions............................14
4.3.7. Guaranteed Payments...........................................15
4.3.8. Unrealized Receivables........................................15
4.3.9. Withholding...................................................15
4.4 Liquidation and Dissolution..........................................15
4.5 General..............................................................16
ARTICLE V - COMPANY PROPERTY, ZONING, DEVELOPMENT AND
CONSTRUCTION OF POWER STRIP CENTER........................................17
5.1 Purpose..............................................................17
5.2 Partnership Property.................................................17
5.3 Title................................................................18
5.4 Insurance............................................................18
i
<PAGE>
INDEX TO
OPERATING AGREEMENT
5.5 Real Estate Taxes....................................................19
5.6 Development and Construction of Power Strip Center...................19
5.7 Construction of Power Strip Center...................................20
5.8 Project Budget.......................................................21
5.9 Financing............................................................22
5.10 Design..............................................................23
5.11 Zoning, Permits and Approvals.......................................23
5.12 Construction Management Agreement...................................24
5.13 Operating Management Agreement......................................24
5.14 Construction........................................................24
5.15 Leasing Program.....................................................25
ARTICLE VI - MANAGEMENT: RIGHTS, POWERS AND DUTIES.........................26
6.1 Management...........................................................26
6.1.1. General Manager...............................................26
6.1.2. General Powers................................................26
6.1.3. Extraordinary Transactions....................................28
6.1.4. Limitation on Authority of Members............................29
6.1.5. Removal of Manager............................................29
6.1.6. Resignation of a Manager......................................29
6.1.7. Appointment of New Manager....................................30
6.1.8. Managers Meetings.............................................30
6.1.9. Notice of Meetings............................................30
6.1.10.Action by Managers without a Meeting..........................30
6.2 Meetings of and Voting by Members....................................30
6.3 Personal Service.....................................................31
6.4 Duties of Parties....................................................32
6.5 Liability and Indemnification........................................33
6.5.1. Limitation on Liability.......................................33
6.5.2. Indemnification by Company....................................33
6.5.3. Indemnification by Wilmorite..................................33
6.5.4. Exceptions to Limitations On Liability........................33
ARTICLE VII - TRANSFER OF INTERESTS AND WITHDRAWAL OF MEMBERS..............34
7.1 General Restrictions.................................................34
7.2 No Member Rights.....................................................34
7.3 Permitted Transferee.................................................34
7.4 First Offer Right and Tag-Along Rights...............................35
7.5 General Conditions on Transfers......................................36
7.6 Rights of Transferees................................................38
7.7 Liability of Former Member...........................................39
7.8 Security Interest....................................................39
7.9 No Voluntary Withdrawal..............................................39
ARTICLE VIII - DISSOLUTION, LIQUIDATION AND TERMINATION OF THE COMPANY.....40
8.1 Events of Dissolution................................................40
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INDEX TO
OPERATING AGREEMENT
8.2 Procedure for Winding Up and Dissolution............................. 41
8.3 Filing of Articles of Dissolution.................................... 41
Certain Consequences of Dissolution...................................... 41
ARTICLE IX - BOOKS, RECORDS, ACCOUNTING AND TAX ELECTIONS.................. 42
9.1 Bank Accounts........................................................ 42
9.2 Books and Records.................................................... 42
9.3 Annual Accounting Period............................................. 43
9.4 Reports.............................................................. 43
9.5 Tax Matters Member................................................... 44
9.6 Tax Elections........................................................ 44
9.7 Title to Company Property............................................ 44
ARTICLE X - GENERAL PROVISIONS............................................. 45
10.1 Assurances........................................................... 45
10.2 Notifications........................................................ 45
10.3 Specific Performance................................................. 45
10.4 Complete Agreement................................................... 45
10.5 Applicable Law....................................................... 46
10.6 Article and Section Titles........................................... 46
10.7 Binding Provisions................................................... 46
10.8 Arbitration.......................................................... 46
10.9 Terms................................................................ 48
10.10 Separability of Provisions.......................................... 48
10.11 Counterparts........................................................ 48
10.12 Estoppel Certificate................................................ 48
10.13 Rights of Creditors and Third Parties Under Agreement............... 48
10.14 Brokerage........................................................... 49
ARTICLE XI - LICENSING AND REGULATORY REVIEW............................... 49
11.1 PPI Subject to Licensing and/or Regulatory Review.................... 49
11.2 Agreement to Cooperate............................................... 49
11.3 Licensing Problem.................................................... 49
EXHIBIT A - LEASE AGREEMENT................................................ 51
EXHIBIT B - LIST OF MEMBERS, INITIAL CAPITAL CONTRIBUTION AND
PERCENTAGES............................................................... 52
EXHIBIT C - INITIAL DEVELOPMENT PLAN....................................... 53
EXHIBIT D - ARTICLES OF ORGANIZATION....................................... 54
EXHIBIT E - PROJECT BUDGET................................................. 55
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LIMITED LIABILITY COMPANY OPERATING AGREEMENT
THIS OPERATING AGREEMENT, (the "Agreement") made the 5th day of November,
1997, between WILMORITE, INC., a New York corporation with offices at 1265
Scottsville Road, Rochester, New York 14624, and PPI, INC., a Florida
corporation with offices at 2200 Corporate Boulevard NW, Suite 310, Boca Raton,
Florida 33431 (hereinafter "PPI").
EXPLANATORY STATEMENT
WHEREAS, PPI is Lessee under a certain Lease Agreement dated as of June 29,
1995, between Pompano Park Associates, Limited Partnership (hereinafter "Pompano
Park"), as Lessor and PPI as Lessee. Said Lease is attached hereto and marked
Exhibit A (hereinafter the "Lease"); and
WHEREAS, PPI has an option to purchase premises as described in the Lease,
consisting of a parcel of approximately 140+ acres, located in Broward County,
Florida (hereinafter "Premises"), all as per the terms of Article 9 of the Lease
between Pompano Park and PPI; and
WHEREAS, Wilmorite is a developer of real property with expertise in the
construction and operation of enclosed malls, strip centers and power strip
centers, dedicated to retail/commercial facilities; and
WHEREAS, the parties have agreed to organize and operate a limited
liability company (the "Company") for the development of the Premises as a Power
Strip Center (as hereinafter defined), in accordance with the terms and subject
to the conditions set forth in this Agreement;
NOW, THEN, THEREFORE, in order to effectuate their common desire to form a
limited liability company for the purpose of development of the Premises as a
Power Strip Center, and in consideration of the mutual covenants contained
herein, the parties Agree as follows:
ARTICLE I - DEFINED TERMS
The following capitalized terms shall have the meaning specified in this
Article I. Other terms are defined in this text of this Agreement; and,
throughout this Agreement, those terms shall have the meanings respectively
ascribed to them.
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"Adjusted Capital Account Deficit" means, with respect to any Economic
Interest Holder, the deficit balance, if any, in the Economic Interest Holder's
Capital Account as of the end of the relevant taxable year, after giving effect
the following adjustments:
(i) the deficit shall be decreased by the amounts which the Economic
Interest Holder is obligated to restore pursuant to Section 4.4.2 or is deemed
obligated to restore pursuant to Regulation Section 1.704-1(b)(2)(ii)(c); and
(ii) the deficit shall be increased by the items described in Regulation
Sections 1.704-1(b)(2)(ii) through (d)(4), (5) and (6).
"Adjusted Capital Balance" means, as of any day, an Economic Interest
Holder's total Capital Contributions less all amounts actually distributed to
the Economic Interest Holder pursuant to Sections 4.2.3.4.1 and 4.4 hereof. If
any Economic Interest is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Adjusted Capital Balance of the
transferor to the extent the Adjusted Capital Balance relates to the Economic
Interest transferred.
"Affiliate" means, with respect to any Member, any Person: (i) which owns
more than fifty percent (50%) of the voting interests in the Member; or (ii) in
which the Member owns more than fifty percent (50%) of the voting interests; or
(iii) in which more than fifty percent (50%) of the voting interests are owned
by a Person who has a relationship with the Member described in (i) or (ii)
above; or (iv) who otherwise controls, or is controlled by, or under common
control with, another Person.
"Agreement" means this Operating Agreement, as amended from time to time.
"Capital Account" means the account to be maintained by the Company for
each Economic Interest Holder in accordance with the following provisions:
(i) an Economic Interest Holder's Capital Account shall be credited with
the Economic Interest Holder's Capital Contributions, the amount of any Company
liabilities assumed by the Economic Interest Holder (or which are secured by
Company property distributed to the Economic Interest Holder), the Economic
Interest Holder's distributive share of Profit and any item in the nature of
income or gain specially allocated to the Economic Interest Holder pursuant to
the provisions of Article IV (other than Section 4.3.3); and
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(ii) An Economic Interest Holder's Capital Account shall be debited with
the amount of money and the fair market value of any Company property
distributed to the Economic Interest Holder, the amount of any liabilities of
the Economic Interest Holder assumed by the Company (or which are secured by
property contributed by the Economic Interest Holder to the Company), the
Economic Interest Holder's distributive share of Loss and any item in the nature
of expenses or losses specially allocated to the Economic Interest Holder
pursuant to the provisions of Article IV (other than Section 4.3.3).
If any Economic Interest is transferred pursuant to the terms of this
Agreement, the transferee shall succeed to the Capital Account of the transferor
to the extent the Capital Account is attributable to the transferred Economic
Interest. If the book value of Company property is adjusted pursuant to Section
4.3.3, the Capital Account of each Economic Interest Holder shall be adjusted to
reflect the aggregate adjustment in the same manner as if the Company had
recognized gain or loss equal to the amount of such aggregate adjustment. It is
intended that the Capital Accounts of all Economic Interest Holders shall be
maintained in compliance with the provisions of Regulation Section 1.704-1(b),
and all provisions of this Agreement relating to the maintenance of Capital
Accounts shall be interpreted and applied in a manner consistent with that
Regulation.
"Capital Contribution" means the total amount of cash and the fair market
value of any other assets contributed (or deemed contributed under Regulation
Section 1.704-1(b)(2)(iv)(d)) to the Company by a Member, net of liabilities
assumed or to which the assets are subject.
"Capital Proceeds" means the gross receipts received by the Company from a
Capital Transaction.
"Capital Transaction" means any transaction not in the ordinary course of
business which results in the Company's receipt of cash or other consideration
other than Capital Contributions, including, without limitation, proceeds of
sales or exchanges or other dispositions of property not in the ordinary course
of business, financings, refinancings, condemnations, recoveries of damages
awards, and insurance proceeds.
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"Cash Flow" means all cash funds derived from operations of the Company
(including interest received on reserves), without reduction for any noncash
charges, but less cash funds used to pay current operating expenses and to pay
or establish reasonable reserves for future expenses, debt payments, capital
improvements, and replacements as determined by the Managers. Cash Flow shall
not include Capital Proceeds but shall be increased by the reduction of any
reserve previously established.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision of any succeeding law.
"Company" means the limited liability company formed in accordance with
this Agreement.
"Economic Interest" means a Person's share of the Profits and Losses of,
and the right to receive distributions from, the Company.
"Economic Interest Holder" means any
Person who holds an Interest, whether as a Member or an unadmitted assignee of a
Member.
"Managers" means the Persons designated as such in Article VI.
"Involuntary Withdrawal" means, with respect to any Member, the occurrence
of any of the following events:
(i) the Member makes an assignment for the benefit of creditors;
(ii) the Member files a voluntary petition of bankruptcy;
(iii) the Member is adjudged bankrupt or insolvent or there is entered
against the Member an order for relief in any bankruptcy or insolvency
proceeding;
(iv) the Member files a petition seeking for the Member a
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any statute, law or regulation;
(v) the Member seeks, consents to, or acquiesces in the appointment of
a trustee for, receiver for, or liquidation of the Member or of all or any
substantial part of the Member's properties;
(vi) the Member files an answer or other pleading admitting or failing
to contest the material allegations of a petition filed against the Member in
any proceeding described in subsections (i) through (v);
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(vii) any proceeding against the Member seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any statute, law, or regulation, continues for one hundred twenty
(120) days after the commencement thereof, or the appointment of a trustee,
receiver or liquidator for the Member or all or any substantial part of the
Member's properties without the Member's agreement or acquiescence, which
appointment is not vacated or stayed for one hundred twenty (120) days or, if
the appointment is stayed, for one hundred twenty (120) days after the
expiration of the stay during which period the appointment is not vacated;
(viii) if the Member is an individual, the Member's death, incapacity or
adjudication by a court of competent jurisdiction as incompetent to manage the
Member's person or property;
(ix) if the Member is acting as a Member by virtue of being a trustee
of a trust, the termination of the trust;
(x) if the Member is a partnership or limited liability company, the
dissolution and commencement of winding up of the partnership or limited
liability company;
(xi) if the Member is a corporation, the dissolution of the corporation
(other than as a result of the sale of all or substantially all of its assets or
its merger or consolidation with or into another entity), or the revocation of
its charter.
(xii) if the Member is an estate, the distribution by the fiduciary of
the estate's entire interest in the Company.
"Law" means the New York Limited Liability Company Law, as amended from
time to time.
"Lease" means the Lease Agreement dated as of June 29, 1995 between Pompano
Park Associates Limited Partnership and PPI.
"Member" means each Person who has signed this Agreement and any Person who
subsequently is admitted as a member of the Company.
"Membership Interest" means all of the rights of a Member in the Company,
including a Member's: (i) Economic Interest; (ii) right to inspect the Company's
books
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and records; and (iii) right to participate in the management of and vote on
matters coming before the Company.
"Member Loan Nonrecourse Deductions" means any Company deductions that
would be Nonrecourse Deductions if they were not attributable to loans made or
guaranteed by a Member within the meaning of Regulation Section 1.704-2(i).
"Minimum Gain" has the meaning set forth in Regulation Section 1.704-2(d).
Minimum Gain shall be computed separately for each Economic Interest Holder in a
manner consistent with the Regulations under Code Section 704(b).
"Negative Capital Account" means a Capital Account with a balance of less
than zero.
"Nonrecourse Deductions" has the meaning set forth in Regulation Section
1.704-2(b)(1). The amount of Nonrecourse Deductions for a taxable year of the
Company equals the net increase, if any, in the amount of Minimum Gain during
that taxable year, determined according to the provisions of Regulation Section
1.704-2(c).
"Nonrecourse Liability" means any liability of the Company with respect to
which no Member has personal liability, as determined in accordance with Code
Section 752 and the Regulations promulgated thereunder.
"Option" means the option to purchase the Premises contained in the Lease.
"Owner" means Pompano Park Associates, Limited Partnership, or its
successors or assigns.
"Percentage" means, as to a Member, the percentage set forth after the
Member's name on Exhibit B, as amended from time to time, and as to an Economic
Interest Holder who is not a Member, the Percentage of the Member whose Economic
Interest has been acquired by such Economic Interest Holder, to the extent the
Economic Interest Holder has succeeded to that Member's Economic Interest.
"Person" means and includes an individual, corporation, partnership,
association, limited liability company, trust, estate or other entity.
"Positive Capital Account" means a Capital Account with a balance greater
than zero.
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"Profit" and "Loss" mean, for each taxable year of the Company (or other
period for which Profit or Loss must be computed), the Company's taxable income
or loss determined in accordance with Code Section 703(a), with the following
adjustments:
(i) all items of income gain, loss, deduction or credit required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in
computing taxable income or loss; and
(ii) any tax-exempt income of the Company, not otherwise taken into
account in computing Profit or Loss, shall be included in computing taxable
income or loss; and
(iii) any expenditures of the Company described in Code Section
705(a)(2)(b) (or treated as such pursuant to Regulation Section 1.704-
1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit or
Loss, shall be subtracted from taxable income or loss; and
(iv) gain or loss resulting from any taxable disposition of Company
property shall be computed by reference to the adjusted book value of the
property disposed of, notwithstanding the fact that the adjusted book value
differs from the adjusted basis of the property for federal income tax purposes;
and
(v) in lieu of the depreciation, amortization or cost recovery
deductions allowable in computing taxable income or loss, there shall be taken
into account the depreciation computed based upon the adjusted book value of the
asset; and
(vi) notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Section 4.3 hereof shall not be taken
into account in computing Profit or Loss.
"Regulation" means the income tax regulations, including any temporary
regulations, from time to time promulgated under the Code.
"Transfer" means, when used as a noun, any sale, hypothecation, pledge,
assignment, attachment or other transfer, and when used as a verb, means to
sell, hypothecate, pledge, assign or otherwise transfer.
"Voluntary Withdrawal" means a Member's disassociation with the Company by
means other than a Transfer or an Involuntary Withdrawal.
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ARTICLE II
FORMATION AND NAME: OFFICE; PURPOSE; TERM
2.1 Organization. The parties shall organize a limited liability company
pursuant to the Law and the provisions of this Agreement and, for that purpose,
shall cause Articles of Organization, in the form attached as Exhibit D to be
executed and filed with the New York Department of State.
2.2 Name of the Company. The name of the Company shall be POMPANO COMMONS,
L.L.C. The Company may do business under that name and under any other name or
names which the Managers select. If the Company does business under a name
other than that set forth in its Articles of Organization, then the Company
shall file a certificate with the Department of State as required by General
Business Law (S)130.
2.3 Purpose. The Company is organized solely to purchase, acquire, buy,
sell, own, trade in, hold, develop, lease, manage, subdivide and otherwise deal
in and with the Premises and improvements thereon, and to do any and all things
necessary, convenient or incidental to that purpose.
2.4 Term. The term of the Company shall begin upon the filing of Articles
of Organization with the Department of State and shall continue through December
31, 2096, unless its existence is sooner terminated pursuant to Article VIII of
this Agreement.
2.5 Registered Agent. The name and address of the Company's registered
agent in the State of New York shall be John A. Shields, 1265 Scottsville Road,
Rochester, New York 14624.
2.6 Members. The name, present mailing address, taxpayer identification
number, and Percentage of each Member are set forth on Exhibit B.
ARTICLE III
MEMBERS; CAPITAL; CAPITAL ACCOUNTS
3.1 Initial Capital Contributions. Upon execution of this Agreement, the
Members shall contribute to the Company cash, property and services as
respectively set forth on Exhibit B as initial contributions.
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3.2 Additional Capital Contributions.
3.2.1. From the date hereof through the earlier of (i) the date of
Wilmorite's election to dissolve pursuant to Section 8.1.4 hereof, or (ii) the
date the entire Power Strip Center Project (as hereinafter defined) is completed
and open for business, Wilmorite shall, to the extent such amounts are
unavailable to the Company through non-recourse financing or other sources,
contribute the following: (i) all amounts required by the Company for
architectural, engineering, legal and accounting services; (ii) an amount equal
to two percent (2%) of the purchase price of the Premises that is required to be
paid to the Owner of the Premises upon exercise of the Option (which amount
shall be paid by the Company to the Owner upon exercise of the Option by PPI) or
any amounts payable to the Owner pursuant to any lease of the Premises the
Company may enter into; (iii) all operating costs and expenses of the Company,
including those described in Section 5.5.1 hereof and all pre-opening costs; and
(iv) to the extent such amounts are unavailable through non-recourse financing,
the balance of the purchase price for the Premises, plus all amounts necessary
to complete the Development, including without limitation all costs of
construction, financing and brokerage costs, fees and commissions, working
capital, applicable reserves and soft costs.
3.2.2. At or prior to December 30, 1998, PPI shall, at the request of
Wilmorite, either (i) with the consent of the Owner, assign the Lease (including
the Option) to the Company; or (ii) exercise the Option on behalf of the Company
and direct the Owner to convey title to the Company, provided that in either
event the Company and not PPI shall be party to and liable under the purchase
agreement for the Premises. Provided that Wilmorite has not elected to dissolve
the Company, and has elected to exercise the Option and/or require PPI to assign
the Lease (including the Option) to the Company, PPI shall give written consent
to the assignment and/or exercise of the Option as aforesaid, in order to
provide the necessary unanimous consent. In the event that PPI fails to consent
as aforesaid, Wilmorite shall be entitled to the remedies set forth in Section
3.2.4. The parties acknowledge and agree that the fair market value of the
foregoing Capital Contribution of PPI to the Company equals thirty-three and
one-third percent (33 1/3%) of the total capital to be contributed to the
Company pursuant to this Section 3.2; that PPI's Capital Account shall be
credited from time to time so that it will, at all times, equal thirty-three and
one-third percent (33 1/3%) of the total Capital Accounts of the
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Company; and that PPI's Percentage Membership Interest shall remain at thirty-
three and one-third percent (33 1/3%) notwithstanding any additional Capital
Contributions to the Company
3.2.3. Except as provided in Section 3.2.1, no Member shall be required
to contribute any additional capital to the Company, and no Member shall have
any personal liability for any debt, liability or obligation of the Company,
whether arising in tort, contract or otherwise.
3.2.4. If Wilmorite fails to make any portion of any Capital
Contribution required under Section 3.2.1. above, which amount remains unpaid
thirty (30) days after notice from PPI, PPI shall be entitled, as its remedy,
either (i) to elect to dissolve the Company pursuant to Article VIII hereof and
recover from Wilmorite such damages for breach of this Agreement as may be
awarded through arbitration pursuant to Section 10.8 below (with any recovery
going to PPI and not the Company); or (ii) to require that Wilmorite assign its
Membership Interest in the Company to PPI or its designee for consideration of
Six Hundred Sixty-six and 66/100 Dollars ($666.66). If PPI fails to make the
Capital Contribution described in Section 3.2.2 above, Wilmorite shall be
entitled, as its remedy, either (i) to specific performance from PPI; or (ii) to
require that PPI assign its Membership Interest in the Company to Wilmorite or
its designee for consideration of Three Hundred Thirty-three and 33/100 Dollars
($333.33). Nothing contained herein shall diminish Wilmorite's right to elect to
withdraw from or dissolve this Company, as provided in Section 8.1.4 hereof.
3.3 No Interest on Capital Contributions. Economic Interest Holders
shall not be paid interest on their Capital Contributions.
3.4 Return of Capital Contributions. Except as otherwise provided in
this Agreement, no Economic Interest Holder shall have the right to receive any
return of any Capital Contribution.
3.5 Form of Return of Capital. If an Economic Interest Holder is
entitled to receive a return of a Capital Contribution, the Economic Interest
Holder shall not have the right to receive anything but cash in return of the
Economic Interest Holder's Capital Contribution.
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3.6 Capital Accounts. A separate Capital Account shall be main- tained
for each Economic Interest Holder.
3.7 Loans. Any Member other than the Managers may, at any time, make or
cause a loan to be made to the Company in any amount and on such terms as shall
be approved by the Managers, provided that the terms of the loan are at least as
favorable to the Company as could be obtained from an unrelated Person.
ARTICLE IV
PROFIT, LOSS AND DISTRIBUTIONS
4.1 Distributions of Cash Flow and Allocations of Profit or Loss Other
than Capital Transactions.
4.1.1. Profit or Loss Other than from a Capital Transaction.
After giving effect to the special allocations set forth in Section 4.3, for any
taxable year of the Company, Profit or Loss (other than Profit or Loss resulting
from a Capital Transaction, which Profit or Loss shall be allocated in
accordance with the provisions of Section 4.2.1 and 4.4.2) shall be allocated to
the Economic Interest Holders in proportion to their Percentages.
4.1.2. Cash Flow. Cash Flow for each taxable year of the Company
shall be distributed to the Economic Interest Holders in proportion to their
Percentages no less frequently than quarterly.
4.2 Distribution of Capital Proceeds and Allocation of Profit or Loss
From Capital Transactions.
4.2.1. Profit. After giving effect to the special allocations
set forth in Section 4.3, Profit from a Capital Transaction shall be allocated
as follows:
4.2.1.1. If one or more Economic Interest Holders has a
negative Capital Account, to those Economic Interest Holders, in proportion to
the Negative Capital Accounts, until all of those Negative Capital Accounts have
been increased to zero.
4.2.1.2. To the Economic Interest Holders in accordance with,
and in the order and priority of, the cumulative distributions made (other than
distributions representing in the judgment of the Managers, a return of capital
which are hereinafter referred to as "Excluded Distributions") pursuant to this
Agreement with
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respect to the current fiscal year and for all prior fiscal years until the
aggregate amount allocated to each Member pursuant to this Section 4.2.1.2
equals the aggregate amount distributed to each Member (other than Excluded
Distributions) pursuant to Article IV; provided, however, that if the Profits
allocable under this Section for the current fiscal year and all prior fiscal
years exceed the cumulative distributions (other than Excluded Distributions)
pursuant to Article IV with respect to the current fiscal year and all prior
fiscal years (the "Excess Profits") the portion of the Excess Profits derived in
the current fiscal year shall be allocated to the Members in accordance with,
and in the order and priority of, the Distributions that would have been made
pursuant to Article IV had distributions been made in the current fiscal year in
an amount equal to the Excess Profits derived in the current fiscal year.
4.2.2. Loss. After giving effect to the special allocations set forth in
Section 4.3, Loss from a Capital Transaction shall be allocated as follows:
4.2.2.1. If one or more Economic Interest Holders has a Positive
Capital Account, to those Economic Interest Holders, in proportion to their
Positive Capital Accounts, until all Positive Capital Accounts have been reduced
to zero.
4.2.2.2. Any Loss not allocated to reduce Positive Capital
Accounts to zero pursuant to Section 4.2.2.1 shall be allocated to the Economic
Interest Holders in proportion to their Percentages.
4.2.3. Capital Proceeds. Capital Proceeds shall be distributed and
applied by the Company in the following order and priority:
4.2.3.1. to the payment of all expenses of the Company incident
to the Capital Transaction; then
4.2.3.2. to the payment of debts and liabilities of the Company
then due and outstanding (including all debts due to any Economic Interest
Holder); then
4.2.3.3. to the establishment of any reserves which the Managers
deem necessary for liabilities or obligations of the Company; then
4.2.3.4. the balance shall be distributed as follows:
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4.2.3.4.1. to the Economic Interest Holders in proportion to
their Adjusted Capital Balances, until their remaining Adjusted Capital Balances
have been paid in full;
4.2.3.4.2. the balance, to the Economic Interest Holders in
proportion to their Percentages.
4.3 Regulatory Allocations.
4.3.1. Qualified Income Offset. No Economic Interest Holder shall be
allocated Losses or deductions if the allocation causes the Economic Interest
Holder to have an Adjusted Capital Account deficit. If an Economic Interest
Holder receives (1) an allocation of Loss or deduction (or item thereof) or (2)
any distribution, which causes the Economic Interest Holder to have an Adjusted
Capital Account Deficit at the end of any taxable year, then all items of income
and gain of the Company (consisting of a pro rata portion of each item of
Company income) including gross income and gain, for that taxable year shall be
allocated to that Economic Interest Holder, before any other allocation is made
of Company items for that taxable year, in the amount and in proportions
required to eliminate the excess as quickly as possible. This Section 4.3.1. is
intended to comply with, and shall be interpreted consistently with, the
"qualified income offset" provisions of the Regulations promulgated under Code
Section 704(b).
4.3.2. Minimum Gain Chargeback. Except as set forth in Regulation 1.704-
2(f)(2), (3) and (4), if, during any taxable year, there is a net decrease in
Minimum Gain, each Economic Interest Holder, prior to any other allocation
pursuant to this Article IV, shall be specially allocated items of gross income
and gain for such taxable year (and, if necessary, subsequent taxable years) in
an amount equal to that Economic Interest Holder's share of the net decrease of
Minimum Gain, computed in accordance with Regulation Section 1.704-2(g).
Allocations of gross income and gain pursuant to this Section 4.3.2 shall be
made first from gain recognized from the disposition of Company assets subject
to nonrecourse liabilities (within the meaning of the regulations promulgated
under Code Section 752), to the extent of the Minimum Gain attributable to those
assets, and thereafter, from a pro rata portion of the Company's other items of
income and gain for the taxable year. It is the intent of the
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parties hereto that any allocation pursuant to this Section 4.3.2. shall
constitute a "minimum gain chargeback" under Regulation Section 1.704-2(f).
4.3.3. Contributed Property and Book-ups. In accordance with Code
Section 704(c) and the Regulations thereunder, as well as Regulation Section
1.704-1(b((2)(iv)(d)(3), income, gain, loss and deduction with respect to any
property contributed (or deemed contributed) to the Company shall, solely for
tax purposes, be allocated among the Economic Interest Holders so as to take
account of any variation between the adjusted basis of the property to the
Company for federal income tax purposes and its fair market value at the date of
contribution (or deemed contribution). If the adjusted book value of any Company
asset is adjusted as provided herein, subsequent allocations of income, gain,
loss and deduction with respect to the asset shall take account of any variation
between the adjusted basis of the asset for federal income tax purposes and its
adjusted book value in the manner required under Code Section 704(c) and the
Regulations thereunder.
4.3.4. Code Section 754 Adjustment. To the extent an adjustment to the
tax basis of any company asset pursuant to Code Section 734(b) or Code Section
743(b) is required, pursuant to Regulation Section 1.704-1(b)(2)(iv)(m), to be
taken into account in determining Capital Accounts, the amount of the adjustment
to the Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases basis),
and the gain or loss shall be specially allocated to the Economic Interest
Holders in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to that Section of the Regulations.
4.3.5. Nonrecourse Deductions. Nonrecourse Deductions for a taxable year
or other period shall be specially allocated among the Economic Interest Holders
in proportion to their Percentages.
4.3.6. Member Loan Nonrecourse Deductions. Any Member Loan Nonrecourse
Deduction for any taxable year or other period shall be specially allocated to
the Economic Interest Holder who bears the risk of loss with respect to the loan
to which the Member Loan Nonrecourse Deduction is attributable in accordance
with Regulation Section 1.704-2(b).
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4.3.7. Guaranteed Payments. To the extent any compensation paid to any
Member by the Company is determined by the Internal Revenue Service not to be a
guaranteed payment under Code Section 707(c) or is not paid to the Member other
than in the Person's capacity as a Member within the meaning of Code Section
707(a), the Member shall be specially allocated gross income of the Company in a
amount equal to the amount of that compensation, and the Member's Capital
Account shall be adjusted to reflect the payment of that compensation.
4.3.8. Unrealized Receivables. If an Economic Interest Holder's Economic
Interest is reduced (provided the reduction does not result in a complete
termination of the Economic Interest Holders' Economic Interest), the Economic
Interest Holder's share of the Company's "unrealized receivables" and
"substantially appreciated inventory" (within the meaning of Code Section 751)
shall not be reduced, so that, notwithstanding any other provision of this
Agreement to the contrary, that portion of the Profit otherwise allocable upon a
liquidation or dissolution of the Company pursuant to Section 4.4. hereof which
is taxable as ordinary income (recaptured) for federal income tax purposes
shall, to the extent possible without increasing the total gain to the Company
or to any Economic Interest Holder, be specially allocated among the Economic
Interest Holders in proportion to the deductions (or basis reductions treated as
deductions) giving rise to such recapture. Any questions as to the aforesaid
allocation of ordinary income (recapture) to the extent such questions cannot be
resolved in the manner specified above, shall be resolved by the Managers.
4.3.9. Withholding. All amounts required to be withheld pursuant to Code
section 1446 or any other provision of federal, state or local tax law shall be
treated as amounts actually distributed to the affected Economic Interest
Holders for all purposes under this Agreement.
4.4 Liquidation and Dissolution.
4.4.1. If the Company is dissolved and liquidated, the assets of the
Company shall be distributed to the Economic Interest Holders in accordance with
the provisions of Section 4.2.3.4.
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4.4.2. No Economic Interest Holder shall be obligated to restore a
Negative Capital Account.
4.5. General.
4.5.1. Except as otherwise provided in this Agreement, the timing and
amount of all distributions shall be determined by the Managers.
4.5.2. If any assets of the Company are distributed in kind to the
Economic Interest Holders, those assets shall be valued on the basis of their
fair market value, and any Economic Interest Holder entitled to any interest in
those assets shall receive that interest as a tenant-in-common with all other
Economic Interest Holders so entitled. Unless the Members otherwise agree, the
fair market value of the asset shall be determined by an independent appraiser
who shall be selected by the Managers. The Profit or Loss for each unsold asset
shall be determined as if the asset had been sold at its fair market value, and
the Profit or Loss shall be allocated as provided in Section 4.2 and shall be
properly credited or charged to the Capital Accounts of the Economic Interest
Holders prior to the distribution of the assets in liquidation pursuant to
Section 4.4. The Company shall not distribute any assets in kind without the
consent of all the Members.
4.5.3. All Profit and Loss shall be allocated, and all distributions
shall be made to the Persons shown on the records of the Company to have been
Economic Interest Holders as of the last day of the taxable year for which the
allocation or distribution is to be made. Notwithstanding the foregoing, unless
the Company's taxable year is separated into segments, if there is a Transfer or
an Involuntary Withdrawal during the taxable year, the Profit and Loss shall be
allocated between the original Economic Interest Holder and the successor on the
basis of the number of days each was an Economic Interest Holder during the
taxable year; provided, however, the Company's taxable year shall be separated
into two or more segments in order to account for Profit, Loss, or proceeds
attributable to a Capital Transaction or to any other extraordinary nonrecurring
items of the Company.
4.5.4. The Managers are hereby authorized, upon the advice of the
Company's tax counsel, to amend this Article IV to comply with the Code and the
Regulations promulgated under Code Section 704(b); provided, however, that
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no amendment shall affect distributions to an Economic Interest Holder without
the Economic Interest Holder's prior written consent.
ARTICLE V
COMPANY PROPERTY, ZONING, DEVELOPMENT AND
CONSTRUCTION OF POWER STRIP CENTER
5.1 Purpose. The Company shall engage only in the limited business of
owning, constructing, leasing, maintaining and operating a Power Strip Center,
and in doing any and all other things which the Managers shall deem necessary or
appropriate to such purpose. The term "Power Strip Center" shall be deemed to
refer to an approximately 1,000,000 square foot retail/commercial facility to be
developed upon the Premises at a total cost of approximately One Hundred Million
and 00/100 Dollars ($100,000.000.00), as more specifically described in the
Initial Development Plan attached hereto as Exhibit C, when and as the Power
Strip Center shall be completed.
5.2 Company Property.
5.2.1. The term "Company Property", as used in this Agreement,
shall mean and include all right, title and interest of the Company in and to
the following:
5.2.1.1 the Premises;
5.2.1.2 all buildings and improvements located in or upon the
Premises, including, without limitation, the Power Strip Center intended to be
erected thereon;
5.2.1.3 all other real and personal property, tangible and
intangible (whether located on or away from the Premises) and acquired, used, or
held at any time and from time to time, in connection with, or in the course of,
or incidental to, the development of the Premises, the construction of
improvements thereon, and/or the operation, management, maintenance, expansion
and/or preservation thereof and/or of the Power Strip Center thereon;
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5.2.1.4 all rights, privileges, rights-of-way and ease- ments, now
or hereafter appurtenant to the Premises and/or belonging to the Company under
private and/or public grant or authority;
5.1.2.5. all rights of the Company pursuant to contracts and
agreement with third parties; and
5.1.2.6. all rights to sublessee revenues, if any, attributable to
the Premises from and after the date the Company closes on the purchase of the
Premises.
5.2.2 The term "Company Property" shall be deemed to include
references to all or any portion or portions thereof, as the context may
appropriately require.
5.3. Title.
5.3.1 All Company Property shall be held in the name of the Company
or for the benefit of the Company, in such manner, names or designations as the
Managers shall determine from time to time.
5.4. Insurance.
5.4.1 The Company shall purchase with Company funds, and maintain
in effect, contracts of liability, casualty and other insurance which the
Managers deem advisable, appropriate or convenient for the protection of the
Company Property or affairs of the Company or for any purpose convenience or
beneficial to the Company.
5.4.2 Decisions as to insurance policies, premiums, coverage and
conditions, including, without limitation, the identity of the insurance
carriers, shall be subject to the approval of the Managers.
5.4.3 The responsibility for obtaining such insurance and keeping
the same in full force and effect (provided Company funds are available for such
purpose), shall be assumed by the Managers then keeping the books and records of
the Company, as hereinafter provided. The premiums for all such insurance shall
be a Company expense.
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5.5 Real Estate Taxes.
5.5.1 The Company shall pay or cause to be paid from Company funds
all real estate taxes, license fees or assessments of whatever kind or nature
imposed upon or against the Company or the Company Property and for such
purposes do all such other acts and things with regard thereto as may be deemed
by the Managers to be necessary and advisable. Commencing with the date of the
closing of the purchase of the Premises, the Company shall pay, or shall
reimburse PPI for, all costs and expenses attributable to the Premises,
including real estate taxes (with appropriate pro rations as of such date).
5.5.2 The responsibility to pay such taxes, fees or assessments
(provided Company funds are available for such purpose), shall be assumed by the
Managers then keeping the books and records of the Company, but such taxes, fees
and assessments shall be a Company expense, provided, however, that:
5.5.2.1 Such Managers shall furnish or cause to be furnished to
PPI, within a reasonable time after received or available, copies of tax bills,
notices of assessed valuations and notices of assessments, and invoices for
license fees for the Company Property involved; and
5.5.2.2 The Managers shall have the right, which may be
exercised in their sole discretion, to cause the Company, at Company expense, to
contest or appeal any valuations or assessments.
5.6 Development and Construction of Power Strip Center.
5.6.1 It is intended that the construction of the Power Strip
Center be undertaken so as to provide for the opening of the Power Strip Center
to the public for business generally in accordance with the time-line included
in Exhibit C hereto, described below, and that the Power Strip Center be
operated consistent with the standards of operation of first class power strip
retail center.
5.6.2 For purposes of this Operating Agreement, the date on which
construction of the Power Strip Center shall be completed, or the "Completion
Date" thereof, shall be deemed to mean and refer to the date which is one (1)
month after the "grand opening" to the public for business of the Power Strip
Center.
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5.7 Construction of Power Strip Center.
5.7.1 The Company intends to proceed with the construction and
development of the Premises as a Power Strip Center (the "Development"),
pursuant to the Initial Development Plan (including time-line) attached hereto
as Exhibit C, which Development is to be more fully set forth on a Site Plan
currently being developed for the Company by the Architect (as hereinafter
defined). Upon the completion of the said Site Plan, it is further intended that
such Plan be initialed by all the Managers and, as such, incorporated herein by
reference (which Site Plan may be further modified, from time to time, with the
written approval of the Managers).
5.7.2 The Development is intended to include, without limitation,
some or all of the following, to be undertaken by the Company as set forth in
this Agreement:
5.7.2.1 The acquisition by the Company by exercise of the
Option to Purchase of the Premises, encompassing a parcel of land containing
140 (plus or minus) acres, as described herein in Exhibit A.
5.7.2.2 The negotiation of leases, agreements and/or
purchases and sales of parcels to retail/commercial lessees/buyers, and the
construction and development of such common areas and related improvements and
facilities, including, without limitation, parking areas and any and all
necessary utility facilities to service the Power Strip Center, all as the
Managers may deem appropriate from time to time.
5.7.3 As part of the Development, the Company will construct at no
cost to PPI an appropriate number of billboards on the Premises and will license
the use of such billboards to PPI without charge for purposes of promoting PPI's
Pompano Park Racetrack. Additionally, the Company will use its best efforts to
obtain appropriate governmental permits or approvals to allow the entrance road
to the Racetrack to be extended so as to intersect with Atlantic Avenue and,
upon receipt of such permits, to include construction of such road as part of
the Development, at no cost to PPI.
5.7.4 Notwithstanding the foregoing, it is acknowledged that the
foregoing sets forth the current understanding and intention of the Managers
with
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respect to the Development, and that the Managers shall have the right to
develop and construct the Power Strip Center on such basis and with such
improvements as the Managers shall deem appropriate, subject to Section 6.1.3
hereof.
5.7.5 In connection with the foregoing, and unless otherwise
expressly provided to the contrary in this Agreement, it is understood and
agreed that any and all costs and expenses related to, or arising out of, the
Development, as well as any and all costs or expenses related to, or arising out
of, the operation thereof shall be deemed to be costs and expenses of the
Company.
5.8 Project Budget.
5.8.1 The Company intends to cause to be prepared a preliminary and
tentative itemization of projected costs and expenses of the Development, which
itemization will be reviewed and revised by the Managers from time to time to
bring it into accord with current circumstances (said itemization, as so revised
from time to time, being referred to herein as the "Project Budget"). The
initial preliminary Project Budget, including the anticipated capital
requirements, is attached hereto as Exhibit E.
5.8.2 During the construction of the Development, the Managers
recognize that disbursements for the costs and expenses of such construction are
intended to be made on the basis of vouchers approved and submitted to the
Company's construction lender on behalf of the Company by the Managers,
provided, however, that during such period:
5.8.2.1 disbursements for any and all costs and expenses
included with the "General Conditions" for opening of the Power Strip Center to
the public for business, shall be submitted and approved in the same manner; and
5.8.2.2 disbursements for any and all costs and expenses in
connection with the operation and management of the Power Strip Center following
the opening thereof, shall be made on the basis of vouchers approved by the
management agent for the Company (selected by unanimous consent of the
Managers), without the prior written consent of the Managers, provided that such
disbursements shall be within an "Operating Budget" that is approved by all
Managers.
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5.8.2.3 the Company's development director or project manager
shall prepare monthly project cost summaries and construction cost reports
setting forth the status of the construction costs and expenses for the
Development against the total Project Budget. The Managers shall develop the
forms for the said reports.
5.9 Financing.
5.9.1 The Company intends to seek to finance the construction and
development of the Power Strip Center on the basis of construction and permanent
loans in the maximum amounts obtainable, and in any event at least equal to the
full costs of the Development, including, without limitation, all costs of
construction as set forth in the Project Budget, as well as any and all
financing and brokerage costs, fees and commissions, applicable reserves and all
other soft costs. As provided in Section 3.2.1 above, Wilmorite will provide
any capital required for the Development, to the extent such non-recourse
financing may be unavailable, including, without limitation, funds for pre-
development costs estimated to be approximately Five Hundred Thousand and 00/100
Dollars ($500,000.00) and, to the extent available, will recover that Capital
Contribution from such non-recourse financing at the Completion Date. Attached
hereto as Exhibit E is the estimated financing plans for the Development,
showing, for each phase of the Development (pre-development, land purchase,
infrastructure and development) the proposed sources of funds.
5.9.2 The Managers shall endeavor to obtain the aforesaid financing
at such rates of interest and on such terms and conditions as the Managers may
deem acceptable, provided, however, that:
5.9.2.1 such loans may be secured by first lien mortgages on the
Company Property, together with mortgages and/or other security interests upon
such other Company Property as is customary for similar loans; and
5.9.2.2 construction and permanent financing shall be obtained
on such terms and conditions as the Managers deem acceptable, provided that such
financing shall be non-recourse to PPI and its Affiliates.
5.9.3 The Managers may cause the Company to borrow additional funds from
other conventional lending sources, including, without limitation,
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those secured by a subordinate mortgage or mortgages on the Company Property, or
a sale and leaseback thereof, provided any such financing is non-recourse.
5.10 Design.
5.10.1 The architect for the Development shall be Marc Weissman
Associates, Inc., whose principal offices are at 573 5th Avenue, New York, New
York (the "Architect"). The Managers, on behalf of the Company, shall negotiate
a contract with the Architect for the design and supervision services required
for the Development, which contract shall be in accordance with the Project
Budget.
5.10.2 The Managers will work together with the Architect in the
development of a mutually acceptable design for the Development, including
modifications to, and refinements of, the Site Plan.
5.10.3 Following initialing of the Site Plan by the Managers, the
Managers shall cause the Architect to prepare appropriate plans and
specifications therefor, it being understood and agreed that:
5.10.3.1 all plans and specifications shall be delivered to the
Managers for their review and approval, and PPI shall not request nor permit the
Architect to make any substantial changes in such plans and specifications after
each such approval, without the further consent of the Managers; and
5.10.3.2 all reasonable out-of-pocket costs and expenses incurred
by the Managers in the performance of their obligations under this Section shall
be deemed costs and expenses of the Company.
5.11 Zoning, Permits and Approvals.
5.11.1 Wilmorite shall be primarily responsible for undertaking to
secure any and all permits and approvals necessary and appropriate for the
Development from all governmental bodies and other public authorities properly
exercising jurisdiction, including, without limitation, rezoning, zoning
variances, approval of plans for the Power Strip Center, demolition,
construction, highway access and utility permits (but excluding permits and
approvals respecting construction to be performed by tenants of the Power Strip
Center); provided, however, that:
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5.11.1.1 Wilmorite shall continue to keep the Managers fully
informed of its progress in obtaining the aforesaid permits and approvals,
together with the proposed timetables therefor;
5.11.1.2 all reasonable out-of-pocket costs and expenses
incurred by Wilmorite in the performance of its obligations under this Section
shall be deemed to be reimbursable costs and expenses of the Company, provided
such expenses shall not include Wilmorite's general overhead expenses, salaries
or benefits of its employees or other expenses not directly related to the
Development; and
5.11.1.3 Managers and PPI recognize and acknowledge that the
issuance and/or obtaining of such permits and approvals may be subject to
challenge or dispute, and the Company shall take such action as the Managers
deem necessary and appropriate in this connection.
5.12 Construction Management Agreement. The Company will enter into a
Construction Management Agreement (the "CM Agreement") with Wilmorite for
Wilmorite to manage the construction of the Power Strip Center. The CM
Agreement will provide for Wilmorite to receive a construction management fee
equal to five percent (5%) of the hard constructions costs. The CM Agreement
will be in form and content acceptable to PPI and Wilmorite.
5.13. Operating Management Agreement. The Company will enter into an
Operating Management Agreement (the "OM Agreement") with Genesee Management,
Inc. ("GMI"), an affiliate of Wilmorite, to manage the operations of the Power
Strip Center after the Completion Date. The OM Agreement will provide for GMI
to receive an operating management fee equal to four percent (4%) of the gross
operating revenue of the Power Strip Center. The OM Agreement will be in form
and content acceptable to PPI and Wilmorite.
5.14 Construction.
5.14.1 The Company intends to enter into a contract or contracts for
the construction of the Development, based upon such terms and conditions as the
Managers shall determine.
Wilmorite or its affiliates will be primarily responsible for arranging for
all utility services required for the Power Strip Center.
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5.15 Leasing Program.
5.15.1 Wilmorite shall develop and be responsible for a leasing program
for the Power Strip Center, subject to the approval of the Managers, which
leasing program shall include:
5.15.1.1 a leasing pro forma and leasing schedule indicating the
proposed rent roll, the duration of the leases and tenant allowances;
5.15.1.2 a merchandising plan, indicating a proposed location
for, and type of, tenants to be included in the Power Strip Center;
5.15.1.3 a lease request form indicating all of the principal
business terms for the applicable lease; and
5.15.1.4 forms of all tenant leases, including Ground Leases,
"Build to Suit" Lease and forms for Purchase and Sale Contracts.
5.15.2 Representatives of Wilmorite shall be constituted as a "leasing
team" under the supervision of Thomas C. Wilmot (or such other person or persons
as Wilmorite shall designate from time to time), which team shall be responsible
for the negotiation of leases or sales with the operators of the large retail
facilities and the other tenants intended to be included in the Power Strip
Center. The leasing team shall keep the Managers fully informed of the progress
of all negotiations and efforts with respect to the leasing of the Power Strip
Center and shall review such progress with the Managers on not less than a
monthly basis. The Managers shall have the right, at any time, to review and
approve the terms and conditions of any lease prior to the execution thereof.
5.15.3 In addition to and/or as part of the OM Agreement, GMI shall
enter into an agreement with the Company, in form and content acceptable to PPI,
providing for GMI's right to serve as the leasing agent for the Company and, as
consideration for such services, to receive leasing fees in an aggregate amount
not to exceed the amount of leasing fees provided for in the Project Budget
respecting leases entered into or received from and after the effective date
hereof. GMI, and not the Company, shall be responsible for the payment of any
fees to third-party brokers or leasing agents who may assist GMI in leasing the
premises. Neither Wilmorite nor GMI shall be entitled to a separate development
fee in connection with the Development or
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the Power Strip Center. The said leasing agreements shall also set forth the
procedure respecting the approval and execution by the Managers on behalf of the
Company, of any and all such leases.
ARTICLE VI
MANAGEMENT: RIGHTS, POWERS AND DUTIES
6.1 Management.
6.1.1. The Managers. The Company shall be managed by five (5)
Managers, who may, but need not, be Members. Notwithstanding anything in the Law
or this Agreement to the contrary, during the term of this Agreement Wilmorite
shall be entitled to appoint three (3) of the Managers and PPI shall be entitled
to appoint two (2) of the Managers, and each of Wilmorite and PPI shall be
entitled to remove the respective Managers appointed by them and to fill any
vacancy created by their removal, resignation or death. The initial Managers
appointed by Wilmorite are (1) Thomas C. Wilmot; (2) Ronald A. Cocquyt, and (3)
David M. Jacobstein. The initial Managers appointed by PPI are (i) Allan B.
Solomon, and (ii) Edward A. Snell. The Managers shall take action by majority
vote. The number of Managers may not be increased or decreased without the
consent of all the Members. It is the intent of Wilmorite to cause a New York
Limited Liability Company to be formed, which shall be an Affiliate of
Wilmorite, for the purpose of participating as a Member of the Company, in the
place and instead of Wilmorite (the "L.L.C."). Therefore, Wilmorite shall have
the right, at any time prior to exercise of the Option, to transfer its sixty-
six and two-third percent (66 2/3%) interest in the Company to the L.L.C., and
for the L.L.C. to be substituted as a Member for Wilmorite, provided the L.L.C.
executes this Agreement and agrees to be bound by its terms. Such L.L.C. shall
thereupon be a Member of the Company, with full Membership rights, in addition
to holding the equivalent of three (3) management positions in the Company. In
such event, Wilmorite shall guarantee the performance of the L.L.C. throughout
the term of this Agreement.
6.1.2. General Powers. The Managers shall have full, exclusive and
complete discretion, power and authority, subject in all cases to the other
provisions of this Agreement and the requirements of applicable Law, to manage,
control, administer and operate the business and affairs of the Company for the
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purposes herein stated, and to make all decisions affecting such business and
affairs, including, without limitation, for the Company purposes, the power to:
6.1.2.1. acquire by purchase, lease or otherwise, any real or
personal property, tangible or intangible;
6.1.2.2. construct, operate, maintain, finance and improve, and
to own, sell, convey, assign, mortgage, or lease any real estate and any
personal propert y;
6.1.2.3. sell, dispose, trade or exchange Company assets in the
ordinary course of the Company's business;
6.1.2.4. enter into agreements and contracts and to give receipts,
releases and discharges;
6.1.2.5 purchase liability and other insurance to protect the
Company's properties and business;
6.1.2.6. borrow money for and on behalf of the Company, and, in
connection therewith, execute and deliver instruments authorizing the confession
of judgment against the Company;
6.1.2.7. execute or modify leases with respect to any part or all
of the assets of the Company;
6.1.2.8. prepay, in whole or in part, refinance, amend, modify or
extend any mortgages or deeds of trust which may affect any asset of the Company
and in connection therewith to execute for and on behalf of the Company any
extensions, renewals or modifications of such mortgages or deeds of trust;
6.1.2.9. execute any and all other instruments and documents which
may be necessary or, in the opinion of the Managers, desirable, to carry out the
intent and purpose of this Agreement, including, but not limited to, documents
whose operation and effect extend beyond the term of the Company;
6.1.2.10. make any and all expenditures which the Managers, in
their sole discretion, deem necessary or appropriate in connection with the
management of the affairs of the Company and the carrying out of their
obligations and responsibilities under this Agreement, including, without
limitation, all legal,
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accounting and other related expenses incurred in connection with the
organization and financing and operation of the Company;
6.1.2.11. enter into any kind of activity necessary to, in
connection with, or incidental to, the accomplishment of the purposes of the
Company; and
6.1.2.12. invest and reinvest Company reserves in short-term
instruments or money market funds.
6.1.3. Extraordinary Transactions. Notwithstanding anything to the
contrary in the Law or this Agreement, the Managers shall not undertake any of
the following without the unanimous approval of all of the Members:
6.1.3.1. any Capital Transaction;
6.1.3.2. the Company's engaging in business in any jurisdiction
which does not provide for the registration of limited liability companies;
6.1.3.3. the sale, exchange, lease, mortgage, pledge, or other
transfer of all or substantially all of the assets of the Company;
6.1.3.4. the approval of a merger or consolidation of the Company
with or into another limited liability company or other business entity;
6.1.3.5. the amending of the Articles of Organization (except as
permitted in Law Section 213(b));
6.1.3.6. the approval of the principal terms for the purchase of
the Premises and the principal financing for the Development, or any re-
financing thereof;
6.1.3.7. the approval of the Project Budget and the Site Plan and
any material changes to the Project Budget or the Site Plan;
6.1.3.8. the making of any loans to, or guarantees for the benefit
of any Person;
6.1.3.9. the authorization of any transaction between the Company
and any Member or Affiliate of a Member;
6.1.3.10. the approval of any action that would enlarge the
obligation of any Member, including requiring any additional Capital
Contribution, without the Member's consent;
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6.1.3.11. any modification of the method of determining, allocating
or distributing the Company's income, gains, losses, cash flow, deductions or
credits;
6.1.3.12. the dissolution of the Company, except as provided under
Article VIII herein;
6.1.3.13. the issuance of additional Membership Interests or the
admission of any Person as a Member;
6.1.3.14. taking any action which may cause the Company to become
an entity other than a limited liability company; or
6.1.3.15. amending this Section 6.1.3.
6.1.4. Limitation on Authority of Members.
6.1.4.1. No Member is an agent of the Company solely by virtue of
being a member, and no Member has authority to act for the Company solely by
virtue of being a Member.
6.1.4.2. This Section 6.1 supersedes any authority granted to the
members pursuant to Section 401 of the Law. Any Member who takes any action or
binds the Company in violation of this Section 6.1 shall be solely responsible
for any loss and expense incurred by the Company as a result of the unauthorized
action and shall indemnify and hold the Company harmless with respect to the
loss or expense.
6.1.5. Removal of Managers. Subject to Section 6.1.1, the Members, at any
time and from time to time and with or without cause, may remove any or all
Managers of the Company then acting and elect a new Manager or Managers or make
other provisions or arrangements for the management of the Company.
6.1.6. Resignation of a Manager. A Manager of the Company may resign at any
time by giving Notice to the other Managers and the Members. The resignation of
a Manager shall take effect upon receipt of such Notice or at such later date as
specified in such Notice. The acceptance of the resignation of a Manager shall
not be necessary to make such resignation effective. The resignation of a
Manager who is also a Member shall not affect the Manager's rights as a Member
and shall not constitute a withdrawal of the Member.
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6.1.7. Appointment of New Manager. Subject to Section 6.1.1, if any
vacancy in the office of Managers occurs, the Members shall designate a Person
to serve as a Manager to fill such vacancy.
6.1.8. Managers Meetings. Meetings of the Managers shall be held from time
to time at such place as specified by the Manager or Managers calling the
meeting. Meetings may be called by any Manager or Managers upon notice to each
Manager as provided as Section 6.1.9. Any meeting may be in person or may be
conducted by telephone.
6.1.9. Notice of Meetings. Notice of a meeting of Managers, stating the
place, day and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be delivered, unless otherwise prescribed by the Law,
not less than ten (10) days nor more than fifty (50) days before the date of the
meeting, either personally or by mail, by or at the direction of any Manager or
Person calling the meeting, to each Manager. Notice to Managers, if mailed,
shall be deemed delivered as to any Manager when deposited in the United States
mail, addressed to the Manager at his address as reflected in the records of the
Company.
6.1.10. Action by Managers without a Meeting. Unless the Law provides
otherwise, action required or permitted by the Law or this Agreement to be taken
at a meeting of the Mangers may be taken without a meeting if the action is
evidence by one or more written consents describing the action taken signed by
all the Mangers. Action taken under this Section 6.1.10 shall be effective when
all the Managers have signed the consent unless the consent specifies a
different effective date. Written consent of all Managers on any matter shall
have the same force and effect as a unanimous vote of Managers and may be stated
as such in any document.
6.2 Meetings of and Voting by Members.
6.2.1. A meeting of the Members may be called at any time by any Manager
or by those Members who hold at least twenty percent (20%) of the Percentages
then held by Members. Meetings of Members shall be held at the Company's
principal place of business or at any other place designated by the Person
calling the meeting. No less than ten (10) nor more than sixty (60) days before
each meeting, the Person calling the meeting shall give written notice of the
meeting to each
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Member entitled to vote at the meeting. The notice shall state the place, date,
hour and purpose of the meeting. Notwithstanding the foregoing provisions, each
Member who is entitled to notice waives notice of before or after the meeting if
the Member signs a waiver of the notice which is filed with the records of
Members' meetings, or is present at the meeting in person or by proxy without
objecting to the lack of notice. Meetings may be attended by conference
telephone call at which each Member is able to hear the other Members and
participate in the telephone call. Unless the Law or this Agreement provides
otherwise, at a meeting of Members, the presence in person or by proxy of
Members holding not less than a majority (over 50%) of the Percentages then held
by Members constitutes a quorum. A Member may vote either in person or by
written proxy signed by the Member or by the Member's duly authorized attorney
in fact.
6.2.2. Except as otherwise provided in this Agreement, the
affirmative vote of Members holding a majority (over 50%) or more of the
Percentages then held by Members shall be required to approve any matter coming
before the Members.
6.2.3. In lieu of holding a meeting, the Members may vote or
otherwise take action by a written instrument indicating the consent of all of
the Members.
6.3 Personal Service.
6.3.1. No Member shall be required to perform services for the
Company solely by virtue of being a Member. Unless approved by the Managers, and
subject to the other provisions of this Agreement, no Member shall perform
services for the Company or be entitled to compensation for services performed
for the Company.
6.3.2. The Managers shall be entitled to reimbursement for out-of-
pocket expenses reasonably incurred in connection with the activities of the
Company, provided such expenses shall not include a Manager's general overhead
expenses, salaries or benefits of its employees, or other expenses not directly
related to the Company.
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6.4 Duties of Parties.
6.4.1. The Managers shall devote such time to the business and
affairs of the Company as is necessary to carry out their duties set forth in
this Agreement.
6.4.2. Nothing in this Agreement shall be deemed to restrict in any
way the rights of any Member, or of any Affiliate of any Member, to conduct any
other business or activity whatsoever, and no Member shall be accountable to the
Company or to any other Member with respect to that business or activity even if
the business or activity competes with the Company's business. The organization
of the Company shall be without prejudice to the Member's respective rights (or
the rights of their respective Affiliates) to maintain, expand, or diversify
such other interests and activities and to receive and enjoy profits or
compensation therefrom. Each member waives any rights the Member might otherwise
have to share or participate in such other interests or activities of any other
Member of the Member's Affiliates.
6.4.3. Each member understands and acknowledges that the conduct of
the Company's business may involve business dealings and undertakings with
Members and their Affiliates, subject to the terms of this Agreement.
6.4.4. Subject to the terms of this Agreement and provided there is
no earlier dissolution of the Company as provided herein, the Company shall have
the sole and exclusive right to engage in any and all activities necessary to
develop the Premises until September 1, 1998 (as extended by the number of days,
if any, by which the owner may agree to extend the Option exercise date),
without interference by PPI, or any third parties. However, notwithstanding
anything to the contrary in this Agreement or the Law, so long as the Company
may be dissolved pursuant to Section 8.1.4, at any time after June 1, 1998, PPI
may enter into any other "back-up" agreement, arrangement or understanding with
any other party with respect to the Premises or its development, and may engage
in any and all activities with respect thereto, so long as such agreement or
arrangement is subject to the termination of this Agreement.
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6.5 Liability and Indemnification.
6.5.1. Limitation on Liability. A Manager shall perform his duties
as a Manager in good faith, in a manner he reasonably believes to be in the best
interest of the Company and the Members, and with such care as an ordinarily
prudent person in a like position would use under similar circumstances. A
person who so performs his duties shall not have any liability by reason of
being or having been a Manager of the Company. The Managers shall not be liable,
responsible or accountable in damages or otherwise to the Company or any Member
for any action taken or failure to act on behalf of the Company within the scope
of authority conferred on the Managers under this Agreement or the Law, except
as specifically set forth in Section 6.5.3 hereof.
6.5.2. Indemnification by Company. The Company shall indemnify and
hold harmless, and advance expenses to, each Manager, Member and their
respective agents, directors, officers and employees, from and against any and
all claims and demands whatsoever, in connection with business of the Company to
the fullest extent provided or permitted by the Law and the other laws of the
State of New York.
6.5.3. Indemnification by Wilmorite. Wilmorite shall indemnify,
defend and hold harmless, and advance expenses to, the Company, PPI and PPI's
Affiliates, officers, directors and agents from and against any and all claims,
demands, costs, damages, liabilities or expenses (including attorneys' fees)
arising or relating in any way to the action The Estate of Lydie H. Wilmot, et
al v. Thomas C. Wilmot, et al, Case No. 96-CV-6538T, pending in the U.S.
District Court of the Western District of New York, or arising or relating in
any way to any claim or matter asserted in such action.
6.5.4. Exceptions to Limitations On Liability. No provision of this
Agreement shall eliminate or limit the liability of any Manager if a judgment or
other final adjudication adverse to him or her establishes that his or her acts
or omissions were in bad faith, or involved intentional misconduct or a knowing
violation of law, or that he or she personally gained in fact a financial profit
or other advantage to which he or she was not legally entitled or that with
respect to a distribution the subject of
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subdivision (a) of Section 508 of the Law his or her acts were not performed in
accordance with Section 409 of the Law.
ARTICLE VII
TRANSFER OF INTERESTS AND WITHDRAWAL OF MEMBERS
7.1 General Restrictions. No Member may Transfer all or any part of its
Membership Interest in any manner whatsoever except: (a) to a Permitted
Transferee as set forth in Section 7.3 or (b) after full compliance with the
first offer and tag-along rights set forth in Section 7.4, and in either case
only if the requirements of Section 7.5 have also been satisfied. Any other
Transfer of all or any part of a Membership Interest is null and void, and of no
effect. Any Member who makes a Transfer of all of such Member's Membership
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 Membership Interest will continue as a Member (with respect to the
interest retained). The rights and obligations of any resigning Member or of any
Transferee of a Membership Interest will be governed by the other provisions of
this Agreement.
7.2 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 a Membership Interest by operation of law does not, by virtue of
such Transfer, succeed to any rights as a Member in the Company.
7.3 Permitted Transferee. Subject to the requirements set forth in Section
7.5, a Person may Transfer all or any part of such Person's Membership Interest:
(i) to an Affiliate of such Person;
(ii) to another Member;
(iii) to the Company;
(iv) to a Person approved by all the Members;
(v) to another Person as part of a merger, reorganization,
consolidation or sale of all or substantially all of the assets of a Member or
an Affiliate of a Member; or
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(vi) 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 7.
(vii) in the event of a Licensing Problem (as hereinafter
defined) pursuant to Section 11.3, to another Person so as to eliminate the
Licensing Problem.
7.4. First Offer Right and Tag-Along Rights.
7.4.1. At least thirty (30) days prior to making any
Transfer (except as permitted under Section 7.3 above) of all or any portion of
a Membership Interest, the Transferor will deliver a written notice (the "Offer
Notice") to each of the other Members (the "Non-Transferring Members"). The
Offer Notice shall disclose in reasonable detail the Membership Interest
proposed to be Transferred, the identity of the proposed Transferee, and the
proposed terms and conditions of the Transfer. The purchase price specified in
any Offer Notice must be payable solely in cash at the closing. The Non-
Transferring Members may elect to purchase all (but not less than all) of the
Membership Interest specified in the Offer Notice at the price and on the terms
specified therein by delivering Notice of such election to the Transferor as
soon as practical, but in any event within fifteen (15) days after delivery of
the Offer Notice. The purchase option for each Non-Transferring Member who
exercises such purchase option shall be for the purchase of a portion of the
Membership Interest of the Transferor multiplied by a fraction, the numerator of
which is the Membership Interest of the Non-Transferring Member exercising the
purchase option and the denominator of which is the aggregate Membership
Interest of all Non-Transferring Members who have exercised the purchase option.
If any Non-Transferring Member has elected to purchase a Membership Interest
from the Transferor, the Transfer of such Membership Interest will be
consummated as soon as practical after the deliver of the election notice. To
the extent that the Non-Transferring Members have not elected to purchase all of
the Membership Interest being offered, subject to Section 7.4.2 below, the
Transferor may, within ninety (90) days after the delivery of the Offer Notice,
Transfer such Membership Interest to the named Transferee at a price and on
terms no more favorable to the Transferee than offered to the Non-Transferring
Members in the Offer Notice.
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7.4.2. If the Membership Interest proposed to be Transferred
pursuant to Section 7.4.1 would, when Transferred to the proposed Transferee,
result in such Transferee and its Affiliates holding a majority Percentage of
all the Membership Interests, and the Non-Transferring Members do not exercise
their first offer rights to purchase such Membership Interest from the
Transferor, then each of the Non-Transferring Members shall have the right to
require the proposed Transferee to purchase from it (each such Member exercising
the right, a "Tag-Along Member"), at the price and on the terms and conditions
on the Offer Notice, a percentage of the Membership Interest of the Tag-Along
Member equal to the percentage derived by dividing the Membership Interest
proposed to be Transferred by the Transferor by the total Membership Interest of
the Transferor. If the proposed Transferee notifies the Transferor that it does
not wish to purchase all the Membership Interests proposed to be sold by the
Transferor and the Tag-Along Members, then any purchase of less than all of the
Membership Interest shall be made pro rata from the Transferor and the Tag-Along
Members based upon the total Membership Interest then held by each of them. If
the proposed Transferee does not purchase Membership Interests from the Tag-
Along Members as herein required at the price and on the other terms and
conditions stated in the Offer Notice, then the Transferor shall not be
permitted to sell any Membership Interest to the proposed Transferee. If no
notice of the exercise of the tag-along rights is received during the thirty
(30) day period referred to above, the Transferor shall have the right to
Transfer all (but not less than all) of the Membership Interests proposed to be
Transferred to the proposed Transferee on the terms and conditions of the Offer
Notice and in accordance with the provisions of section 7.5, within ninety (90)
days after the date of the Offer Notice, provided that, if such sale does not
occur within such ninety (90) day period, the Membership Interests proposed to
be Transferred shall thereupon again become subject to all the terms of this
Agreement, including, but not limited to, this Section 7.4.
7.5. General Conditions on Transfers. No Transfer of a Membership
Interest will be effective unless all of the conditions set forth below are
satisfied:
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7.5.1 Unless waived by the Company, the Transferor shall sign
and deliver 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
organization documents or filings as may be required by law.
7.5.2 Unless waived by the Company, the Transferor shall deliver
to the Company an opinion of counsel for the Transferor, satisfactory in form
and substances to the Company, to the effect that the Transfer of the Membership
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 with respect to
compliance with the applicable federal and state securities laws and to any
other matter reasonably required by the Company.
7.5.3 Unless waived by the Company, the Company shall 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
(12) months, does not cause a termination of the Company for federal income tax
purposes.
7.5.4 The Transferor signs and delivers to the Company a copy of
the assignment of the Membership Interest to the Transferee.
7.5.5. The Transferee signs and delivers to the Company its
agreement to be bound by this Agreement.
7.5.6 The Transfer is in compliance with the other provisions of
this Article.
7.5.7 Notwithstanding the above, only the last two (2)
requirements will apply to a Transfer by operation of law and only the last
three (3) requirements will apply to a Transfer by intercorporate dividend,
Capital Contribution or gift (or any other Transfer without consideration) to
any Permitted Transferee. Except
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as the Company and the Transferee may otherwise agree, the Transfer of a
Membership Interest will be effective as of 12:01 a.m. (Central 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, Exhibit B will be amended
chronologically to reflect the new Membership Interests.
7.6 Rights of Transferees. Any Transferee of a Membership Interest will,
on the effective date of the Transfer, have only those rights of an assignee as
specified in the Law and this Agreement, unless and until such Transferee is
admitted as a substitute Member with the consent of all the Members, the
granting or denial of which shall be in their sole discretion. 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 7.9 will have only the rights of an assignee as
specified in the Law and this Agreement. Any Transferee of all or any part of a
Membership 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 a
Membership 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 Membership Interest transferred)
and to receive required tax reporting information. However, each Transferee of
all or any part of a Membership Interest (including both immediate and remote
transferees) will be subject to all of the obligations, restrictions and other
terms contained in this Agreement as if such Transferee were a Member. To the
extent of any Membership 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 Law, and the Members agree that they intend, to that extent, to
vary those provisions by this Agreement.
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7.7 Liability of Former Member. If a Transfer of a Member's Membership
Interest in the Company occurs in compliance with the provisions of this Article
VII, and if the Transferee of such interest becomes a substituted Member
pursuant to the terms of this Agreement, the former Member shall be relieved of
all obligations under this Agreement (except for any obligations arising prior
to the date of such Transfer) associated with the transferred Membership
Interest, and this Agreement shall have no further force and effect as to such
former Member with respect to the transferred Membership Interest.
7.8 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 Membership
Interest does not cause the Member to cease to be a Member. 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 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 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.
7.9 No Voluntary Withdrawal. No Member shall have the right or power to
voluntarily withdraw from the Company, prior to the dissolution and winding up
of the Company. Any withdrawal in violation of this Agreement shall entitle the
Company to damages for breach, which may be offset against the amounts otherwise
distributable to such Member.
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ARTICLE VIII
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE COMPANY
8.1 Events of Dissolution. The Company shall be dissolved upon the
happening of any of the following events:
8.1.1. When the period fixed for its duration in Section 2.4 has
expired;
8.1.2. Upon the written agreement of all the Members;
8.1.3. The occurrence of an Involuntary Withdrawal, unless
remaining Members holding a majority of the Percentages (not including for this
purpose the Percentage held by the Member subject to Involuntary Withdrawal)
then held by Members, within one hundred eighty (180) days after the occurrence
of the Involuntary Withdrawal, elect to continue the business of the Company
pursuant to the terms of this Agreement;
8.1.4 At the election of Wilmorite, in its sole discretion, at any
time prior to the first to occur of (i) the exercise of the Option or the
entering into an agreement to Purchase the Premises; or (ii) September 1, 1998
(as extended by the number of days, if any, by which the Owner may agree to
extend the Option exercise date), in the event that (a) any necessary regulatory
approval or consent that is material to the Development cannot be obtained in a
timely or economical fashion (for which purpose, the obtaining of such approval
or consent shall not be deemed untimely so long as the Company is seeking
approval or consent in an expeditious manner and with due diligence and/or is
pursuing an appeal from the denial of an approval or consent); or
8.1.5 At the election of PPI, at its sole discretion, (i) at any
time on or after September 1, 1998 (as extended by the number of days, if any,
by which the Owner may agree to extend the Option exercise date), in the event
that by such date the Company has not entered into a definitive agreement to
purchase the Premises; (ii) at any time, in the event that any necessary
regulatory approval or consent that is material to the Development cannot be
obtained in a timely or economical fashion (for which purpose, the obtaining of
such approval or consent shall not be deemed untimely so long as the Company is
seeking approval or consent in an
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expeditious manner and with due diligence and/or is pursuing an appeal from the
denial of an approval or consent); (iii) pursuant to Section 3.2.4 above in the
event Wilmorite fails to make a required Capital Contribution; or (iv) pursuant
to Section 11.3 below in the event of a Licensing Problem.
8.2 Procedure for Winding Up and Dissolution. If the Company is
dissolved, the Managers shall wind up its affairs. On winding up of the Company,
the assets of the Company shall be distributed, first to creditors of the
Company, including Economic Interest Holders who are creditors, in satisfaction
of the liabilities of the Company, and then to the Economic Interest Holders in
accordance with Section 4.4.
8.3 Filing of Articles of Dissolution. If the Company is dissolved, the
Managers shall promptly file Articles of Dissolution with the Department of
State. If there are no Managers, then the Articles of Dissolution shall be filed
by the remaining Members; if there are no remaining Members, the Articles of
Dissolution shall be filed by the last Person to be a Member; if there is
neither a Manager, remaining Members, nor a Person who was last a Member, the
Articles of Dissolution shall be filed by the legal or personal representatives
of the Person who was last a Member.
8.4 Certain Consequences of Dissolution. Notwithstanding anything to the
contrary in this Agreement, the Law or elsewhere, upon the dissolution of the
Company pursuant to Section 8.1.4 or 8.1.5 above, the following shall occur:
(i) this Agreement shall terminate and be nul and void (except for
Sections 10.2, 10.3, 10.8 and this Article VIII, which shall survive such
termination, and except that all previously incurred obligations, rights or
liabilities shall remain unimpaired);
(ii) PI shall be relieved of any obligation under Section 3.2.2 hereof;
(iii) all rights to or interests in the Lease or the Option shall reside
exclusively with PPI, including the right to sell or assign the Lease or the
Option, to exercise the Option, to take title to the Premises, to develop the
Premises in any way PPI may deem appropriate or to sell or otherwise dispose of
the Premises;
(iv) neither the Company nor Wilmorite shall have any further right to
or interest in the Premises, the Lease or the Option whatever;
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(v) neither Wilmorite nor any Affiliate of Wilmorite shall directly or
indirectly, acquire or offer to acquire all or any portion of the Premises or
any interest (including a leasehold interest) therein;
(vi) Wilmorite and the Company shall convey and assign to PPI or its
designee, without charge, the rights to, and the originals or copies of, all
drawings, plans, specifications, designs, surveys, studies, analysis or reports
(including environmental reports and analysis) and all permits, approvals or
consents and applications therefor concerning the development of the Premises as
a Power Strip Center and, to the extent any such permits, approvals or consents,
or applications therefor, are not assignable, Wilmorite and the Company shall
hold, maintain and/or procure them for the benefit and use, and at the expense
of, PPI or its designee and shall cooperate with PPI in all reasonable respects
in relations thereto; and
(vii) notwithstanding Section 8.2 hereof, the assets of the Company
shall be distributed, first to creditors of the Company, including Economic
Interest Holders who are creditors, in satisfaction of the liabilities of the
Company, then to Wilmorite up to the amount of its Capital Contributions
pursuant to Section 3.2.1 (less the amount of any distributions to Wilmorite),
and then to the Economic Interest Holders in accordance with Section 4.4.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND TAX ELECTIONS
9.1 Bank Accounts. All funds of the Company shall be deposited in a bank
account or accounts opened in the Company's name. The Managers shall determine
the institution or institutions at which the accounts will be opened and
maintained, the types of accounts, and the Persons who will have authority with
respect to the accounts and the funds therein.
9.2 Books and Records.
9.2.1. The Managers shall keep or cause to be kept, complete and
accurate books and records of the Company and supporting documentation of the
transactions with respect to the Company's business. The records shall include,
but not be limited to:
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(i) a current alphabetized list of the names and addresses of all of the
Members, as well as the Capital Contributions, Capital Account balance and the
share of Profits and Losses of each Member, or information from which such share
can readily be derived;
(ii) a current alphabetized list of the names and addresses of the
Managers;
(iii) a copy of the Articles of Organization and all amendments thereto
or restatements thereof, together with executed copies of any powers of attorney
pursuant to which any certificate or amendment has been executed;
(iv) a copy of the Operating Agreement and any amendments thereto and
any amended and restated Operating Agreement; and
(v) a copy of the Company's federal, state and local income tax or
information returns and reports, if any, for the five (5) most recent fiscal
years.
9.2.2. The books and records shall be maintained in accordance with
sound accounting practices and shall be available at the Company's principal
office for examination by any Member or the Member's duly authorized
representative at any and all times during normal business hours.
9.2.3. Each Member shall reimburse the Company for all costs and
expenses incurred by the Company in connection with the Member's inspection and
copying of the Company's books and records.
9.3 Annual Accounting Period. The annual accounting period of the
Company shall be its taxable year. The Company's taxable year shall be selected
by the Managers, subject to the requirements and limitations of the Code.
9.4 Reports. Within forty-five (45) days after the end of each calendar
quarter and within ninety (90) days after the end of each taxable year of the
Company, the Managers shall cause to be sent to each Person who was a Member at
any time during the period then ended: (i) a report for the period, including a
balance sheet and Profit and Loss and Cash Flow statements, prepared in
accordance with generally accepted accounting principles and reviewed by the
Company's independent public accountants; and (ii) a report summarizing the fees
and other remuneration paid by the Company to any Member, any Manager, or any
Affiliate in respect of the period.
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In addition, within ninety (90) days after the end of each taxable year of the
Company, the Managers shall cause to be sent to each Person who was an Interest
Holder at any time during the taxable year then ended, that tax information
concerning the Company which is necessary for preparing the Interest Holder's
income tax returns for that year. At the request of any Member, and at the
Company's expense, the Managers shall cause an audit of the Company's books and
records to be prepared by the independent accountants for the annual period
requested by the Member, and the Company shall provide the Member with audited
financial statements, prepared using generally accepted accounting principles,
together with a report of the accountants thereon.
9.5 Tax Matters Member. Wilmorite shall be the Company's tax matters
Member ("Tax Matters Member"). The Tax Matters Member shall have all powers and
responsibilities provided in Code Section 6221, et seq. The Tax Matters Member
shall keep Members informed of all notices from government taxing authorities
which may come to the attention of the Tax Matters Member. The Company shall
pay and be responsible for all reasonable third party costs and expenses
incurred by the Tax Matters Member in performing those duties. A Member shall
be responsible for any costs incurred by the Member with respect to any tax
audit or tax related administrative or judicial proceeding against any Member,
even though it relates to the Company. The Tax Matters Member shall not
compromise any dispute with the Internal Revenue Service without the approval of
all the Members.
9.6 Tax Elections. The Tax Matters Member shall have the authority to
make all Company Elections permitted under the Code, including, without
limitation, elections of methods of depreciation and elections under Code
Section 754. The decision to make or not make an election shall be at the Tax
Matters Member's sole and absolute discretion. The Company shall elect to be
treated as a partnership for tax purposes.
9.7 Title to Company Property.
All real and personal property acquired by the Company shall be
acquired and held by the Company in its name.
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ARTICLE X
GENERAL PROVISIONS
10.1 Assurances. Each Member shall execute all certificates and other
documents and shall do all such filing, recording, publishing and other acts as
the Managers deem appropriate to comply with the requirements of law for the
formation and operation of the Company and to comply with any laws, rules and
regulations relating to the acquisition, operation or holding of the property of
the Company.
10.2 Notifications. Any notice, demand, consent, election, offer,
approval, request or other communication (collectively a "notice") required or
permitted under this Agreement must be in writing and either delivered
personally or sent by reputable overnight courier, or certified or registered
mail, postage prepaid, return receipt requested. Any notice to be given
hereunder by the Company shall be given by the Person authorized by the
Managers. A notice must be addressed to a Member at the Member's last known
address on the records of the Company. A notice to the Company must be
addressed to the Company's principal office. A notice that is sent by mail will
be deemed given three (3) business days after it is mailed. Any party may
designate, by notice to all of the others, substitute addresses or addressees
for notices; and thereafter, notices are to be directed to those substitute
addresses or addressees.
10.3 Specific Performance. The parties recognize that irreparable injury
will result from a breach of any provision of this Agreement and that money
damages will be inadequate to fully remedy the injury. Accordingly, in the
event of a breach or threatened breach of one or more of the provisions of this
Agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled to one or more preliminary or
permanent orders (i) restraining and enjoining any act which would constitute a
breach, or (ii) compelling the performance of any obligation which, if not
performed, would constitute a breach.
10.4 Complete Agreement. For and in consideration of the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
adequacy of which hereby acknowledged, the Members executing this Agreement
hereby agree to the terms and conditions of this Agreement as it may be from
time to time amended according to its terms. It is the express intention of the
Members that
45
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the Agreement shall be sole source of agreement of the parties except to the
extent a provision of this Agreement expressly incorporates federal income tax
rules by reference to the Code or Regulations, or is expressly prohibited or
ineffective under the Law, even when inconsistent with or different from the
provisions of the Law or any other law or rule. To the extent any provision of
this Agreement is prohibited or ineffective under the Law, this Agreement shall
be considered amended to the smallest degree possible in order to make this
Agreement effective under the Law. In the event the Law is subsequently amended,
or interpreted in such a way to make any provision of this Agreement that was
formerly invalid valid, such provision shall be considered to be valid from the
effective date of such interpretation or amendment. This Agreement constitutes
the complete and exclusive statement of the agreement among the Members with
respect to the subject matter thereof. It supersedes all prior written and oral
statements, including any prior representation, statement, condition, or
warranty. Except as expressly provided otherwise herein, this Agreement may not
be amended without the written consent of the Members holding eighty percent
(80%) or more of the Percentages then held by Members.
10.5 Applicable Law. All questions concerning the construction, validity
and interpretation of this Agreement and the performance of the obligations
imposed by this Agreement shall be governed by the internal law, not the law of
conflicts, of the State of New York.
10.6 Article and Section Titles. The headings herein are inserted as a
matter of convenience only and do not define, limit or describe the scope of
this Agreement nor the intent of the provisions hereof.
10.7 Binding Provisions. This Agreement is binding upon, and inures to the
benefit of, the parties hereto and their respective heirs, executors,
administrators, personal and legal representatives, successors and permitted
assigns.
10.8 Arbitration.
10.8.1 Except as to any disputes for which injunctive relief may be
available, in the event a dispute or matter of any kind arises in connection
with this Agreement (including any dispute concerning its construction,
performance or breach) or the organization or operation of the Company (a
"Dispute"), the parties to the
46
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Dispute will attempt to resolve the Dispute as set forth in Section 10.8.2
before proceeding to arbitration as provided in Section 10.8.2. 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.
10.8.2 Any party to the Dispute will give notice to each other
party (the "Notice"). 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. If, within thirty (30)
days after the Notice, the Dispute is not resolved through negotiation or
mediation, the Dispute shall 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:
10.8.2.1. All parties to the Dispute will collectively select
one arbitrator. If the parties fail to do so within forty-five (45) days after
the Notice, one or more parties will request the American Arbitration
Association to submit a panel of five (5) 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 (1) name remains. A similar procedure will be followed if there are
more than two (2 ) parties. The parties may, by agreement, reject an entire
list, and request a second list. If selection by the above method is not
completed within ninety (90) days after the Notice, or if there are more than
four (4) parties, then an arbitrator will be selected by the American
Arbitration Association. The arbitrator so selected will then arbitrate the
Dispute in New York City, New York and issue an award.
10.8.2.2. 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. The arbitrator's decision in all
non-real estate related issues will be made pursuant to the relevant substantive
law of the State of New York. The arbitrator's decision in all real estate
related issues will be made pursuant to the relevant substantive law of the
State of Florida. The award of the arbitrator will be final, binding and non-
appealable. Judgment on the award may be entered in any state or federal court
having jurisdiction.
47
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10.8.2.3. 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 its other costs and
expenses. 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).
10.9 Terms. Common nouns and pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular and plural, as the identity of the Person
may in the context require.
10.10 Separability of Provisions. Each provision of this Agreement shall
be considered separable; and if, for any reason, any provision or provisions
herein are determined to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of or affect those portions of
this Agreement which are valid.
10.11 Counterparts. This Agreement may be executed simultan- eously in two
or more counterparts, each of which shall be deemed an original and all of
which, when taken together, constitute one and the same document. The signature
of any party to any counterpart shall be deemed a signature to, and may be
appended to, any other counterpart.
10.12 Estoppel Certificate. Each Member shall, within ten (10) days after
written request by the Managers, deliver to the requesting Person a certificate
stating, to the Member's knowledge, that: (i) this Agreement is in full force
and effect; (ii) this Agreement has not been modified except by an instrument or
instruments identified in the certificate; and (iii) there is no default
hereunder by the requesting Person, or if there is a default, the nature and
extent thereof.
10.13 Rights of Creditors and Third Parties Under Agreement. This Agreement
is entered into among the Company and the Members for the exclusive benefit of
the Company, its Members, and their successors and assignees. The Agreement is
expressly not intended for the benefit of any creditor of the Company or any
other Person. Except and only to the extent provided by applicable statute, no
such creditor or third party shall have any rights under this Agreement or any
48
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agreement between the Company and any Member with respect to any Capital
Contribution or otherwise.
10.14 Brokerage. PPI and Wilmorite warrant and represent to one another
that neither PPI nor Wilmorite, nor their respective agents or employees, have
engaged the services of a Broker to represent, negotiate, or to engage in the
transactions which are the subject of this Agreement. Each party agrees to
indemnify the other and the Company against any and all such claims as may arise
for commissions, fees or other costs or charges as may be claimed by any such
Broker.
ARTICLE XI - LICENSING AND REGULATORY REVIEW
11.1 PPI Subject to Licensing and/or Regulatory Review. Wilmorite
acknowledges that as a result of the transactions contemplated by this
Agreement, PPI and/or its parent company, Casino America, Inc. ("Casino
America"), or Wilmorite, and their respective 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 PPI or Casino
America and their Affiliates ("Regulatory Authority") in the jurisdictions in
which PPI or Casino America and their Affiliates conduct or propose to conduct
gaming activities, including, without limitation, Colorado, Mississippi,
Louisiana and Florida.
11.2 Agreement to Cooperate. Wilmorite 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 PPI or Casino America or their Affiliates' ability to develop
new business or to continue to conduct their existing business.
11.3 Licensing Problem. Wilmorite agrees that in the event the Board of
Directors of Casino America reasonably determines based upon communications with
a Regulatory Authority that Wilmorite or any of its Affiliates is likely to be
determined unsuitable by such Regulatory Authority, and as a result PPI or
49
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Casino America or their Affiliates may not be permitted to engage or to continue
to engage in a gaming activity (collectively a "Licensing Problem"), PPI shall
promptly notify Wilmorite, and then, within the lesser of ninety (90) days of
notice of such event from PPI to Wilmorite or the applicable period prescribed
by the appropriate Regulatory Authority (provided PPI timely notifies Wilmorite
of such a determination), Wilmorite shall eliminate the Licensing Problem to the
reasonable satisfaction of Casino America's Board, it being understood that
elimination of the Licensing Problem may include the transfer of Wilmorite's
Membership Interest and rights and obligations under the CM and OM Agreements to
a third party reasonably acceptable to PPI. If Wilmorite shall fail to eliminate
the Licensing Problem within such period of time, then, if the Option has not
been exercised, PPI may elect to dissolve the Company pursuant to Section 8.1.5,
or, if the Option has been exercised, at the election of PPI (i) Wilmorite shall
purchase PPI's Membership Interest for its fair market value; (ii) Wilmorite
shall sell its Membership Interest and its interests in the CM and OM Agreements
for fair market value to PPI; or (iii) Wilmorite shall sell its Membership
Interest and its interests under the CM and OM Agreements for fair market value
to a Person, reasonably acceptable to PPI, which does not have a Licensing
Problem. For this purpose, if the parties are unable to agree on the fair market
value of PPI's or Wilmorite's Membership Interest, the matter shall be submitted
to arbitration pursuant to Section 10.8 hereof.
IN WITNESS WHEREOF, the parties have executed, or caused this Agreement to
be executed, under seal, as of the date set forth hereinabove.
WITNESS OR ATTEST: MEMBERS:
WILMORITE, INC.
__________________________________
By: /s/ Thomas Wilmot
-------------------------------
__________________________________ Title: President
----------------------------
WITNESS OR ATTEST: PPI, INC.
__________________________________
By: /s/ Bernard Goldstein
-------------------------------
__________________________________ Title: Chairman and CEO
----------------------------
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EXHIBIT 10.59
JOINT VENTURE AGREEMENT
OF
CAPRI CRUISES
BETWEEN
COMMODORE CRUISES LIMITED
AND
ISLE OF CAPRI CASINO CORPORATION
DATED APRIL __, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 DEFINITIONS............................................................ -1-
ARTICLE 2 OFFICES AND STATUTORY AGENT............................................ -5-
2.1 Principal Executive Office............................................. -5-
2.2 Other Offices.......................................................... -5-
ARTICLE 3 ESTABLISHMENT OF THE JOINT VENTURE..................................... -5-
3.1 Establishment of the Joint Venture..................................... -5-
3.2 Organization as a General Partnership.................................. -5-
3.3 Name................................................................... -6-
3.4 Charter of Vessel...................................................... -6-
3.5 Operations............................................................. -6-
3.6 Reservations........................................................... -6-
3.7 Corporate Overhead..................................................... -6-
3.8 Intellectual Property Assets........................................... -7-
3.9 Representations and Warranties of the Partners......................... -7-
3.10 Covenants of Partners.................................................. -8-
3.11 Concession Aboard Enchanted Isle....................................... -8-
ARTICLE 4 PARTNERS; MANAGEMENT; VOTING RIGHTS; MEETINGS OF DIRECTORS............. -8-
4.1 Partners............................................................... -8-
4.2 Management Committee................................................... -8-
4.3 Management Committee Meetings.......................................... -9-
4.4 Voting................................................................. -10-
4.5 Procedures in the Event of a Deadlock.................................. -12-
4.6 Chief Executive Officer................................................ -13-
4.7 Executive Officers..................................................... -14-
4.8 Business Plan.......................................................... -14-
4.9 Budget Approval........................................................ -15-
4.10 Employees and Employee Benefits........................................ -16-
4.11 Arrangements with Partners or Affiliates............................... -16-
4.12 Access to Books of Account............................................. -17-
4.13 Duty of Partners to Cooperate.......................................... -17-
4.14 Insurance and Risk Management.......................................... -17-
4.15 Limitations on Partner's Authority..................................... -17-
ARTICLE 5 CAPITAL CONTRIBUTIONS.................................................. -18-
5.1 Initial Capital Contributions.......................................... -18-
5.2 Adjustments to Capital Accounts........................................ -18-
5.3 Additional Capital Contributions....................................... -19-
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
5.4 Procedure for Making Capital Calls by the Management Committee......... -19-
5.5 Failure of Partner to Contribute Capital............................... -19-
5.6 No Third Party Beneficiaries........................................... -21-
5.7 No Withdrawal of, or Payment of Interest on, Capitals Accounts......... -21-
5.8 Obligation to Restore.................................................. -21-
ARTICLE 6 ALLOCATIONS, DISTRIBUTIONS, ACCOUNTING AND TAX MATTERS................. -21-
6.1 Allocations............................................................ -21-
6.2 Distributions and Reserves............................................. -21-
6.3 Accounting Matters..................................................... -23-
6.4 Tax Status and Returns................................................. -23-
6.5 Tax Matters Partner.................................................... -23-
6.6 754 Election........................................................... -24-
6.7 Partnership Classification............................................. -24-
ARTICLE 7 TRANSFER OF INTERESTS; ADMISSION AND RESIGNATION OF PARTNERS........... -24-
7.1 Transfer of Interests.................................................. -24-
7.2 Right of First Refusal................................................. -25-
7.3 Exempt Transfers....................................................... -26-
7.4 Legend................................................................. -27-
7.5 Admission of New Partners.............................................. -27-
7.6 Resignation of Partners................................................ -28-
7.7 Sale Due to Objection of Governmental Body............................. -28-
ARTICLE 8 DISSOLUTION/MANDATORY SALE............................................. -29-
8.1 No Default Dissolution................................................. -29-
8.2 Default Dissolution.................................................... -29-
8.3 Mandatory Sale......................................................... -31-
8.4 Notice................................................................. -31-
8.5 Dissolution Procedures................................................. -31-
8.6 Settling of Accounts................................................... -32-
8.7 Distribution of Proceeds............................................... -32-
8.8 Certified Liquidation Statement........................................ -33-
8.9 Mandatory Sale Procedures.............................................. -33-
ARTICLE 9 OUTSIDE ACTIVITIES; CONFIDENTIALITY.................................... -35-
9.1 Outside Activities..................................................... -35-
9.2 Duties of Partners..................................................... -36-
9.3 Confidential Information............................................... -36-
9.4 Duty of Partners to Cooperate.......................................... -38-
ARTICLE 10 INDEMNIFICATION........................................................ -38-
10.1 Limitation of Liability................................................ -38-
</TABLE>
(ii)
<PAGE>
<TABLE>
<C> <S> <C>
10.2 Indemnification: Proceeding other than by Joint Venture............... -38-
10.3 Indemnification: Proceeding by Joint Venture.......................... -39-
10.4 Mandatory Indemnification.............................................. -39-
10.5 Authorization of Indemnification....................................... -39-
10.6 Mandatory Advancement of Expenses...................................... -39-
10.7 Effect and Continuation................................................ -39-
10.8 Insurance and Other Financial Arrangements............................. -40-
10.9 Notice of Indemnification and Advancement.............................. -40-
10.10 Repeal or Modification................................................. -40-
ARTICLE 11 INSPECTION OF JOINT VENTURE RECORDS; ANNUAL AND OTHER REPORTS.......... -40-
11.1 Records to be Kept..................................................... -40-
11.2 Inspection of Joint Venture Records.................................... -41-
11.3 Financial Reports...................................................... -41-
11.4 Joint Venture Auditors................................................. -41-
ARTICLE 12 DEFAULTS AND REMEDIES.................................................. -41-
12.1 Defaults............................................................... -41-
12.2 Remedies............................................................... -42-
12.3 No Waiver.............................................................. -42-
ARTICLE 13 DISPUTE RESOLUTION..................................................... -42-
13.1 Disputes............................................................... -42-
13.2 Arbitration............................................................ -42-
ARTICLE 14 MISCELLANEOUS.......................................................... -46-
14.1 Term................................................................... -46-
14.2 Amendments............................................................. -46-
14.3 Nature of Partnership Interest; Agreement Is Binding Upon Successors... -46-
14.4 Title to Property...................................................... -46-
14.5 Attorney Fees.......................................................... -46-
14.6 Seal................................................................... -47-
14.7 Entire Agreement....................................................... -47-
14.8 Third Parties.......................................................... -47-
14.9 Governing Law.......................................................... -47-
14.10 Counterparts........................................................... -47-
14.11 Titles and Subtitles; Form of Pronouns; Construction and Definitions... -47-
14.12 Severability........................................................... -47-
14.13 Costs.................................................................. -48-
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C> <C>
SCHEDULE 1 Names, Addresses and Initial Capital
Contributions of Partners................... 1-1
SCHEDULE 2 Initial Percentage Interests................ 2-1
SCHEDULE 3 Initial Directors........................... 3-1
SCHEDULE 4 Capital Accounts and Profits and Losses..... 4-1
SCHEDULE 5 Booking Rights and Commissions.............. 5-1
EXHIBIT A Guaranty.................................... A-1
EXHIBIT B Form of Joint Venture Charter and Assignment B-1
EXHIBIT C Form of License Agreement................... C-1
EXHIBIT D Initial Business Plan....................... D-1
EXHIBIT E Initial Budget.............................. E-1
EXHIBIT F Form of Casino Management Agreement......... F-1
</TABLE>
(iv)
<PAGE>
JOINT VENTURE AGREEMENT
OF
CAPRI CRUISES
THIS JOINT VENTURE AGREEMENT (this "Agreement") is made and entered into as
of the ___ day of April, 1998 by and between COMMODORE CRUISES LIMITED, a
Bermuda corporation ("Commodore"), and ISLE OF CAPRI CORPORATION, a Mississippi
corporation ("Casino"),
W I T N E S S E T H
WHEREAS, the parties hereto wish to form and become Partners of a general
partnership, to be called Capri Cruises (the "Joint Venture"), under and
pursuant to Chapter 620 of the Florida Statutes (the Florida Revised Uniform
Partnership Act), for the purpose of operating a cruise ship from New Orleans,
Louisiana, and such other business activities as shall be approved by the
Partners from time to time; and
WHEREAS, the parties agree that their respective rights, powers, duties and
obligations as Partners of the Joint Venture, and the management, operations and
activities of the Joint Venture, shall be governed by this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, covenants, and
conditions contained herein, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement without other definition shall,
unless expressly stated otherwise, have the meanings specified in this
Article 1.
"Act" means Chapter 620 of the Florida Statutes (the Florida Revised
Uniform Partnership Act), as from time to time in effect in the State of
Florida, or any corresponding provision or provisions of any succeeding or
successor law of such State; provided, however, that in the event that any
amendment to the Act, or any succeeding or successor law, is applicable to the
Joint Venture only if the Joint Venture has elected to be governed by the Act as
so amended or by such succeeding or successor law, as the case may be, the term
"Act" shall refer to the Act as so amended or to such succeeding or successor
law only after the appropriate election by the Joint Venture has been made and
has become effective.
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"Affiliate" means any other Person directly or indirectly controlling,
controlled by, or under common control with, such Person; provided, however,
except that no party to this Agreement shall be considered an affiliate of any
other party solely by reason of its investment in the Joint Venture.
"Agreement" means this Joint Venture Agreement, as originally executed and
as amended, modified or supplemented from time to time. Words such as "herein,"
"hereafter," "hereof," "hereto," "hereby" and "hereunder", when used with
reference to this Agreement, refer to this Agreement as a whole, unless the
context otherwise requires.
"Business" means the operation of a cruise ship in "blue waters" from New
Orleans, Louisiana, and such other business activities as shall be approved by
the Partners from time to time.
"Business Plan" means the business plan of the Joint Venture described in
Section 4.8.
"Capital Account" means a Partner's account, calculated in accordance with,
and intended to comply with, Treasury Regulations section 1.704-1(b), pursuant
to Article 5 hereof.
"Capital Contributions" means the contributions made by the Partners to the
Joint Venture pursuant to Article 5 hereof and, in the case of all the Partners,
the aggregate of all such Capital Contributions.
"Code" means the United States Internal Revenue Code of 1986, as amended,
or any corresponding provision or provisions of any succeeding law.
"Confidential Information" means all confidential documents and information
(including, without limitation, confidential commercial information and
information with respect to customers and proprietary processes and the design
and development of new services) concerning the Joint Venture or the Joint
Venture Business, any Partner, or any Affiliate of a Partner furnished to a
Partner, an Affiliate of a Partner or the Joint Venture in connection with the
transactions leading up to and contemplated by this Agreement and the operation
of the Joint Venture or its business, except to the extent that such information
can be shown to have been (a) generally available to the public other than as a
result of a breach of the provisions of Section 9.3 of this Agreement; (b)
already in the possession of the receiving Person (as defined below in this
Section) or its Representatives (as such term defined in Section 9.3 hereof)
without restriction (including restrictions contained in any confidentiality
agreement or other nondisclosure obligation entered into by the Partner) and
prior to any disclosure in connection with the Joint Venture or pursuant to any
of the terms of this Agreement; (c) lawfully disclosed to the receiving Person
or its Representatives by a third party who is free lawfully to disclose the
same; or (d) independently developed by the receiving Person without use of any
Confidentiality Information obtained in connection with the transactions leading
up to and contemplated by this Agreement and the operation of the Joint Venture
or its business.
"Default Loan" means loans described in Section 5.5(d).
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"Default Rate" means the rate announced from time to time by NationsBank
N.A. as its prime rate plus 5%.
"GAAP" means generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the balance sheet and the
other financial statements preceding the ones with respect to which such term is
used were prepared.
"Governmental Body" means any: (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or quasi-
governmental authority of any nature (including any governmental agency, branch,
department, official, or entity and any court or other tribunal); (d) multi-
national organization or body; or (e) body exercising, or entitled to exercise,
any administrative, executive, judicial, legislative, police, regulatory, or
taxing authority or power of any nature.
"Guarantee" means the Guaranty executed by each of Commodore Holdings
Limited and Casino America, Inc., in the form of Exhibit "A" hereto.
"Intellectual Property Assets" means:
(a) all patents, patent applications and inventions and discoveries that
may be patentable;
(b) all copyrights in both published and unpublished works;
(c) all know-how, trade secrets, confidential information, customer lists,
software, programs, prototypes, designs, technical information, data, process
technology, engineering and manufacturing information, procedures,
specifications, plans, drawings and blue prints; and
(d) all trademarks (whether registered or unregistered) and trademark
applications owned, used, or licensed by the Person with respect to whom the
term is used either as licensee or licensor.
"Interest" means the entire ownership interest of a Partner in the Joint
Venture at any particular time, including, without limitation, the right of such
Partner to participate in the Joint Venture's income or losses and its Net Cash
Flow, and any and all other benefits to which a Partner may be entitled as
provided in this Agreement and the Act, subject to the obligations of such
Partner to comply with all the terms and provisions of this Agreement.
"IRC" means the United States Internal Revenue Code of 1986, as amended, or
any corresponding provision or provisions of any succeeding law.
"Net Cash Flow" means, with respect to any fiscal period, the excess of
operating revenues and receipts over operating expenses and other expenditures
for such fiscal period, (a) decreased by
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any amounts added to Reserves during such fiscal period, and (b) increased by
the amount (if any) of all allowances for cost recovery, amortization or
depreciation with respect to property of the Joint Venture for such fiscal
period, and (c) increased by any amounts withdrawn from Reserves during such
fiscal period. The foregoing computation shall be performed in accordance with
GAAP, consistently applied.
"Operations" means all transactions in the ordinary course of the Joint
Venture's business, but does not include the making of Capital Contributions to
the Joint Venture.
"Parent Entity" means, as to any Person, an Affiliate of which such Person
is a wholly or majority owned subsidiary.
"Partner Loans" means the loans described in Section 6.2(a)(i).
"Partner" shall mean each of the parties to this Agreement and any Person
(as defined below) who is admitted as a Partner of the Joint Venture pursuant to
the Act and the terms of this Agreement provided that such party or Person has
not disposed of its entire interest in the Joint Venture pursuant to Article 7
hereof.
"Percentage Interest" means the allocable interest of each Partner in the
income, gain, losses, deductions or credits of the Joint Venture. The
Percentage Interests of the Partners are as set forth in Schedule 2 hereto.
"Person" means any partnership, joint venture, association, corporation,
limited liability company, trust or other entity, or, where the contexts so
permits or requires, natural Person.
"Present Operations" means the Operations of the Joint Venture as described
in the Business Plan for its present fiscal year.
"Reference Rate" means the rate announced from time to time by NationsBank
N.A. as its prime rate.
"Reserves" means the reserves established and maintained from time to time
by the Management Committee for the purposes set forth in Section 6.2(b).
"Seaworthiness" means that the Vessel complies with all requirements of its
classification society, country of registry, United States Public Health
Service, United States Coast Guard, the International Convention of Safety of
Life at Sea, and that all equipment aboard the Vessel, including air
conditioning systems, water pumps and desalinization systems, are operational.
"Treasury Regulations" means the regulations issued by the Treasury
Department under the Code, as such regulations may be amended form time to time,
including any successor regulations.
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<PAGE>
"Vessel" means the M/V Island Holiday (to be renamed the "M/V Enchanted
Capri") and/or such other ships as may be operated by the Joint Venture in the
future.
"Vessel Rules" means the Vessel's operating manual and such rules and
regulations concerning safety, discipline, shipboard conduct and compliance with
applicable laws as may be promulgated by Commodore and the Vessel's Captain from
time to time.
"Wholly Owned Subsidiary" means, as to any Person, a corporation or other
entity of which all of the capital stock or other equity interest is owned,
directly or indirectly, through one or more intermediaries, or both, by such
Person.
ARTICLE 2
OFFICES AND STATUTORY AGENT
2.1 Principal Executive Office. The principal executive office for the
transaction of the business of the Joint Venture shall initially be at 4000
Hollywood Boulevard, Suite 385-S, South Tower, Hollywood, Florida 33021, and may
be changed from time to time by the Partners within or without the State of
Florida.
2.2 Other Offices. The Partners may at any time and from time to time
establish other business offices within or without the State of Florida.
ARTICLE 3
ESTABLISHMENT OF THE JOINT VENTURE
3.1 Establishment of the Joint Venture. Upon execution of this Agreement
and contribution of the first installment of the Initial Capital Contributions
due by each Partner as set forth on Schedule 1 hereto, the Joint Venture shall
commence its existence. The purpose of the Joint Venture shall be for each of
the Partners to provide its unique expertise and experience to the joint project
of operating a cruise ship from New Orleans, Louisiana, and such other business
activities as shall be approved by the Partners from time to time.
3.2 Organization as a General Partnership. Notwithstanding the referral to
the Joint Venture as a "Joint Venture," the Joint Venture shall operate as a
Florida general partnership. The Joint Venture will be managed by a Management
Committee and none of the Partners shall have the authority to bind the Joint
Venture by virtue of their status as Partners of the Joint Venture. The purpose
of the Joint Venture shall be as described in Section 3.1.
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3.3 Name. The name of the Joint Venture shall be Capri Cruises and the
Joint Venture shall make such filings and take such other actions as shall be
necessary to conduct the business of the Joint Venture under such name.
3.4 Charter of Vessel. Upon execution of this Agreement, Commodore shall
assign to the Joint Venture its interest as charterer under the charter dated
March 9, 1998, as amended, between Commodore and Cruise Charter Ltd. (the "Joint
Venture Charter"), which assignment and charter are attached hereto as Exhibit
"B". Pursuant to the assignment of the Joint Venture Charter, each of Commodore
Holdings Limited and Casino America, Inc. shall execute a guaranty in the form
of Exhibit "A" attached hereto whereby each of them shall guarantee half of the
charter hire and other obligations (severally and not jointly) due under the
Joint Venture Charter.
3.5 Operations. The Partners shall operate the Joint Venture so as to take
advantage of their particular areas of expertise and experience. In this
connection, Commodore will operate the Vessel and Casino will operate the casino
aboard the Vessel as an "Isle of Capri" casino, including setting up the
internal controls for the casino. In addition, the marketing for the Joint
Venture will be shared between the Partners, with Commodore marketing the base
cruise product and Casino marketing the gaming product. The Management Committee
of the Joint Venture will agree upon the marketing and pricing schedule and upon
the predetermined percentage of the published cruise fare to be discounted for
database casino customers as a marketing tool, which plans will be included in
the proposed Business Plan and Budget submitted to the Management Committee of
the Joint Venture on an annual basis by the CEO of the Joint Venture pursuant to
Section 4.9. Such marketing will be conducted so as not to disrupt the fare
structure Commodore has in place with its travel agents.
3.6 Reservations. Reservations for the Joint Venture's Vessel will be made
through Commodore's reservations office with a special Joint Venture telephone
manned by employees of an Affiliate of Commodore who will be trained regarding
the Joint Venture.
3.7 Corporate Overhead. In order to best take advantage of the experience,
expertise and economies of scale which each of the Partners can provide to the
Joint Venture, the Partners may, where necessary and appropriate, utilize the
services of employees of each of the Partners to provide services to the Joint
Venture instead of hiring new employees specifically for the Joint Venture. As
such, a portion of each of Commodore's and Casino's overhead related to the
services it provides to the Joint Venture will be charged to the Joint Venture,
at cost, with the amounts proposed to be charged set forth in the proposed
Budget submitted to the Management Committee by the CEO each year and as may be
approved by such Management Committee. In addition, each Partner will be
reimbursed by the Joint Venture for all out-of-pocket monies expended on behalf
of the Joint Venture, to be budgeted and approved by the Joint Venture's
Management Committee in advance. The Partners anticipate that these costs will
relate primarily to marketing costs and management staff, and reimbursement for
advances made in connection with formation and operation of the Joint Venture.
Without limitation of the foregoing, Casino shall be reimbursed by
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the Joint Venture for a portion of the salary and benefits of a senior Person
who will be assigned to oversee and coordinate the operations and marketing of
the Joint Venture's casino.
3.8 Intellectual Property Assets. Each of the Partners shall license
certain of its Intellectual Property Assets to the Joint Venture for a fee equal
to $1 per year for as long as such Partner owns an Interest in the Joint Venture
and the Vessel is operating. Specifically, Casino shall license its
Intellectual Property Assets related to its "Isle of Capri" casino products and
services and Commodore shall license its Intellectual Property Assets related to
its "Commodore Cruise Lines" products and services to the Joint Venture. The
Joint Venture shall enter into license agreements with each of Casino and
Commodore on terms substantially similar to the those contained in Exhibit "C"
hereto.
3.9 Representations and Warranties of the Partners. Each Partner
represents and warrants to each other Partner and the Joint Venture as follows
(except as to the matters in clause (d) below, which Commodore represents and
warrants to Casino and the Joint Venture):
(a) Each Partner is a corporation duly incorporated, validly existing, and
in good standing under the laws of its state or country of incorporation, with
full corporate power and authority to own, lease, and operate its properties and
to carry on its business as it is now being conducted. Each such corporation is
in good standing as a foreign corporation in each jurisdiction in which the
ownership of its property or the conduct of its business makes such
qualification necessary. Each such corporation has taken all action necessary to
authorize the execution, delivery, and performance of this Agreement.
(b) Neither the execution or the delivery of this Agreement or any
document or instrument contemplated hereby to be executed and delivered by any
Partner or its Affiliate, nor the fulfillment of or compliance with the terms
and provisions of this Agreement and such other documents and instruments, will
conflict with or will result in a breach of, the terms, conditions, or
provisions of, or constitute a default under, or result in any violation of, any
judgment, decree, or any order of any court or any arbitration authority, or any
statute, law, rule, or regulation by which any such Partner, or its Affiliate,
or its respective assets are affected or bound.
(c) There are no oral or written contracts, agreements, or undertakings
binding upon or affecting any Partner or its Affiliate, or its respective assets
that would alter or impair the ability of such Partner or Affiliate to enter
into and perform its obligations under this Agreement or any document or
instrument contemplated hereby to be executed and delivered by any Partner or
its Affiliate.
(d) As of the date of this Agreement, (i) the Joint Venture Charter is in
full force and effect, (ii) to Commodore's knowledge, there is no actual or
alleged breach, default or event of default of or under such Joint Venture
Charter or matter or occurrence which, with or without the passage of time,
would constitute, cause or result in any such breach, default or event of
default, (iii) attached to this Agreement as Exhibit B is a true, accurate and
complete copy of the Joint
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Venture Charter and all amendments or modifications to it, and except as
contained in Exhibit B, there are no modifications, amendments or changes to the
Joint Venture Charter.
3.10 Covenants of Partners. Each Partner covenants to each other Partner
as follows:
(a) Commodore will use its reasonable best efforts to operate the
Vessel in accordance with industry practices and to cause the Joint Venture to
remain in compliance with the terms of the Joint Venture Charter (and to notify
the Management Committee promptly if it appears that the Joint Venture may fail
to comply with the terms of the Joint Venture Charter in any material respect).
(b) Casino will use its reasonable best efforts to operate the casino
aboard the Vessel in accordance with industry standards and to implement and
maintain internal controls with respect to the casino as customarily implemented
in the industry.
3.11 Concession Aboard Enchanted Isle. If during any three-month period
commencing on or after May 1, 1998, Casino or its Affiliates book passengers
aboard the Vessel who occupy an average of one-third or more of the occupied
cabins on the Vessel, then, at the election of Casino, Commodore shall cause its
Affiliate to enter into the Casino Management Agreement, in the form attached
hereto as Exhibit "F" with Casino America, Inc. with respect to Commodore's
vessel, the M/V Enchanted Isle or, if Commodore or its Affiliates cease to
operate the M/V Enchanted Isle, any replacement vessel on similar itineraries
(the "Enchanted Isle"). Such option shall expire six months after Casino or its
Affiliates first meets such target. Notwithstanding the foregoing, commencing
on the date hereof, Commodore or its Affiliates shall grant Casino and its
Affiliates certain rights with respect to the sale of cabins aboard the
Enchanted Isle described on Schedule 5.
ARTICLE 4
PARTNERS; MANAGEMENT; VOTING RIGHTS; MEETINGS OF DIRECTORS
4.1 Partners. Each of the parties to this Agreement, and each Person
admitted as a Partner of the Joint Venture pursuant to the Act and Article 7 of
this Agreement, shall be a Partner of the Joint Venture until ceasing to be a
Partner as a result of the provisions of the Act or this Agreement. The names
of the initial Partners are set forth on Schedule 1 hereto.
4.2 Management Committee.
(a) Except as otherwise provided in this Agreement, complete and
exclusive power to direct and control the business affairs of the Joint Venture
is delegated to a Management Committee (the "Management Committee"), which will
consist of four members. Each Partner shall appoint two members of the
Management Committee (the "Directors").
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(b) Effective upon the giving of written notice to the other Partner,
a Partner may, at any time in its sole discretion, remove, replace or fill a
vacancy relating to any or all of its appointed Directors with other individuals
and may designate one or more alternates for any or all of its Directors. Each
Director must be an officer or employee of a Partner or an Affiliate thereof.
Each Director shall serve on the Management Committee until his successor is
appointed or until his earlier death, resignation or removal.
(c) Except as otherwise provided in this Agreement, the Management
Committee shall have the exclusive authority and power to act on behalf of the
Joint Venture on all matters, including without limitation on the matters set
forth in Section 4.4 or elsewhere herein and including without limitation the
following matters:
(i) The approval of the Business Plan and Budget (as defined in
Section 4.9) or any material change to it and the determination to require
any Additional Capital Contributions; and
(ii) any other matters coming before the Management Committee.
Each Partner, by execution of this Agreement, agrees to, consents to and
acknowledges the delegation of powers and authority to such Management
Committee.
(d) Any member of the Management Committee may receive all reports and
information from the CEO and the Executive Officers as he shall request, in his
sole discretion.
(e) The Management Committee may delegate any portion of its authority
(other than with respect to the matters set forth in Section 4.4(b)) to the CEO
or to any other Executive Officer.
4.3 Management Committee Meetings .
(a) The Management Committee shall hold regular meetings (at least
quarterly) as such time and place as shall be determined by the Management
Committee (or by the Chairman). Special meetings of the Management Committee may
be called at any time by any Director by delivering the notice as provided in
Sub-section (g) below.
(b) The Chairman of the Management Committee shall be a Director who
is appointed by the Management Committee from time to time. The Chairman shall
establish the agendas for, and regulate the proceedings, of the Management
Committee, but must include on such agendas matters requested by any Director in
writing received at least two business days prior to the meeting.
(c) Directors may participate in a meeting of the Management Committee
by conference telephone or similar communications equipment by means of which
all Persons
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participating in the meetings can hear each other, and such participation shall
constitute presence in person or at such a meeting.
(d) Any action required or permitted to be taken at any meeting of the
Management Committee may be taken without a meeting upon the written consent of
the number of Directors required to approve the actions contained in such
consent (in accordance with Section 4.4). Such written consent or consents shall
be filed with the minutes of the proceedings of the Management Committee and
shall have the same force and effect as a vote of the Directors required to
approve the actions contained in such consent (in accordance with Section 4.4).
(e) The Management Committee shall appoint a Secretary from time to
time. The Secretary shall keep written minutes of all Management Committee
meetings and written consents, a copy of which meetings shall be provided to
each Director.
(f) The Directors shall have the right to designate an alternate to
attend meetings of the Management Committee, instead and in place of such
Director, and to exercise all of the functions of such Director. Any such
alternate shall be an officer or employee of a Partner or of an Affiliate
thereof. Any such alternate shall be deemed to be a Director for all purposes
hereunder until such designation is revoked.
(g) Notice of each regular meeting and each special meeting of the
Management Committee shall be given to each Director at least three business
days before such meeting. Notices of special meetings shall contain a
description, in reasonable detail, of the items of business to be conducted at
such meeting and no business other than those items (unless expressly agreed to
by the Director representing the Partner who did not call that special meeting)
may be conducted at such special meeting. Notice of a meeting need not be given
to any Director who signs a waiver of notice or a consent to holding the meeting
or an approval of the minutes thereof, whether before or after the meeting, or
who attends the meeting without protesting prior thereto or at its commencement.
All such waivers, consents and approvals shall be filed with the Joint Venture's
records and made a part of the minutes of the meeting.
4.4 Voting.
(a) On any matter on which a vote is taken, each of the Directors
shall have one vote. That number of Directors which is one less than the number
of Directors on the Management Committee shall constitute a quorum for the
transaction of business; provided that all of the Directors of the Management
Committee are required in order to have a quorum for transaction of business
that requires an affirmative vote of all of the Directors. All actions by the
Management Committee shall require the affirmative vote of a majority of the
Directors on the Management Committee, except for the actions set forth in Sub-
section (b) below, which shall require the affirmative vote of all the Directors
of the Management Committee, and the actions set forth in Subsection (c) below,
which shall require the affirmative vote of two of the Directors of the
Management Committee.
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(b) Except as otherwise expressly provided in this Agreement, the
Joint Venture shall not take any of the following actions unless such action has
been approved by the affirmative vote of all the Directors of the Management
Committee:
(i) Any amendment of this Agreement;
(ii) Any determination to change the nature of the Joint
Venture's Business;
(iii) The admission of any additional Partners to the Joint
Venture or the issuance of any additional Interests in the Partnership
(other than pursuant to Section 5.5 hereof);
(iv) The voluntary dissolution or liquidation of the Joint
Venture;
(v) The agreement to continue the Business of the Joint Venture
after an event of dissolution specified in Section 8.1;
(vi) Any merger or consolidation of the Joint Venture with or
into another Person or sale, assignment, lease or other transfer of
substantially all of the Joint Venture's assets;
(vii) A determination to require an Additional Capital
Contribution in accordance with Section 5.3, other than an Additional
Capital Contribution required to maintain the Seaworthiness of the Vessel
or for items of necessity to continue the Present Operations of the Joint
Venture;
(viii) The authorization or the incurrence by the Joint Venture of
indebtedness for borrowed money in excess of $100,000 in the aggregate at
anytime outstanding;
(ix) The determination to make any capital expenditures or
commitments therefor that aggregate in excess of $250,000 in budget in any
one transaction or series of related transactions;
(x) The making of any loans or advances to, or guarantees for
the benefit of, any Partner or Affiliate;
(xi) The execution of any leases or other arrangements involving
the rental, use or occupancy of any property by or on behalf of the Joint
Venture (other than dock space for the Vessel), which involve an aggregate
annual expenditure in excess of $100,000;
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(xii) The authorization of any transaction between the Joint
Venture and any Partner or Affiliate of a Partner;
(xiii) The taking of any action which may cause the Joint Venture
to become an entity other than a general partnership; and
(xiv) Any other matter which the Management Committee determines,
pursuant to its unanimous vote, shall require the unanimous approval of the
Directors of the Management Committee.
(c) The Joint Venture may act to require an Additional Capital
Contribution from the Partners to be used solely for the purposes of maintaining
the Seaworthiness of the Vessel or for items of necessity to continue the
Present Operations of the Joint Venture if at least two of the Directors of the
Management Committee determine that such Additional Capital Contribution is
required for such purpose. In the event that at least two but less than all of
the Directors of the Management Committee vote to require such Additional
Capital Contribution, the Director or Directors who vote against such action
(the "Opposed Directors") may require that such decision be submitted to
arbitration pursuant to Article 13 if the Opposed Directors dispute whether the
Additional Capital Contribution is required (or the amount that is required) to
maintain the Seaworthiness of the Vessel or for items of necessity to continue
the Present Operations of the Joint Venture. If the arbitrators find that the
Additional Capital Contribution is required for either Seaworthiness or for
items of necessity to continue Present Operations, the Partner represented by
the Opposed Directors shall have a period of 120 days to remit such Additional
Capital Contribution to the Joint Venture together with interest at the Default
Rate or to be treated as a Defaulting Partner. In the event such party fails to
make such Additional Capital Contribution within the 120-day period, the non-
defaulting Partner may elect any of the options under Section 5.5 with respect
to the Defaulting Partner's Additional Capital Contribution, may purchase the
Defaulting Partner's Interest pursuant to Section 8.3 or dissolve the Joint
Venture pursuant to Section 8.2. During the period between the date such
Additional Capital Contribution is demanded and the expiration of the 120-day
period, the Partner who does not dispute the Additional Capital Contribution
may, but shall not be required to, make a Partner Loan to the Joint Venture in
the amount of the other Partner's Additional Capital Contribution, which Partner
Loan shall bear interest at the Reference Rate until the decision of the
arbitrators is released, and if such decision supports such Additional Capital
Contribution, the interest rate shall increase on such day the decision is
released to the Default Rate.
4.5 Procedures in the Event of a Deadlock. In cases where a majority of
the Directors fail to agree on any matter submitted to a vote of the Management
Committee (a "Dispute"), the Dispute shall be resolved in the following manner:
(a) First, any Director may refer the Dispute to the executive at the
parent (if applicable) of each Partner to whom the respective Director reports
(each, a "Senior Executive"), in an attempt to reach a resolution;
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(b) If the Senior Executives of the Partners are unable to resolve a
Dispute within five business days after the referral to them of a Dispute (or
such longer period of time as to which the Senior Executives mutually agree in
writing), except as set forth in Section 4.5(d), the Partners shall submit the
Dispute to arbitration pursuant to the procedures set forth in Article 13.
(c) Except as set forth in Section 4.5(d), during the pendency of any
Dispute, the operations of the Joint Venture in dispute shall be operated as
follows: If the Dispute relates to the operations or marketing of the Vessel
(excluding the casino), Commodore's decision shall control, and if the Dispute
relates to the operation or marketing of the casino, Casino's decision shall
control. If the Dispute relates to a matter other than the operation of the
Vessel or the casino, no action shall be taken respecting the matter pending the
determination of the arbitrators and the matter shall be status quo.
(d) Notwithstanding the provisions of this Section 4.5, a deadlock
with respect to any matter set forth in Section 4.4(b) shall not be subject to
arbitration pursuant to Article 13. Instead, the Joint Venture shall continue to
operate without taking any action with respect to such matter unless and until
the Management Committee unanimously agrees to take such action.
4.6 Chief Executive Officer.
(a) Except as limited by Sections 4.7 and 4.10(c), the Chief Executive
Officer (the "CEO") shall have such authority and power as shall be delegated to
him by the Management Committee, including management of the Joint Venture's
day-to-day operations, in a manner consistent with the Business Plan and then
current Budget.
(b) The CEO shall be appointed by Commodore with Casino's reasonable
approval, and serve at the pleasure of the Management Committee. The CEO also
may serve as an executive officer or employee of one of the Partners or an
Affiliate thereof.
(c) Subject to Sections 4.2, 4.4, 4.7 and 4.10(c), the CEO will be
responsible for and have the authority, discretion, and primary responsibility
in managing the staff and the day-to-day operations of the Joint Venture,
including :
(i) Implementing the Business Plan and Budget of the Joint
Venture as approved by the Management Committee;
(ii) Making any immaterial changes to or taking actions which
would constitute an immaterial deviation from, an approved Business Plan or
approved Budget;
(iii) Operating and managing the business of the Joint Venture
(other than the casino);
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(iv) Preparing, on an annual basis, proposed revisions to the
Business Plan and Budget for submission to the Management Committee for
approval;
(v) Authorizing the Joint Venture to enter into transactions up
to $100,000 for any transaction or series of related transactions;
(vi) The delegation of powers and authorities to the Executive
Officers consistent with the other provisions of this Agreement; and
(vii) Ensuring that the Joint Venture complies with all
applicable legal requirements.
4.7 Executive Officers.
(a) The executive officers of the Joint Venture shall consist of the
CEO, a Chief Financial Officer/Financial Manager (the "CFO"), a Vice President -
Casino Operations (the "Casino VP"), Vice President - Cruise Operations (the
"Cruise VP") and such other officers as the Management Committee may appoint
(collectively, the "Executive Officers"). An Executive Officer may also be an
officer or employee of one of the Partners or an Affiliate.
(b) Commodore shall have the right to appoint, remove (and replace)
one of its employees or employees of an Affiliate to the positions of CFO and
Cruise VP (with Casino's reasonable approval), and Casino shall have the right
to appoint, remove (and replace) one of its employees or an employee of an
Affiliate to the position of Casino VP (with Commodore's reasonable approval).
(c) The Casino VP shall report to the Directors of the Management
Committee appointed by Casino, and shall report, on an advisory basis, to the
CEO. The CFO and Cruise VP shall report to the CEO and shall report, on an
advisory basis, to the Directors of the Management Committee.
(d) Notwithstanding Section 4.7(c), while on board the Vessel, all
Executive Officers shall report to the captain of the Vessel (the "Captain") as
to matters relating to Vessel Rules.
4.8 Business Plan. Attached hereto as Exhibit "D" is the Joint Venture's
Initial Business Plan for the 16 months ending September 30, 1999, which has
been approved by the Partners. The CEO shall submit to the Management Committee
proposed revisions to the Business Plan for the Joint Venture not less
frequently than annually, at least 60 days prior to the start of the first
fiscal year covered by such Business Plan. Each such Business Plan shall be
considered at the first meeting of the Management Committee following its
submissions and shall be subject to the approval of a majority of the Directors
on the Management Committee.
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4.9 Budget Approval.
(a) Attached hereto as Exhibit "E" is the Joint Venture's Initial
Budget (including the items of corporate overhead to be charged to the Joint
Venture) for the 16 months ending September 30, 1999, which has been approved by
the Partners.
(b) The CEO shall include a proposed budget (the "Budget") for the
Joint Venture for the next fiscal year in his submission of the revised Business
Plan, with the assistance of the Cruise VP, Casino VP, and the CFO. The Budget
shall include an income statement, balance sheet, and capital budget prepared
consistently with the Joint Venture's method of accounting, for the forthcoming
fiscal year and a cash flow statement which shall show in reasonable detail the
anticipated receipts and disbursements (including anticipated distributions)
projected for the Joint Venture for the forthcoming fiscal year and the amount
of any corresponding cash deficiency or surplus, and the amount and due dates of
any proposed Additional Capital Contributions. The Budget shall be prepared on a
basis consistent with the Joint Venture's financial statements and shall be
prepared in accordance with the provisions of this Agreement.
(c) Each Budget shall be considered at the first meeting of the
Management Committee following its submission and shall be subject to the
approval of a majority of the Directors on the Management Committee.
(d) Each Budget shall also include a detailed explanation of the
proposed related party charges for corporate overhead or services proposed to be
charged by any Partner in connection with services to be provided by such
Partner and/or its Affiliates to the Joint Venture.
(e) Without the unanimous approval of the Directors, a Budget shall
not include a requirement for Additional Capital Contributions.
(f) If for any fiscal year no new Budget is agreed upon and approved,
then the Joint Venture will be managed in a manner consistent with the
Operations for the prior fiscal year, as adjusted by the CEO to reflect the
Joint Venture's contractual obligations for the year and other items of
necessity for the Joint Venture to conduct its Present Operations.
Notwithstanding anything to the contrary in this Agreement, a failure by the
Management Committee to approve any Budget shall not be subject to arbitration
under Article 13 hereof.
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4.10 Employees and Employee Benefits.
(a) Generally. The CEO shall determine, or shall delegate authority to
others to determine, how many people will be required for the operation of the
Joint Venture (other than casino operations) and which personnel shall be hired
by the Joint Venture, in accordance with the Business Plan and Budget and
subject to arrangements under Section 4.11. Except for personnel who are
employees of a Partner and who are appointed by such Partner to work for the
Joint Venture and for Executive Officers who also are employees of a Partner or
an Affiliate thereof, unless other agreed all Joint Venture personnel will be
employees of the Joint Venture and not of either Partner. In the event that the
Joint Venture hires an employee of a Partner, each Partner shall indemnify the
Joint Venture against any claims that the transfer of that employee amounted to
a termination of employment.
(b) Employee Benefits. Joint Venture personnel who are employees of a
Partner may continue to participate in the employee benefit programs of the
Partner by which they are employed to the extent allowed by law or permitted by
the employee benefit plans of the respective Partners.
(c) Casino Employees. The Casino VP shall determine, as approved by
the Directors of the Management Committee appointed by Casino, the number of
casino employees (as long as such number meets Budget requirements) and the
identity of such employees. The Casino VP shall also have sole authority to
appoint the casino manager (who shall work aboard the Vessel) and to determine
together with such casino manager when and if to hire or fire casino employees.
It is understood that certain of the casino employees may also be employees of
Casino or its Affiliates. The Casino VP and casino manager shall set all
policies for the casino (subject to the approval of the Directors of the
Management Committee appointed by Casino), including the salaries of casino
employees (as long as such salaries are within the Budget), and shall manage all
aspects of the casino aboard the Vessel.
(d) Casino Manager. The casino manager selected by the Casino VP shall
be treated as a senior officer aboard the Vessel for purposes of determining his
or her cabin assignment and other perquisites provided to shipboard personnel.
The casino manager shall be treated as shipboard personnel and shall be invited
to events for ship's officers and otherwise treated as a part of the captain's
staff.
(e) Notwithstanding anything contained in this Section 4.10, while on
board the Vessel all personnel (including casino employees) shall report to the
Captain of the Vessel as to matters relating to Vessel Rules.
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4.11 Arrangements with Partners or Affiliates.
(a) If the Management Committee decides that any services should be
provided by contract rather than by the Joint Venture, the Management Committee
shall request from one or more Partners a bona fide written offer for such a
contract. Unless otherwise provided in the Agreement, if any Partner or any
Affiliate of a Partner elects to bid for any such contract, the Management
Committee may award a contract to the bidding Partner of Affiliate of a Partner
if that bid is in the Joint Venture's best economic interest. In making the
determination of services to be provided by contract and/or by the Partners, the
Management Committee shall be guided by Article 3 hereof and shall not award a
contract for any type of services already being provided to the Joint Venture by
a Partner pursuant to a corporate overhead allocation.
(b) Subject to Section 4.11(a), the Joint Venture may enter into
contracts with a Partner or any of its Affiliates provided that any such
transaction shall be on terms no more favorable than those afforded to unrelated
third parties. The validity of any transaction, agreement of payment involving
the Joint Venture and a Partner or any Affiliate of Partner shall not be
affected by reason of the relationship between the Joint Venture and a Partner
or such Affiliate of Partner.
4.12 Access to Books of Account. Notwithstanding any other provision of
this Agreement, each Partner shall have the right at all reasonable times during
usual business hours to audit, examine, and make copies or extracts of or from
the complete books of account of the Joint Venture, including the books and
records maintained in accordance with Article 11 and all other books and records
of the Joint Venture. Such right may be exercised through any agent or employee
of such Partner designated by it or by independent certified public accountants
or counsel designated by such Partner. Each Partner shall bear all expenses
incurred in all examination made for such Partner's account.
4.13 Duty of Partners to Cooperate. Each member will, to the extend
permitted by applicable law, furnish such information, execute such applications
and similar documents as are required by governmental authorities, and take such
other actions as may be reasonably requested by the Management Committee and as
may be necessary or reasonably desirable in connection with the Business of the
Joint Venture.
4.14 Insurance and Risk Management. As long as the premiums and other
terms remain advantageous to the Joint Venture, the property and casualty
insurance program for the Joint Venture (including the insurance for the Vessel)
shall be integrated into the insurance program of Commodore. Each Partner
hereby consents and agrees that the Joint Venture shall compensate Commodore for
a mutually agreed upon budgeted amount for insurance premiums and related
expenses. Said insurance shall comply with the requirements of the Joint
Venture Charter, including, Clauses 12 and 53 thereof. The Joint Venture and
each Partner shall be named as additional assureds under that program.
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4.15 Limitations on Partner's Authority. No Partner shall have the right
to bind the Joint Venture or act on behalf of the Joint Venture by virtue of
such Partner's ownership of an Interest, it being the intention of the Partners
that the Joint Venture be managed by the Management Committee and the Executive
Officers, including the CEO, appointed by such Management Committee.
ARTICLE 5
CAPITAL CONTRIBUTIONS
5.1 Initial Capital Contributions. Each Partner shall make Capital
Contributions to the Joint Venture in cash, in installments pursuant to the
funding schedule, as set forth on Schedule 1 hereto. Upon receipt of each such
Capital Contribution, the Joint Venture shall credit each Partner's Capital
Account with the amount of such Partner's Capital Contribution. In addition,
each Partner shall set aside an additional $500,000 as a potential supplemental
capital contribution to the Joint Venture (the "Supplemental Capital"). In the
event either Partner determines that the Joint Venture requires the Supplemental
Capital for any purpose, such Partner shall notify the other Partner of such
determination and both Partners shall contribute the Supplemental Capital to the
Joint Venture within ten days after receipt of such notice. Upon receipt of the
Supplemental Capital, each Partner's Capital Account shall be credited
accordingly. Such Supplemental Capital shall not be treated as an Additional
Capital Contribution for purposes of this Agreement except that any Partner who
fails to pay Supplemental Capital when due shall be considered a Defaulting
Partner, and the Non-Defaulting Partner shall have all rights related thereto
including the rights set forth in Section 5.5. Any dispute regarding
Supplemental Capital shall not be subject to Article 13.
5.2 Adjustments to Capital Accounts.
(a) Generally. Subject to Section 5.1, each Partner's Capital Account
shall be increased by:
(i) the amount of money contributed by it or on its behalf to
the Joint Venture;
(ii) the fair market value of any property contributed by it to
the Joint Venture (net of any liabilities secured by such contributed
property that the Joint Venture is considered to assume or take subject to
under IRC[_]752); and
(iii) allocations to it of profit and other items of book income
and gain, including income and gain exempt from tax and income and gain
described in Treas. Reg. 1.704-1(b)(2)(iv)(g), but excluding income and
gain described in of Treas. Reg. 1.704-1 (b)(4)(i);
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and shall be decreased by:
(iv) the amount of money distributed to it by the Joint Venture;
(v) the fair market value of property distributed to it by the
Joint Venture (net of liabilities secured by such distributed property that
such Partner is considered to assume or take subject to under IRC[_]752);
and
(vi) allocations of loss and other items of book loss, including
items of loss and deduction described in IRC[_]705(a)(2)(B) and Treas. Reg.
[_]1.7041(b)(2)(iv)(g), but excluding items described in of Treas. Reg.
[_]1.704-1 (b)(4)(i) or (b)(4)(iii), and shall otherwise be adjusted in
accordance with the additional rules set forth in Treas. Reg. [_]1.704-
1(b)(2)(iv).
(b) Certain Adjustments to Capital Accounts. If the book values of
Joint Venture assets are adjusted pursuant to Treas. Reg. [_]1.704-1(b), the
Capital Accounts of all the Partners shall be adjusted simultaneously to reflect
the allocations of gain or loss that would be Partners if there were a taxable
disposition of the Joint Venture's property for its fair market value. If any
assets of the Joint Venture are to be distributed in kind, such assets shall be
distributed on the basis of their fair market values after the Partners' Capital
Accounts have been adjusted to reflect the manner in which any unrealized gain
and loss with respect to such assets (that has not been reflected in the Capital
Accounts previously) would be allocated between the Partners if there were a
taxable disposition of the property for its fair market value.
(c) Definition of Adjusted Capital Account. As used in this Agreement,
"Adjusted Capital Account" means, with respect to each Partner, such Partner's
Capital Account as determined under the preceding provisions of this Section
5.2, increased by such Partner's share of Joint Venture minimum gain and minimum
gain attributable to partnership nonrecourse debt as determined under Treas.
Reg. [_]1.704-2.
5.3 Additional Capital Contributions. Subject to Section 4.4(c), if all
of the Directors on the Management Committee determine from time to time that
additional cash is needed by the Joint Venture for the payment of the debts and
obligations of the Joint Venture relating to the Vessel or otherwise for the
carrying on of the Business of the Joint Venture, then upon such call of the
Management Committee, each Partner shall contribute as additional capital to the
Joint Venture ("Additional Capital Contributions"), in accordance with its
Percentage Interest, the amount of cash determined by the Management Committee
to be needed by the Joint Venture for such purposes.
5.4 Procedure for Making Capital Calls by the Management Committee.
Subject to Section 4.4(c), all calls for Additional Capital Contributions
pursuant to Section 5.3: (a) shall have been unanimously approved by the
Management Committee, (b) shall be in writing delivered to each Partner, (c)
shall state the aggregate amount of funds needed by the Joint Venture, the
expected use or uses of such funds, and the amount of each Partner's
proportionate share of such capital
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contribution, and (d) shall specify the date on which the capital contribution
is to be made, which shall in no event be sooner than 60 days following the
Partner's receipt of the written call.
5.5 Failure of Partner to Contribute Capital. If a Partner (the
"Defaulting Partner") fails to make an Additional Capital Contribution to the
Joint Venture within 30 days after such contribution is due under the procedures
set forth in Section 5.4, the other Partner (the "Non-Defaulting Partner") may
exercise one or more of the following remedies:
(a) Set-Offs. Cause the Joint Venture to set-off against any
distributions otherwise due from the Joint Venture to the Defaulting Partner the
amount of capital due to the Joint Venture from the Defaulting Partner, and
apply such amount to such capital contribution required to be made by the
Defaulting Partner.
(b) Make the Defaulting Partner's Contribution. Make the capital
contribution required to be made to the Joint Venture by the Defaulting Partner,
in which case the Non-Defaulting Partner's Percentage Interest will be
increased, and the Defaulting Partner's Percentage Interest correspondingly
decreased, by adding to or subtracting from such percentage, as the case may be,
an amount, expressed as a percentage, equal to the amount of such capital
contribution in default, divided by (x) the total of all capital contributions
theretofore made to the Joint Venture by both Partners, plus (y) the amount of
the Additional Capital Contribution of both Partners.
(c) Loan by Third Party. In lieu of an Additional Capital Contribution
by either Partner, cause the Joint Venture to borrow from a third party the
amount otherwise due from both Partners without the requirement for the consent
of the Defaulting Partner or its representative Directors.
(d) Loan by Non-Defaulting Partner. In lieu of an Additional Capital
Contribution by either Partner, cause the Joint Venture to borrow from the Non-
Defaulting Partner the amount otherwise due from both Partners (a "Default
Loan"), in which case the Defaulting Partner, with respect to that portion of
the Default Loan reflecting the amount of capital due to the Joint Venture from
the Defaulting Partner (the "Defaulting Partner Portion"), shall be liable to
the Non-Defaulting Partner for the Defaulting Partner's Portion plus interest at
the Default Rate (plus interest) in the event the Joint Venture fails to repay
such Default Loan to the Non-Defaulting Partner (the "Default Lender"). Loans
made to the Joint Venture by the Non-Defaulting Partner pursuant to this Section
5.5(d) shall bear interest at the Default Rate. No Partner shall make loans to
the Joint Venture unless such loans are approved by the Joint Venture pursuant
to Section 4.4 or are made with respect to a default pursuant to this Section
5.5(d).
(e) Refuse to Make Capital Contribution. Refuse to make any Additional
Capital Contributions without being in default of any provision of this
Agreement.
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(f) Cause a Mandatory Sale or Terminate the Joint Venture. Cause a
mandatory sale or terminate the Joint Venture by reason of a breach by the
Defaulting Partner of its obligations hereunder as provided in Sections 8.2 and
8.3.
(g) Effect of Set-off. In the event the Joint Venture exercises any
right to set-off any amount against any distribution otherwise payable to any
Partner, the amount set-off shall be deemed to have been distributed to the
Partner and contributed by the Partner to the Capital of the Joint Venture.
5.6 No Third Party Beneficiaries. The rights of the Joint Venture, or
either Partner, to require Additional Capital Contributions under the terms of
this Agreement are not intended to, and do not, confer any rights or benefits to
or upon any Person who is not a party to this Agreement other than the Joint
Venture itself.
5.7 No Withdrawal of, or Payment of Interest on, Capitals Accounts. No
Partner shall have any right to withdraw or make a demand for withdrawal of all
or any portion of such Partner's capital (or the amount, if any, reflected in
such Partner's Capital Account). No interest or additional share of profits
shall be paid or credited to the Partners on their Capital Accounts, or on any
undistributed profits or funds left on deposit with the Joint Venture; provided,
however, that nothing contained in this Agreement shall be construed to prevent
or prohibit the payment of interest on account of loans by Partners. Any loans
by Partners shall not increase a Partner's Capital Account or interest in the
profits, losses, or distributions, but shall be a debt due from the Joint
Venture.
5.8 Obligation to Restore. Upon liquidation of the Joint Venture (or any
Partner's interest in the Joint Venture), a Partner which has a deficit balance
in its book Capital Account following the liquidation of its interest in the
Joint Venture after taking into account all capital account adjustments for the
Joint Venture taxable year during which such liquidation occurs need not, except
as otherwise provided by law, restore the amount of such deficit balance to the
Joint Venture or to any other Partner.
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ARTICLE 6
ALLOCATIONS, DISTRIBUTIONS, ACCOUNTING AND TAX MATTERS
6.1 Allocations. The allocations of profits and losses shall be as set
forth in Schedule 4 hereto.
6.2 Distributions and Reserves.
(a) Cash Distributions. Unless otherwise determined by the Management
Committee and except as reserved against in accordance with Subsection (b)
below, the Net Cash Flow realized in any fiscal quarter shall be distributed
promptly after the end of such quarter, as follows:
(i) Repay Partner Loans. to repay any principal and interest on
loans to the Joint Venture by Partners ("Partner Loans"), including Default
Loans; and
(ii) The Balance. to the Partners in accordance with their
respective Percentage Interests.
(b) Reserves. The Joint Venture shall establish reserves for:
(i) federal income taxes (the "Tax Reserve") to be held by the
Joint Venture and distributed in accordance with Section 6.2(d). The Tax
Reserve for any fiscal period shall be determined by multiplying the
reasonably estimated federal taxable income of the Joint Venture as an
entity by 40%. In determining such federal taxable income, the fact that
any Partner may not be taxable on that Partner's share of such income
(e.g., because that Partner may be exempt from tax on such income under
Section 883(a) of the Code, or because that Partner has losses from other
sources to offset such income), shall not be taken into account. The Tax
Reserve shall be paid to the Partners in accordance with their respective
Percentage Interests (even if different from their respective percentage of
Joint Venture taxable income); and
(ii) Contingent or unforeseen obligations, debts or liabilities
of the Joint Venture which may be deemed reasonably necessary in the
opinion of the Management Committee;
(iii) Amounts required by any contracts or agreements of the
Joint Venture; and
(iv) Such other purposes as the Management Committee may decide.
(c) Intentionally omitted.
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(d) Priority and Distribution of Property. Except as expressly
provided in this Agreement, no Partner shall have priority over any other
Partner as to the return of capital, allocation of income or losses, or
distributions of cash or any other distributions. No Partner shall have the
right to demand or receive property other than cash for its Capital
Contributions to the Joint Venture or in payment of its share of cash or other
distributions.
(e) Distribution of Tax Reserve. Within 60 days after the end of each
Joint Venture fiscal year during which a Tax Reserve has been created, the Joint
Venture shall distribute such Tax Reserve (less any amounts withheld pursuant to
Sections 1441, 1442, 1445 or 1446 of the Code, unless otherwise provided in
Section 6.2(g)) to the Partners, such distribution to be allocated among the
Partners based on each Partner's Percentage Interest.
(f) Additional Distribution Provisions. Upon liquidation of any
Partner's interest in the Joint Venture, liquidating distributions are required
in all cases to be made in accordance with Section 8.7.
(g) Foreign Partners. If the Joint Venture withholds any income tax
with respect to any foreign Partner pursuant to Sections 1441, 1442, 1445 or
1446 of the Code, the Joint Venture will, at its option, either (x) require the
foreign Partner to repay such amount to the Joint Venture within 45 days
thereafter; or (y) offset any distributions otherwise payable to the foreign
Partner by the amount of such payments.
6.3 Accounting Matters. The Partners shall cause to be maintained complete
books and records accurately reflecting the accounts, business and transactions
of the Joint Venture, on a September 30th fiscal-year basis and in accordance
with GAAP; provided, however, that books and records with respect to the Joint
Venture's Capital Accounts and allocations of income, gain, loss, deduction or
credit (or item thereof) shall also be kept under U.S. federal income tax
accounting principles as applied to partnerships on the same fiscal year as
Casino's. Commodore shall perform such services for the Joint Venture and charge
the Joint Venture for such services pursuant to the overhead allocation in the
Budget.
6.4 Tax Status and Returns.
(a) Any provision hereof to the contrary notwithstanding, solely for
United States federal income tax purposes, each of the Partners hereby
recognizes that the Joint Venture will be subject to all provisions of
Subchapter K of Chapter 1 of Subtitle A of the Code; provided, however, the
filing of U.S. Partnership Returns of Income shall not be construed to extend
the purposes of the Joint Venture or expand the obligations or liabilities of
the Partners.
(b) The Partners shall prepare or shall direct such other Person to
prepare or cause to be prepared all tax returns and statements, if any, that
must be filed on behalf of the Joint Venture with any taxing authority and shall
make timely filing thereof. Further, the Partners shall prepare or shall direct
such other Person to prepare or cause to be prepared all tax statements, if any,
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that must, by law, be provided to any Partner, employee or other Person and
shall timely deliver such statements to such Persons. Within 90 days after the
end of each fiscal year, the Partners or such other Person as the Partners may
direct shall prepare or cause to be prepared and delivered to each Partner a
report setting forth in reasonable detail the information with respect to the
Joint Venture during such calendar year reasonably required to enable each
Partner to prepare its federal, state and local income tax returns in accordance
with applicable law then prevailing.
6.5 Tax Matters Partner.
(a) The Tax Matters Partner of the Joint Venture within the meaning of
section 6231(a)(7) of the Code shall be Casino. Unless otherwise expressly
provided herein or in the Code and the regulations issued thereunder (or the
laws of other relevant taxing jurisdictions), the Tax Matters Partner is
authorized to take any action for or on behalf of the Joint Venture that it
determines to be necessary or appropriate with respect to all tax matters.
Notwithstanding the foregoing, the Tax Matters Partner shall take no action for
or on behalf of the Joint Venture, except as emergency situations may dictate,
without the prior agreement of all the Partners.
(b) The Tax Matters Partner shall promptly advise the other Partners
of all audits or other actions by the Internal Revenue Service and shall furnish
to the Joint Venture and to each Partner a copy of each notice or other
communication received by the Tax Matters Partner from the Internal Revenue
Service except such notice or communication sent directly to the Partners by the
Internal Revenue Service. All reasonable expenses incurred by the Tax Matters
Partner in its capacity as such shall be expenses of the Joint Venture and shall
be paid by the Joint Venture. Such fees must be approved in advance by Casino,
which consent shall not be unreasonably withheld.
(c) To the fullest extent permitted by law, the Joint Venture shall
indemnify the Partners on an after-tax basis against any liabilities incurred
while acting as the Tax Matters Partner of the Joint Venture but only to the
extent such Partner acts within the scope of its authority as Tax Matters
Partner under this Agreement. The Tax Matters Partner shall not be indemnified
against any liability regarding Joint Venture tax matters arising by reason of
the willful misconduct, bad faith, gross negligence or reckless disregard of the
duties of the Tax Matters Partner.
(d) No Partner shall file a notice with the Internal Revenue Service
under section 6222(b) of the Code in connection with such Partner's intention to
treat an item on such Partner's Federal income tax return in a manner that is
inconsistent with the treatment of such item on the Joint Venture's Federal
income tax return unless such Partner has, not less than 30 days prior to the
filing of such notice, provided the other Partner with a copy of the notice and
thereafter in a timely manner provides such other information related thereto as
the other Partner shall reasonably request.
6.6 754 Election. In the event of a distribution of property to a Partner
or a transfer of any interest in the Joint Venture permitted under the Act or
this Agreement, the Joint Venture, upon the written request of the transferor or
transferee, shall file a timely election under section 754 of the Code and the
Income Tax Regulations thereunder to adjust the basis of the Joint Venture's
assets
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under section 734(b) or 743(b) of the Code and a corresponding election
under the applicable provisions of state and local law, and the Person making
such request shall pay all costs incurred by the Joint Venture in connection
therewith, including reasonable attorneys' and accountants' fees.
6.7 Partnership Classification. The Joint Venture shall be treated as a
partnership for federal tax purposes and shall not elect, under section
301.7701-3 of the Income Tax Regulations, to be taxed as an association.
ARTICLE 7
TRANSFER OF INTERESTS; ADMISSION AND RESIGNATION OF PARTNERS
7.1 Transfer of Interests. Except as set forth in this Article 7, no
Partner may transfer, nor suffer or sustain any involuntary transfer or transfer
by operation of law of, all or any portion of its Interest in the Joint Venture
to any Person or another Partner, unless all Partners approve the transfer in
writing. For all purposes of this Article 7, a transfer of a Partner's Interest
in the Joint Venture shall be deemed to occur upon any change in control of such
Partner. Any transfer of all or any portion of a Partner's Interest in the
Joint Venture, in violation of this Section (other than a transfer by operation
of Law), shall be null, void and of no effect. In the event that all or any
portion of a Partner's Interest is transferred by operation of law, the
transferee of such Interest shall not be a Partner unless and until admitted to
Partnership in accordance with the provisions of Section 7.5 and shall, until
such time, be considered merely an assignee of Economic Interests (as hereafter
defined). Notwithstanding the foregoing, any pledge, hypothecation or grant of
a security interest in any Interest shall not require the consent of any
Partners and shall not violate this Article 7. The pledge or granting of a
security interest, lien or other encumbrance in or against all or any part of a
Partner's Interest shall not cause the Partner to cease to be a Partner. Upon
foreclosure or sale in lieu of foreclosure of any such security interest, the
secured party will be entitled to receive allocations and distributions from the
Joint Venture as to which a security interest has been granted by such Partner
("Economic Interests"). 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 Partner for the enforcement of any of its rights as a creditor. In no
event will the Joint Venture have any liability or obligation to any Person by
reason of the Joint Venture's payment of a distribution to any secured party as
long as the Joint Venture makes such payment in reliance upon written
instructions from the Partner to whom such distributions would be payable. Any
secured party will be entitled, with respect to the security interest granted,
only to the distributions to which the assigning Partner would be entitled under
this Agreement, and only if, as and when such distributions are made by the
Joint Venture. Neither the Company nor any Partner 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.
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7.2 Right of First Refusal.
(a) If any Partner proposes to sell or transfer to any Person all or
any portion of its Interest in one or more related transactions (the "Proposed
Sale"), then, at least 45 days prior to the proposed closing (the "Sale
Closing") of such sale or transfer, such Partner (the "Seller") shall promptly
give written notice (the "Notice") to the Joint Venture and to each of the other
Partners (the "Other Holders") of such proposed sale or transfer. The Notice
shall describe in reasonable detail the Proposed Sale, including, without
limitation, the Percentage Interest to be sold, transferred or issued (the
"Percentage Interest To Be Sold"), the nature of such sale, transfer or
issuance, the consideration to be paid, and the name and address of each
prospective purchaser or transferee.
(b) Each of the Other Holders shall have the right, exercisable upon
written notice to the Seller within thirty (30) days after receipt of the
Notice, to purchase, in proportion to its interest in the Joint Venture
(excluding for this purpose the Seller's Interest), the Percentage Interest To
Be Sold on the same terms and conditions of the Proposed Sale.
(c) If any of the Other Holders declines to exercise its right of
first refusal pursuant to Section 7.2(b), the Seller shall give notice of such
decision and of the number of Percentage Interest To Be Sold yet unpurchased
(the "Unpurchased Portion") to the Partners who did not so decline (the
"Purchasers"). Such notice may be made by telephone if confirmed in writing
within two days.
(d) The Purchasers shall each have the right, exercisable upon written
notice to the Seller within three business days after receipt of notice of such
decision, to purchase their Pro Rata Share of the Unpurchased Portion. For
purposes of this Section 7.2, the Pro Rata Share of the Unpurchased Portion
shall be the ratio of the Unpurchased Portion to the number of Purchasers.
(e) The Seller shall then give notice, in the manner specified in
Section 7.2(c), to all the Purchasers of any Purchaser that declines to exercise
its right to purchase its Pro Rata Share. All the Purchasers excluding
Purchasers who decline to exercise their rights to purchase their Pro Rata
Shares (the "Remaining Purchasers"), shall have the right to purchase any
Percentage Interest remaining of the Unpurchased Portion in the manner specified
in Section 7.2(d).
(f) The Seller shall comply with Sections 7.2(d) and 7.2(e) until
there are no remaining Percentage Interests in the Unpurchased Portion or there
are no Remaining Purchasers who elect to purchase remaining Percentage Interests
in the Unpurchased Portion. Thereafter, if Percentage Interests remain in the
Unpurchased Portion, the Seller may consummate the Proposed Sale upon the terms
set forth in the Notice or cancel the Proposed Sale. If the other Holders have
elected to purchase all of the Percentage Interests to be sold, the Proposed
Seller shall consummate the sale of the Percentage Interest to be sold with the
other Holders on the Sale Closing date.
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(g) Notwithstanding anything to the contrary herein, the Seller may
not consummate a Proposed Sale to a Person if any of the Other Holders object to
such Person and the objection is based on a reasonable concern.
7.3 Exempt Transfers. Notwithstanding the foregoing, the first refusal
rights of the Partners shall not apply to (i) any pledge of Percentage Interests
made pursuant to a bona fide loan transaction that creates a mere security
interest (as described in Section 7.1); (ii) transfers of a Partner's entire
Interest to an Affiliate, provided such transferring Partner has provided prior
written notice to the other parties hereto of such transfer, and such transferee
has agreed to be bound by the terms hereof; (iii) the Joint Venture; (iv) to a
Person approved by all of the Partners; or (v) to another Person as part of a
merger, reorganization, consolidation or sale of all or substantially all of the
assets of Casino America, Inc. or Commodore Holdings Limited, provided that such
Person is not objectionable as provided in Section 7.2(g) above. Such
transferred Percentage Interests shall remain "Percentage Interests" hereunder,
and such pledgee shall be treated as a "Seller" for purposes of this Agreement.
7.4 Legend.
(a) Each certificate representing Percentage Interests now or
hereafter owned by the Partners or issued to any Person in connection with a
transfer pursuant to Section 7.3 hereof shall be endorsed with the following
legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN AGREEMENT AMONG THE INITIAL HOLDER OF THE
SECURITIES, THE JOINT VENTURE AND CERTAIN PartnerS OF THE JOINT
VENTURE. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE JOINT VENTURE.
(b) Under no circumstances shall any transfer of any Interests subject
hereto be valid until the proposed transferee thereof shall have executed and
become a party to this Agreement and thereby shall have become subject to all of
the provisions hereof; and notwithstanding any other provisions of this
Agreement, no such transfer of any kind shall in any event result in the non-
applicability of the provisions hereof at any time to any of the Percentage
Interests subject hereto.
(c) Each Partner agrees that the Joint Venture may instruct its
transfer agent to impose transfer restrictions on the Percentage Interests
represented by certificates bearing the legend referred to in Section 7.4(a)
above to enforce the provisions of this Agreement and the Joint Venture agrees
to promptly do so. The legend shall be removed upon termination of this
Agreement.
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7.5 Admission of New Partners.
(a) Subject to this Section and to the Act, no Person shall be
admitted as a Partner of the Joint Venture unless all the Partners shall have
approved the admission of such Person as a new Partner and shall have agreed in
writing upon the amendments, if any, to be made to this Agreement as a result of
such admission.
(b) Upon the admission of a new Partner in accordance with the Act and
this Agreement, there shall be a special closing of the books solely for the
purpose of determining the value of the Joint Venture's investments on such date
by whatever method the existing Partners, in their sole and absolute discretion,
consider reasonable, and the Capital Accounts of the existing Partners shall be
adjusted accordingly. After such adjustment, the Joint Venture shall establish a
Capital Account which shall be credited with the Capital Contribution of the new
Partner, and Schedules 1 and 2 shall be adjusted accordingly.
7.6 Resignation of Partners. No Partner may resign or withdraw from the
Joint Venture without the prior express written consent of all the other
Partners.
7.7 Sale Due to Objection of Governmental Body.
(a) Commodore acknowledges that as a result of the transactions
contemplated by this Agreement, Commodore and its Affiliates may be subject to
regulatory review by any Governmental Body which is authorized or empowered to
regulate the gaming operations of Casino and its Affiliates in the jurisdictions
in which Casino and its Affiliates conduct or propose to conduct gaming
activities including, without limitation, Colorado, Mississippi, Louisiana and
Florida. Commodore agrees to use its reasonable best efforts to cooperate fully
and to cause its Affiliates to cooperate fully with the representatives of all
such Governmental Bodies in making applications, supplying information,
providing reports and otherwise cooperating with and complying with the
requirements of all such Governmental Bodies so as not to interfere with the
ability of Casino or its Affiliates to develop new business (other than the
Business in contravention of Section 9.1(b) hereof) or to continue to conduct
its existing business. Casino and Commodore and their respective Affiliates will
use their reasonable best efforts to overcome any objection raised by any
Governmental Body relating to the transactions contemplated by this Agreement;
provided that in the event the Board of Directors of Casino reasonably
determines based on communications with a Governmental Body that despite such
efforts (i) Commodore or any of its Affiliates is likely to be determined
unsuitable by such Governmental Body and as a result Casino or its Affiliates
may not be permitted to engage or to continue to engage in a gaming activity, or
(ii) Casino's participation in the Joint Venture could jeopardize its ability to
engage or continue to engage in a gaming activity (a "Casino Determination"),
then, upon written notice from Casino of its Board's determination, Commodore
shall purchase Casino's Interest in the Joint Venture pursuant to Section 8.9.
Because the Partners believe that the market value of an Interest will be very
difficult, if not impossible, to assess, they have adopted the valuation method
described in Section 8.9(a) as the method to determine the Purchase Price for
Casino's Interest.
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(b) Casino acknowledges that as a result of the transactions
contemplated by this Agreement, certain actions by Casino or its Affiliates or
regulatory determinations adverse to Casino or its Affiliates, which actions or
regulatory determinations result in Casino or its Affiliates being prohibited
from conducting gaming activities in a specific state (a "Materially Adverse
Event") could impair Commodore's ability to operate or sell securities in a
jurisdiction where such Materially Adverse Event occurred. Casino and Commodore
and their respective Affiliates will use their reasonable best efforts to
overcome any objection raised by any Governmental Body related to the
transactions contemplated by this Agreement (including making any disclosure
required to cure such objection), provided that in the event any Governmental
Body that regulates Commodore's cruise business, any state, federal or foreign
securities regulator or Nasdaq advises Commodore in writing that Casino's
participation in the Joint Venture will jeopardize Commodore's ability to engage
or continue to engage in its cruise business or materially affect its ability to
raise capital because of such Materially Adverse Event (a "Governmental Body
Determination") then, upon written notice from Commodore of such Governmental
Body Determination, Commodore shall purchase Casino's Interest in the Joint
Venture pursuant to Section 8.9. Because the Partners believe that the market
value of an Interest will be very difficult, if not possible to assess, they
have adopted the valuation method described in Section 8.9(a) as the method to
determine the Purchase Price for Casino's Interest.
ARTICLE 8
DISSOLUTION/MANDATORY SALE
8.1 No Default Dissolution. The Joint Venture shall be dissolved and its
affairs wound up in accordance with Section 8.5 hereof upon the first to occur
of the following:
(a) Upon the expiration of the term specified in Section 14.1 of this
Agreement;
(b) Issuance of an order by a court of competent jurisdiction,
requiring the dissolution of the Joint Venture; or
(c) The written consent of all the Partners.
8.2 Default Dissolution. A Non-Defaulting Partner may give notice to a
Defaulting Partner dissolving the Joint Venture upon the occurrence of any one
of the following events with respect to the Defaulting Partner or its Parent
Entity, as the case may be, (unless there is a Dispute with respect to whether a
Default has occurred and such Dispute has not yet been resolved pursuant to the
terms of this Agreement):
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(a) any action or proceeding is commenced by the Defaulting Partner or
its Parent Entity to wind up, dissolve, cancel its incorporation or otherwise
terminate its corporate existence; or
(b) any action or proceeding is commenced against the Defaulting
Partner or its Parent Entity which seeks or requires the winding up,
dissolution, revocation or cancellation of its incorporation or other
termination of its corporate existence unless the action or proceeding is
defended or contested in good faith by the Defaulting Partner or its Parent
Entity within 30 days of the commencement of the action or proceeding in a
manner that stays the winding up, dissolution, revocation or cancellation of its
incorporation or other termination of its corporate existence and is pursued
diligently thereafter; or
(c) the agreement of the Defaulting Partner or its Parent Entity to
sell, assign, transfer or otherwise dispose of the whole or any part of its
Interest in the Joint Venture in contravention of the terms of this Agreement;
or
(d) any Event of Default by the Defaulting Partner or its Parent
Entity pursuant to Section 12.1, which has not been cured within the applicable
cure period; or
(e) the Defaulting Partner or its Parent Entity becomes bankrupt or
seeks relief by any proceedings of any nature under any laws of the United
States or any state for the relief of debtors; or
(f) the appointment of a receiver, receiver-manager, trustee,
custodian or like officer for all or a substantial part of the business or
assets of the Defaulting Partner or its Parent Entity unless the appointment is
defended or contested in good faith by the Defaulting Partner or its Parent
Entity within 30 days of the commencement of the appointment in a manner that
stays the appointment and is pursued diligently thereafter; or
(g) the institution against the Defaulting Partner or its Parent
Entity of a proceeding under the Bankruptcy Reform Act of 1978, or any law of
the United States now in existence or hereafter enacted having the same general
purpose unless the proceeding is defended or contested in good faith by the
Defaulting Partner or its Parent Entity within 30 days of the commencement of
the proceeding in a manner that stays the proceedings and is pursued diligently
thereafter; or
(h) the Defaulting Partner or its Parent Entity makes an assignment
for the benefit of its creditors; or
(i) if any execution, attachment, distress or other process of any
court is made or attached to the Interest of the Defaulting Partner or its
Parent Entity in the Joint Venture unless the execution, attachment, distress or
other process of any court is stayed within 30 days of the
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commencement of the proceedings in a manner that stays attachment, distress or
other proceedings and is pursued diligently thereafter;
(j) a breach by Casino America, Inc. or Commodore Holdings Limited of
the Guaranty, which breach is not cured within 10 days of receipt of written
notice from the non-breaching party describing in reasonable detail the facts
giving rise to the breach (in which event the Defaulting Partner shall be the
Affiliate of the breaching Parent Entity);
(k) any failure by the Defaulting Member to make any Additional
Capital Contribution pursuant to Section 4.4(c) within 120 days after the final
decision of the arbitrators pursuant to Article 13 that such Additional Capital
Contribution is required for Seaworthiness or for items of necessity to continue
the Present Operations or pursuant to Section 5.5 within the period specified
therein; or
(l) the failure of Commodore to purchase Casino's Interest pursuant to
Section 7.7 where Commodore and Casino have followed the procedures in Section
7.7 and either Casino's Board or a Governmental Body has made a Casino
Determination or a Governmental Body Determination, respectively.
8.3 Mandatory Sale. Upon the occurrence of any of the events set out in
Section 8.2(a) through (l) with respect to a Partner, as an alternative to
giving notice dissolving the Joint Venture, the Partner entitled to dissolve the
Joint Venture (in this Article 8 referred to as the "purchasing Partner") may
give notice to the other Partner (in this Article 8 referred to as the "selling
Partner") requiring the selling Partner to sell its Interest in the Joint
Venture to the purchasing Partner for the Purchase Price (as defined in Section
8.9) and on the terms and conditions hereinafter provided.
8.4 Notice.
(a) Notice of Election to Dissolve. A Partner electing to dissolve the
Joint Venture, pursuant to Section 8.2, must give notice of dissolution to the
other Partner within 60 days of first acquiring actual knowledge of the event or
circumstances giving rise to the right of dissolution. Following any such notice
pursuant to Section 8.2 (unless there is a Dispute as to the right to dissolve),
the Partner who has received notice of dissolution shall not be entitled to vote
(or to have its Directors vote) with respect to any matter relating to the
affairs of the Joint Venture and shall be deemed to have given its proxy to the
Partner giving the notice for all matters requiring the vote of the Partners
with respect to the Joint Venture.
(b) Notice of Intention to Buy. The purchasing Partner under Section
8.3 must give notice of its intention to buy the interest of the selling Partner
in the Joint Venture (the "Purchase Notice") within 60 days of the date upon
which the purchasing Partner first acquires actual knowledge of the occurrence
of the event or circumstances giving rise to the right to purchase. Following
such notice (unless there is a Dispute as to the existence of a right to
purchase), the selling Partner shall not be entitled to vote (or to have its
Directors vote) with respect
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to any matter relating to the affairs of the Joint Venture and the selling
Partner shall be deemed to have given its proxy to the purchasing Partner for
all matters requiring the vote of the Partners with respect to the Joint
Venture.
8.5 Dissolution Procedures.
(a) Generally. Unless there is a Dispute as to whether an event
causing a dissolution has occurred, promptly following the giving of notice of
dissolution of the Joint Venture:
(i) No Default Dissolution. Pursuant to Section 8.1, the
Partners shall proceed to wind up the affairs of the Joint Venture in the
manner hereinafter provided; or
(ii) Default Dissolution. Pursuant to Section 8.2, the Partner
giving notice of dissolution shall wind up the affairs of the Joint Venture
in the manner hereinafter provided on behalf of the Partners.
(b) Use of Business or Ship Broker. If the Business of the Joint
Venture is in operation, the parties shall consider retaining a business or ship
broker, and the Business of the Joint Venture shall be listed for sale as a
going concern. If an offer acceptable to the Partners or the Non-Defaulting
Partner, as the case may be, acting reasonably, has not been received within 120
days of listing the business for sale, then the assets of the Joint Venture
shall be sold and the Vessel subchartered in a piecemeal manner. The liquidation
of assets and the discharge of liabilities of the Joint Venture shall occur over
a reasonable time to attempt to minimize the losses which may otherwise be
attendant upon an immediate liquidation.
(c) Payments Owed by Partners. Each Partner shall immediately pay to
the Joint Venture all amounts owing to the Joint Venture, less any amounts owed
by the Joint Venture to the Partner.
(d) Distributions. During the course of liquidation, the Partners
shall continue to share profits and losses as provided in Article 6 of this
Agreement, but there shall be no cash distributions to the Partners until the
distribution pursuant to Section 8.7(d).
8.6 Settling of Accounts. Subject to section 18-804 of the Act, upon the
dissolution and liquidation of the Joint Venture, the proceeds of liquidation
shall be applied as follows: (a) first, to pay all expenses of liquidation and
winding up; (b) second, to pay all debts, obligations and liabilities of the
Joint Venture, in the order of priority as provided by law, other than debts
owing to the Partners or on account of Partners' contributions; (c) third, to
pay all debts of the Joint Venture owing to a Partner; and (d) to establish
reasonable reserves for any remaining contingent or unforeseen liabilities of
the Joint Venture not otherwise provided for, which reserves shall be maintained
by the liquidator on behalf of the Joint Venture in a regular interest-bearing
trust account for a reasonable period of time as determined by the liquidator.
If any excess funds remain in such
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reserves at the end of such reasonable time, then such remaining funds shall be
distributed by the Joint Venture to the Partners pursuant to Section 8.7 hereof.
8.7 Distribution of Proceeds. Subject to Section 18-804 of the Act, upon
final liquidation of the Joint Venture, the net proceeds of liquidation shall be
distributed to the Partners in the following order of priority:
(a) to creditors, including Partners who are owed Partner Loans or
Default Loans, to the extent of any unpaid expenses or any outstanding loan or
advance;
(b) to the Partners in respect of the costs of winding up the affairs
of the Joint Venture, discharging the liabilities of the Joint Venture,
distributing the assets of the Joint Venture and dissolving the Joint Venture in
accordance with this Article 8;
(c) to the Partners in the proportion of their respective positive
Capital Accounts as those accounts are determined after all adjustments to such
accounts for the taxable year of the Joint Venture during which the liquidation
occurs as are required by this Agreement and Treasury Regulations [_]1.704-1(b),
such adjustments to be made within the time specified in such Treasury
Regulations; and
(d) after each Partner has received the amount in its Capital Account,
to the Partners in proportion to their respective Percentage Interests.
8.8 Certified Liquidation Statement. The Partners, in the event of a
liquidation of the Joint Venture following dissolution pursuant to Section 8.1,
or the Non-Defaulting Partner, in the event of a liquidation of the Joint
Venture following dissolution pursuant to Section 8.2, shall cause the
independent auditors of the Joint Venture to prepare a certified liquidation
statement of the Joint Venture which shall contain:
(i) a summarized statement of receipts and disbursements;
(ii) a statement of the debts and liabilities of the Joint
Venture owing to each Partner;
(iii) a determination of the Capital Account of each Partner;
(iv) an allocation between the Partners of all gains or losses
realized on the liquidation of the property and assets of the Joint
Venture; and
(v) an allocation of any tax benefits between the Partners.
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Each Partner agrees to prepare its financial statements and to prepare and file
all tax returns required to be filed by it in accordance with the liquidation
statement prepared by the independent auditors of the Joint Venture.
8.9 Mandatory Sale Procedures.
(a) Amount. Except with respect to a Mandatory Sale under Section 7.7,
the Purchase Price payable by the purchasing Partner for the interest of the
selling Partner in the Joint Venture (the "Purchase Price") shall be an amount
equal to 100% of the net book value of the selling Partner's Interest in the
Joint Venture as determined pursuant to GAAP as of the date of the Purchase
Notice ("Book Value") and paid in equal quarterly installments over a period of
five years commencing on the Closing Date, plus interest on such amount from the
Closing date at the Reference Rate. With respect to a Mandatory Sale based on
Section 7.7, if the Purchase Notice is received within one year of the date of
this Agreement, the Purchase Price shall be the amount of Casino's Initial
Capital Contribution as set forth on Schedule 1 plus interest from the Closing
Date at the Reference Rate plus 2%, paid in equal semi-annual installments over
a period of two years commencing six months after the Closing Date (as evidenced
by a promissory note and secured by a pledge of Casino's Interest). If the
Purchase Notice for a Mandatory Sale under Section 7.7 is received thereafter,
the Purchase Price shall be the greater of Book Value or five times the earnings
(determined under GAAP but excluding pre-opening expenses) of the Joint Venture
allocable to Casino's Interest for the Applicable Fiscal Year (as hereafter
defined) preceding delivery of the Purchase Notice, paid in equal quarterly
installments over a period of five years commencing on the Closing Date, plus
interest on such amount from the Closing Date at the Reference Rate (as
evidenced by a promissory note and secured by a pledge of Casino's Interest).
The Applicable Fiscal Year shall be the Joint Venture's fiscal year immediately
preceding the Closing or, in the event the Joint Venture is more than six months
into its next fiscal year, the period beginning six months before the end of the
Joint Venture's last fiscal year and ending six months into its current fiscal
year.
(b) Closing -- Generally. The purchase and sale of the selling
Partner's interest in the Joint Venture shall be consummated (the "Closing") at
the office of the purchasing Partner's counsel, on the date which is 30 days
following the receipt by the selling Partner of the Purchaser Notice.
(c) Closing -- Selling Partner Deliveries. At the Closing, the selling
Partner shall deliver to the purchasing Partner the following duly executed
documentation, in form acceptable to the purchasing Partner acting reasonably:
(i) an assignment of its Interest in the Joint Venture;
(ii) the resignation of each of its designees as Directors of
the Management Committee and as Executive Officers of the Joint Venture;
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(iii) a representation and warranty by the selling Partner that
its Interest in the Joint Venture is free and clear of all liens,
mortgages, pledges, charges, security interests, restrictions or
encumbrances whatsoever, which representation and warranty shall survive
Closing and shall continue forever;
(iv) a general release of all claims against the Joint Venture
or the purchasing Partner by the selling Partner in respect of the Joint
Venture except for claims arising from the unauthorized actions of the
purchasing Partner in respect of the Joint Venture which have not been
disclosed to the selling Partner; and
(v) such other documentation as the attorneys for the
purchasing Partner may require, acting reasonably, in order to vest in the
purchasing Partner full right, title and interest in and to the Interest of
the selling Partner in the Joint Venture and to reflect the assignment and
transfer of the interest of the selling Partner in all of the underlying
assets of the Joint Venture, including, without limitation, the interest in
the Vessel.
(d) Closing -- Purchasing Partner Deliveries. At the Closing, the
purchasing Partner shall pay the selling Partner the Purchase Price for the
Interest of the selling Partner in the Joint Venture by means of immediately
available funds for the cash portion of the Purchase Price and by means of a
promissory note with respect to the deferred portion of the Purchase Price and
the purchasing Partner shall deliver to the selling Partner the following duly
executed documentation in a form acceptable to the selling Partner, acting
reasonably:
(i) an indemnity of the Joint Venture and the purchasing
Partner indemnifying the selling Partner against any claims arising from
the conduct of the business of the Joint Venture from and after the time of
Closing;
(ii) a general release of all claims against the selling Partner
by the Joint Venture or the purchasing Partner in respect of the Joint
Venture except for claims arising from the unauthorized actions of the
selling Partner in respect of the Joint Venture which have not been
disclosed to the purchasing Partner; and
(iii) in the case of a Mandatory Sale under Section 7.7, a
promissory note payable to the order of the selling Partner and a pledge or
security agreement, in form and content reasonably satisfactory to the
selling Partner.
(e) At the Closing, the selling Partner shall repay to the Joint
Venture or the purchasing Partner, as the case may be, any amounts owing to such
parties, and the Joint Venture or the purchasing Partner, as the case may be,
shall repay to the selling Partner any amounts owing to it, which repayments may
occur as a set off of the respective amounts. If the amounts owed to the
purchasing Partner by the selling Partner and the Joint Venture exceed the
amount owed by the purchasing Partner to such parties, the purchasing Partner
may reduce the amount of the Purchase Price by such excess amount.
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ARTICLE 9
OUTSIDE ACTIVITIES; CONFIDENTIALITY
9.1 Outside Activities.
(a) Except as otherwise expressly provided in this Article 9, any
Partner or Affiliate thereof may engage in or possess any interest in any
business, and may do so through itself or through any other business venture of
any nature independently or with others, and neither the Joint Venture nor any
other Partner shall have any right by virtue of this Agreement in or to such
Partner's business or its other ventures or in or to any income or profits
derived therefrom.
(b) For as long as the Joint Venture exists, and except as described
herein, no Partner or Affiliate thereof may, directly or indirectly (except
through the Joint Venture), engage (or possess any interest in any business or
venture that engages), in the Business. Notwithstanding the foregoing, Commodore
may continue to operate a cruise vessel(s) in the New Orleans, Louisiana market
that conducts cruises equal to or greater than seven days in duration during the
term of the Joint Venture, as long as it appoints Casino as the casino gaming
concessionaire aboard such vessels on terms substantially the same as those in
the Casino Management Agreement attached hereto as Exhibit "F". With respect to
cruise vessel(s) operated by Commodore in the New Orleans, Louisiana market that
conduct cruises of less than seven days duration, Casino shall have a right of
first refusal during the term of this Joint Venture, at Casino's election, to
operate such vessel(s) as a 50/50 joint venture with Commodore or to manage the
casino aboard such vessel(s) pursuant to the terms of the Casino Management
Agreement, attached hereto as Exhibit "F". Casino shall not operate or manage a
casino, directly or indirectly, aboard any vessel that operates in "blue water"
in the New Orleans, Louisiana market during the term of the Joint Venture.
Vessels operating in "blue water" shall specifically exclude barges, riverboats
and other vessels which offer gaming in the New Orleans, Louisiana market
subject to state regulations.
(c) This Agreement shall not be deemed to create any duties other than
as expressly provided for herein or imposed by applicable law, nor shall its
existence be deemed to alter the legal duties and obligations that any Partner
or any Affiliate has to the other Partners or their Affiliates as to matters
outside the scope of this Agreement.
9.2 Duties of Partners. The fiduciary duties of Partners shall not
restrict any Partner or Affiliate from:
(a) engaging in conduct not expressly prohibited by Article 9; or
(b) acting to prevent the Joint Venture from engaging in an activity
that is outside the scope of the Business;
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whether or not such Partner or Affiliate is motivated in whole or in part by a
desire to further the interests of a Person other than the Joint Venture.
9.3 Confidential Information.
(a) Each Partner shall, and shall cause each of its Affiliates, and
its and their respective partners, shareholders, directors, officers, employees
and agents (collectively, "Representatives") to keep secret and retain in
strictest confidence, except as provided in subsection (c) hereof, any and all
Confidential Information and shall not distribute, disseminate or disclose such
Confidential Information, and shall cause its Representatives not to distribute,
disseminate or disclose such Confidential Information, except to (i) the Joint
Venture and its respective agents on a need-to-know basis or (ii) any Partner or
any of their respective Affiliates or other Representatives on a "need-to-know"
basis in connection with the transactions leading up to and contemplated by this
Agreement and the operation of the Joint Venture, or (iii) any other Person on a
"need to know" basis in connection with this Agreement or the operation of the
Joint Venture that agrees in writing to keep in confidence such Confidential
Information in accordance with the terms of this Section 9.3; and such Partner
disclosing Confidential Information pursuant to this Section 9.3 shall use, and
shall cause its Affiliates and other Representatives or Persons to use, such
Confidential Information only for the benefit of the Joint Venture in conducting
the Business or for any other specific purposes for which it was disclosed to
such party; provided that the disclosure of financial statements of, or other
information relating to, the Joint Venture shall not be deemed to be the
disclosure of Confidential Information (A) to the extent that any Partner is
required by law, GAAP or a Governmental Body that regulates the operations of
Casino or its Affiliates to disclose such financial statements or other
information or (B) to the extent that in order to sustain a position taken for
tax purposes, any Partner deems it necessary and appropriate to disclose such
financial statements or other information. All Confidential Information
disclosed in connection with the Joint Venture or pursuant to this Agreement
shall remain the property of the Person whose property it was prior to such
disclosure.
(b) No Confidential Information regarding the plans or operations of
any Partner or any Affiliate thereof received or acquired by or disclosed to any
other Partner or Affiliate thereof in the course of the conduct of Business, or
otherwise as a result of the existence of the Joint Venture, may be used by such
other Partner or Affiliate thereof for any purpose other than for the benefit of
the Joint Venture in conducting the Business.
(c) In the event that a Partner or anyone to whom a Partner transmits
any Confidential information becomes legally compelled (by oral questions,
interrogatories, requests for information or documents, subpoena, investigative
demand, similar process or request) to disclose any of the Confidential
information, such Partner will use its best efforts to provide the other Partner
and the Joint Venture with prompt written notice prior to disclosure (not less
than 24 hours) so that the other Partner and the Joint Venture may seek a
protective order or other appropriate remedy and/or waive compliance with the
provisions of this Agreement in the event that such protective
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order or other remedy is not obtained, or that the Joint Venture and the other
Partner waive compliance with the provisions of this Section 9.3, the Partner or
Person who is compelled to disclose such Confidential Information will furnish
only that portion of the Confidential Information which (based on the advice of
counsel) it is legally required to disclose and will exercise its best efforts
to obtain reliable assurance that protective treatment will be accorded the
Confidential Information
(d) Each Partner who ceases to be such will, and will cause its
Affiliates and Representatives to, maintain the confidentiality required by this
Section 9.3 and to destroy or return upon request, all documents and other
materials, and all copies thereof, obtained by such Partner or on its behalf
from either the Joint Venture or the other Partners or any of their Affiliates
in connection with the transactions leading up to and contemplated by this Joint
Venture. The obligations under this Section 9.3 shall survive the termination of
the Joint Venture for a period of ten years or, if shorter, the maximum period
permitted by applicable law.
(e) To the fullest extent permitted by law, if a Partner or any of its
Affiliates or Representatives breaches, or threatens to commit a breach of, this
Section 9.3, the other Partner and the Joint Venture shall have the right and
remedy to have this Section 9.3 specifically enforced, it being acknowledged and
agreed that money damages will not provide an adequate remedy to such other
Partner or the Joint Venture. Nothing in this Section 9.3 shall be construed to
limit the right of any Partner or the Joint Venture to collect money damages in
the event of breach of this Section 9.3.
9.4 Duty of Partners to Cooperate. Each Partner will, to the extent
permitted by applicable law and consistent with this Agreement, furnish such
information, execute such applications and similar documents as are required by
governmental authorities, and take such other action reasonably requested by the
Joint Venture or the other Partners and as may be necessary or reasonably
desirable in connection with the Business.
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ARTICLE 10
INDEMNIFICATION
10.1 Limitation of Liability. A Director, CEO or Executive Officer of the
Joint Venture shall perform his duties as such in good faith, in a manner he
reasonably believes to be in the best interest of the Joint Venture and the
Partners, and with such care as an ordinarily prudent person in a like position
would use under similar circumstances. A Director, CEO or Executive Officer who
so performs his duties shall not have any liability by reason of being or having
been a Director, CEO or Executive Officer of the Joint Venture. The Directors,
CEO and Executive Officers shall not be liable, responsible or accountable in
damages or otherwise to the Joint Venture or any Partner for any action taken or
failure to act on behalf of the Joint Venture within the scope of authority
conferred on the Directors, CEO and Executive Officers under this Agreement or
the Act, except where the claim at issue is based on the fraud, gross negligence
or bad faith of the Directors, CEO or Executive Officers.
10.2 Indemnification: Proceeding other than by Joint Venture. The Joint
Venture shall indemnify any Partner, Affiliate of a Partner, member of the
Management Committee or Executive Officer and may indemnify any other Person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, except an action by or in the right of the Joint Venture, by
reason of the fact that he is or was a Partner, officer, employee or agent of
the Joint Venture, or is or was serving at the request of the Joint Venture as a
manager, member, director, officer, employee or agent of another limited
liability company, corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the Joint Venture, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plead of nolo contendere or its equivalent, does not, of itself, create a
presumption that the Person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Joint
Venture, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
10.3 Indemnification: Proceeding by Joint Venture. The Joint Venture may
indemnify any Person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Joint Venture to procure a judgment in its favor by reason of the fact that he
is or was a Partner, officer, employee or agent of the Joint Venture, or is or
was serving at the request of the Joint Venture as a manager, Partner, director,
officer, employee or agent of another limited liability company, corporation,
partnership, joint venture, trust or other enterprise against expenses,
including amounts paid in settlement and attorneys' fees actually and
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reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Joint Venture.
Indemnification may not be made for any claim, issue or matters as to which such
a Person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the Joint Venture or for
amounts paid in settlement to the Joint Venture, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the Person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
10.4 Mandatory Indemnification. To the extent that a Partner, officer,
employee or agent of the Joint Venture requests indemnification pursuant to
Section 10.2 or has been successful on the merits or otherwise in defense of any
action, suit or proceeding described in Sections 10.2 and 10.3, or in defense of
any claim, issue or matter therein, he must be indemnified by the Joint Venture
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
10.5 Authorization of Indemnification. Any indemnification under Section
10.3, unless ordered by a court or advanced pursuant to Section 10.4, may be
made by the Joint Venture only as authorized in the specific case upon a
determination that indemnification of the Partner, officer, employee or agent is
proper in the circumstances.
10.6 Mandatory Advancement of Expenses. The expenses of Partners and
officers incurred in defending a civil or criminal action, suit or proceeding
must be paid by the Joint Venture as they are incurred and in advance of the
final disposition of the action, suit or proceeding, if such indemnification is
being provided pursuant to Section 10.2 or upon receipt of an undertaking by or
on behalf of the Partner or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the Joint Venture. The provisions of this Section 10.6 do not
affect any rights to advancement of expenses to which personnel of the Joint
Venture other than Partners or officers may be entitled under any contract or
otherwise.
10.7 Effect and Continuation. The indemnification and advancement of
expenses authorized in or ordered by a court pursuant to this Article 10:
(a) Does not exclude any other rights to which a Person seeking
indemnification or advancement of expenses may be entitled under any limited
liability company agreement, vote of Partners, or otherwise, for either an
action in his official capacity or an action in another capacity while holding
his office, except that indemnification, unless ordered by a court pursuant to
Section 10.4 for the advancement of expenses made pursuant to Section 10.6, may
not be made to or on behalf of any Partner or officer if a final adjudication
establishes that his acts or omissions involved intentional misconduct, fraud or
a knowing violation of the law and was material to the cause of action.
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(b) Continues for a Person who has ceased to be a Partner, officer,
employee or agent and inures to the benefit of his heirs, executors and
administrators.
10.8 Insurance and Other Financial Arrangements. The Joint Venture may
purchase and maintain insurance or make other financial arrangements on behalf
of any Person who is or was a member, officer, employee or agent of the Joint
Venture, or is or was serving at the request of the Joint Venture as a manager,
Partner, director, officer, employee or Agent of another limited liability
company, corporation, partnership, joint venture, trust or other enterprise for
any lability asserted against him and liability and expenses incurred by him in
his capacity as a Partner, director, officer, employee or agent, or arising out
of his status as such, whether or not the Joint Venture has the authority to
indemnify him against such liability and expenses.
10.9 Notice of Indemnification and Advancement. Any indemnification of, or
advancement of expenses to, a Partner or officer in accordance with this Article
10, if arising out of a proceeding by or on behalf of the Joint Venture, shall
be reported in writing to the Partners with or before the notice of the next
Partners' meeting.
10.10 Repeal or Modification. An repeal or modification of this Article 10
by the Partners of the Joint Venture shall not adversely affect any right of a
Partner or officer of the Joint Venture existing hereunder at the time of such
repeal or modification.
ARTICLE 11
INSPECTION OF JOINT VENTURE RECORDS; ANNUAL AND OTHER REPORTS
11.1 Records to be Kept. The Joint Venture shall keep at its registered
office:
(a) A current list of the full name and last known business, resident
or mailing address of each Partner and its designated Directors separately
identifying the Partners in alphabetical order and the Directors in alphabetical
order;
(b) Copies of this Agreement, and all amendments hereto;
(c) Copies of the Joint Venture's federal income tax returns and
reports, if any, for the three (3) most recent years; and
(d) Copies of any financial statements of the Joint Venture for the
three (3) most recent years.
11.2 Inspection of Joint Venture Records. The accounting books and
records, the records of the Management Committee, and any other records
maintained by the Joint Venture shall be open to inspection upon the request of
any Partner at any reasonable time during usual business
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hours. Such inspection by a Partner may be made in person or by agent or
attorney, and the right of inspection includes the right to copy and make
extracts.
11.3 Financial Reports. The Joint Venture shall within 30 days after the
close of each fiscal quarter and within 60 days after the close of each fiscal
year, deliver or mail to the Partners the quarterly financial statements and
annual financial statements, respectively, of the Joint Venture. The CFO shall
also prepare abbreviated monthly financial reports with respect to the Joint
Venture and provide such reports to the Partners within 15 days after the end of
each month. A copy of any such statements shall be kept on file in the
principal executive office of the Joint Venture and shall be exhibited at all
reasonable times to any Partner demanding an examination of them or a copy shall
be mailed to such Partner. The quarterly income statements and balance sheets
referred to in this Section shall be accompanied by the report thereon, if any,
of any independent accountants engaged by the Joint Venture and the certificate
of the CFO of the Joint Venture that such financial statements were prepared in
accordance with GAAP without audit from the books and records of the Joint
Venture except that such financial statements may lack footnotes and other
presentation items required by GAAP and shall be subject to normal year-end
adjustments. The annual financial statements of the Joint Venture shall be
audited and shall be accompanied by a report from the independent auditors.
11.4 Joint Venture Auditors. The auditors for the Joint Venture shall be
Grant Thornton, LLP, or such other independent public accounting firm of
national standing selected by Commodore, with Casino's reasonable approval.
ARTICLE 12
DEFAULTS AND REMEDIES
12.1 Defaults. An Event of Default shall occur if a Partner (or its
Affiliate) commits an act described in Section 8.2 as being an act of a
Defaulting Partner or materially defaults in the performance of its obligations,
covenants or representations and warranties under this Agreement, and such
default is not cured within 30 days after notice of such default is given by a
Partner to the Defaulting Partner, or action has not been taken to begin curing
such Default within such 30-day period and such cure is being diligently
pursued, if the Default is not reasonably capable of being cured within 30 days.
12.2 Remedies. Upon the occurrence of an Event of Default, the non-
defaulting Partner shall have the right, in addition to all other rights and
remedies provided herein (including rights under Section 8.3), to pursue any and
all available legal and equitable remedies on behalf of itself or the Joint
Venture or elect to dissolve the Joint Venture pursuant to Section 8.2, or both.
12.3 No Waiver. No consent or waiver, express or implied, by a Partner to
or of any breach or default by another Partner in the performance by such other
Partner of its obligations
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under this Agreement shall constitute a consent to or waiver of any similar
breach or default by such Partner. Failure by a Partner to complain of any act
or omission to act by another Partner, or to declare such other Partner in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such Partner of its rights under this Agreement.
ARTICLE 13
DISPUTE RESOLUTION
13.1 Disputes. Except for actions described in Section 4.4(b) or as
expressly otherwise provided in this Agreement, any and all claims, disputes,
controversies, and other matters in question (whether contractual or non-
contractual) arising out of or relating to this Agreement, or the formation,
validity, binding effect, applicability, scope, interpretation, construction,
modification, performance, breach, termination, or enforcement thereof
(including all such issues pertaining to this subsection) (singly, the "Dispute"
and collectively, the "Disputes") shall be resolved by alternative dispute
resolution in accordance with this Article 13.
13.2 Arbitration.
(a) Compulsory Arbitration. All Disputes not resolved by the parties
under other dispute resolutions provisions of this Agreement shall be settled
exclusively by final and binding arbitration in accordance with this Section
13.2 (Arbitration). Judgment upon the award may be entered in any court
specified by the parties in this Agreement or in one of the Related Agreements,
or in the absence of any such designation, in any court having jurisdiction, or
application may be made to the appropriate court for judicial recognition of the
award or for an order of enforcement thereof.
(b) Arbitration Tribunal, Rules, and Administration. The sole
arbitrator or the panel of arbitrators constituted for the resolution of the
Dispute will be called the Arbitration Tribunal. Except as otherwise provided in
this Section, the arbitration proceeding (the "Arbitration Case") will be
administered by the American Arbitration Association (the "Case Administrator")
and conducted by the Arbitration Tribunal in substantial accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect (the "Procedural Rules"). In the event of any conflict between the
Procedural Rules and this Section 13.2 (Arbitration), the provisions of this
Section 13.2 (Arbitration) will control.
(c) Conditions Precedent to Arbitration. A party may initiate
arbitration at any time after the utilization and completion of the dispute
resolution procedures set forth in Section 4.5.
(d) Initiation of Arbitration Case. The Arbitration Case must be
initiated by the initiating party (the "Petitioner") in accordance with the
Procedural Rules by giving to the other party
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(the "Respondent") in a demand for arbitration ("Petitioner's Demand") written
notice of the Dispute and Petitioner's claim.
(e) Appointment of Arbitration Tribunal by Parties or Appointing
Authority. In Petitioner's Demand, the Petitioner shall select one (1) neutral
arbitrator from the panel or roster of arbitrators established and maintained by
the Appointing Authority. Within ten (10) of receipt of Petitioner's Demand, the
Respondent shall mail or deliver to the Petitioner and the Appointing Authority
an answering statement to Petitioner's Demand in which the Respondent answers
Petitioner's Demand and selects one (1) neutral arbitrator from the panel or
roster of arbitrators established and maintained by the Appointing Authority. If
no answering statement is mailed or delivered within the stated time, the claim
set forth in Petitioner's Demand is deemed denied by the Respondent and the
Appointing Authority shall select the second neutral arbitrator. Within ten days
of receipt of notice of their selection as arbitrators, the two (2) arbitrators
shall select a third neutral arbitrator. If the two (2) arbitrators do not agree
upon the third arbitrator within the stated time, the Appointing Authority shall
select the third neutral arbitrator. The three (3) neutral arbitrators so
selected will constitute the Arbitration Tribunal. Unless the parties otherwise
mutually agree, if Petitioner's Demand names two (2) or more parties as
Petitioner or two (2) or more parties as Respondent, the Appointing Authority
shall appoint all three (3) members of the Arbitration Tribunal. The Appointing
Authority has the exclusive right and power to resolve any Dispute arising out
of or related to the appointment of the Arbitration Tribunal. In this regard, in
addition to any other action it deems just and equitable in order to resolve any
such Dispute, the Appointing Authority may appoint an arbitrator or arbitrators
to serve in place of any arbitrator or arbitrators selected by the Petitioner or
the Respondent. The American Arbitration Association is designated as the
Appointing Authority.
(f) Qualifications of Arbitrators. Each member of the Arbitration
Tribunal must be an independent, impartial, neutral and have experience in the
subject matter of the Dispute. At least one member of the Arbitration Tribunal
must be actively engaged in the practice of law, or a retired member of the
state or federal judiciary, and must have at least ten years' experience in
resolving disputes in the area of law directly related to the subject matter of
the Dispute. The Arbitration Tribunal will be the judge of its own
qualifications and jurisdiction.
(g) Interim Measures. The Arbitration Tribunal may grant and order
such interim, provisional, ancillary, and special remedies and relief as it
deems just and equitable and necessary or desirable under the circumstances
including, without limitation, protective orders, sanctions for abuse or
frustration of the arbitration process, temporary restraining orders,
preliminary injunctions, attachment, sequestration, specific performance, and
the appointment of a receiver. Such interim measures may be taken in the form of
an interim award. The Arbitration Tribunal may require security for the payment
of costs and damages. A request for interim measures by a party to a court shall
not be deemed incompatible with this Article 13 or a waiver of that party's
right to arbitrate. Without limiting the generality of the foregoing provisions,
a party may seek interim relief from the Arbitration Tribunal or from the
appropriate court having jurisdiction for a breach or threatened breach of
Section 9.3 (Confidential Information).
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(h) Pre-Hearing Conference. A pre-hearing conference will be held and
conducted by the Arbitration Tribunal within 30 days of its appointment for the
purpose of expediting the Arbitration Case, directing and controlling the
exchange of information, and setting the date for the opening of the hearing.
(i) Exchange of Information. Consistent with the expedited nature of
arbitration, the Arbitration Tribunal will direct and control the scope and
timing of the exchange of information between the parties and will take such
steps as it deems necessary or desirable to avoid delay and achieve a just,
speedy, and cost-effective resolution of the Dispute. The Arbitration Tribunal
may order (i) the production of documents and other information and the entry
upon designated land or other property, and (ii) the identification of witnesses
to be called. When the demands of justice require such extraordinary measures
and upon good cause shown, the Arbitration Tribunal may order the taking of the
testimony of any Person, including a party, by deposition upon oral examination
or upon written questions, or the propounding of interrogatories, but no party
is entitled to conduct discovery of this nature as a matter of right. At least
ten days prior to the hearing, the parties shall exchange copies of all exhibits
they intend to submit at the hearing and final witness lists. The Arbitration
Tribunal has the exclusive right and power to resolve all Disputes related to
the exchange of information.
(j) Language and Locale. The Arbitration Case will be conducted in
the English language at a location selected by the Arbitration Tribunal that is
within fifty (50) miles of Broward County, Florida.
(k) Opening and Closing of Hearing; Time of Award. The hearing will
be opened within 60 days of the initial pre-hearing conference and will be
closed within 60 days of the opening of the hearing. To secure a just, speedy,
and cost-effective resolution of the Dispute and for good cause, the Arbitration
Tribunal may shorten or lengthen the time for opening or closing the hearing.
Unless the parties otherwise agree, the Arbitration Tribunal shall render the
award within 30 days from the date of closing of the hearing. The failure of the
Arbitration Tribunal to render the award within that time will not deprive the
Arbitration Tribunal of its jurisdiction or authority to render the award.
(l) Form of Award. The award will be written in the English language
and signed by a majority of the members of the Arbitration Tribunal. The
Arbitration Tribunal will provide a concise, written breakdown of the award. If
requested in writing by the parties prior to the opening of the hearing, or if
the Arbitration Tribunal believes it is appropriate to do so, the Arbitration
Tribunal will also provide a concise, written explanation of the award not
exceeding five (5) pages in length. Detailed findings of fact and conclusions of
law and a reasoned opinion in the form of a judicial opinion are not required
and will not be provided.
(m) Governing Law. The Arbitration Case shall be governed by the
United States Arbitration Act, 9 U.S.C. [_] I - 16 and the substantive governing
law designated by the
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parties in this Agreement without regard to conflicts of laws principles. In the
absence of any such designation, the Arbitration Tribunal may apply such law or
laws as it considers appropriate.
(n) Scope of Award; Punitive Damages. The Arbitration Tribunal may
grant any remedy or relief that it deems just and equitable and not outside of
the scope of this Agreement or the Related Agreements, including, but not
limited to, specific performance and other equitable relief. The Arbitration
Tribunal is not empowered to and may not award punitive damages.
(o) Assessment of Fees, Compensation, and Expenses. Unless the
parties have otherwise agreed to bear such costs equally or in some other
manner, the Arbitration Tribunal, in the award, will allocate and assess against
the parties in such manner as it deems just and equitable the fees,
compensation, and expenses of the Arbitration Tribunal, the Case Administrator,
and the Appointing Authority. Except as otherwise provided in this subsection or
the following subsection, all other costs and expenses incurred in connection
with resolution of the Dispute or Disputes shall be borne by the party that
incurs such costs and expenses.
(p) Attorneys' Fees. The Arbitration Tribunal may provide in the
award for the recovery of all or part of a prevailing party's reasonable
attorneys' fees incurred in connection with resolution of the Dispute from the
date of inception thereof through enforcement and collection of the award. In
addition, the Arbitration Tribunal may award reasonable attorneys' fees to a
party (whether or not the party prevails on the merits of the Dispute) if the
Arbitration Tribunal finds and concludes that the party participated in good
faith in the manner contemplated by this Agreement in the Arbitration Case and
other alternative dispute resolution procedures described in this Article 13 and
that the other party materially breached its obligations under this Article 13.
(q) Interest. The Arbitration Tribunal may provide in the award for
the recovery of pre-award interest and post-award interest on such principal
amounts and at such rates and from such date or dates as the Arbitration
Tribunal may deem just and equitable. Interest on any judgment entered upon the
award will accrue from the date of entry of judgment at the judgment rate
prescribed by applicable law.
(r) Finality of Award. The award shall be final and binding on the
parties. The award may be vacated, modified, or corrected and an appeal may be
taken only as provided in the Procedural Rules and the United States Arbitration
Act, 9 U.S.C. [_] I - 16.
(s) Confidentiality. The parties, the Arbitration Tribunal, the
Appointing Authority, and the Case Administrator shall treat the proceedings of
the Arbitration Case including, without limitation, the award and decisions of
the tribunal, the testimony of witnesses, the documentary evidence exchanged,
offered, or introduced, and other papers and data related thereto, as
confidential. Upon request of any party, each party agrees to execute prior to
the exchange of any information a confidentiality agreement in form and
substance satisfactory to the Arbitration Tribunal that restricts disclosure of
confidential information during and after the conclusion of the Arbitration
Case, subject to disclosure required by the federal securities laws.
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ARTICLE 14
MISCELLANEOUS
14.1 Term. The existence of the Joint Venture shall be for a period of 50
years from the date of the filing of its certificate of formation with the
Delaware Secretary of State.
14.2 Amendments. This Agreement may be amended only by the affirmative
vote of all the Partners. Any such amendment shall be in writing, duly executed
by all the Partners.
14.3 Nature of Partnership Interest; Agreement Is Binding Upon Successors.
A membership interest is personal property. A Partner shall have no interest in
any specific property of the Joint Venture except to the extent such interest is
evidenced by a separate agreement between such Partner and the Joint Venture.
The successor of any Partner shall be bound by the provisions of this Agreement,
including without limitation, Article 7.
14.4 Title to Property. Title to all Joint Venture property shall be held
in the name of the Joint Venture. Except as otherwise permitted by this
Agreement, no Partner shall have the right, and each Partner does hereby agree
that it shall not seek, to cause a partition of the Joint Venture's property
whether by court action or otherwise.
14.5 Attorney Fees. In the event that any dispute between the Joint
Venture and the Partners or among the Partners should result in litigation or
arbitration, the prevailing party in such dispute shall be entitled to recover
from the other party all reasonable fees, costs and expenses of enforcing any
right of the prevailing party, including without limitation, reasonable
attorneys' fees and expenses, all of which shall be deemed to have accrued upon
the commencement of such action and shall be paid whether or not such action is
prosecuted to judgment as long as the recipient is a prevailing party as defined
herein. Any judgment or order entered in such action shall contain a specific
provision providing for the recover of attorney fees and costs incurred in
enforcing such judgment and an award of prejudgment interest from the date of
the breach at the maximum rate of interest allowed by law. For the purposes of
this Section: (a) attorney fees shall include, without limitation, fees
incurred in the following: (i) post-judgment motions; (ii) contempt
proceedings; (iii) garnishment, levy, and debtor and third party examinations;
(iv) discovery; and (v) bankruptcy litigation and (b) prevailing party shall
mean the party who is determined in the proceeding to have prevailed or who
prevailed by dismissal, default or otherwise.
14.6 Seal. The Partners may adopt a seal of the Joint Venture in such form
as the Partners shall decide.
14.7 Entire Agreement. This Agreement, including the exhibits and
schedules hereto, constitutes the entire agreement between the Partners with
respect to the subject matter hereof, and
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supersedes all prior and contemporaneous agreements, representations, and
understandings of the parties. No party hereto shall be liable or bound to the
other in any manner by any warranties, representations or covenants with respect
to the subject matter hereof except as specifically set forth herein.
14.8 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein or in the Exhibits hereto.
14.9 Governing Law. This Agreement shall be governed by and construed
under the substantive laws of the State of Florida, without regard to Florida
choice of law provisions.
14.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and shall become
effective when there exist copies hereof which, when taken together, bear the
authorized signatures of each of the parties hereto. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
14.11 Titles and Subtitles; Form of Pronouns; Construction and Definitions
. The titles of the sections and paragraphs of this Agreement are for
convenience only and are not to be considered in construing this Agreement. All
pronouns used in this Agreement shall be deemed to include masculine, feminine
and neuter forms, the singular number includes the plural and the plural number
includes the singular. Unless otherwise specified, references to Sections or
Articles are to the Sections or Articles in this Agreement. Unless the context
otherwise requires, the term "including" shall mean "including, without
limitation."
14.12 Severability. If one or more provisions of this Agreement are held
by a proper court to be unenforceable under applicable law, portions of such
provisions, or such provisions in their entirety, to the extent necessary and
permitted by law, shall be severed herefrom, and the balance of this Agreement
shall be enforceable in accordance with its terms.
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14.13 Costs. Each Partner, and its respective Affiliates, shall bear its
own costs (including legal and accounting fees) in connection with the
transactions leading up to, and the negotiating and entering into, this
Agreement.
IN WITNESS WHEREOF, the Partners of CAPRI CRUISES hereby execute this Joint
Venture Agreement as of the __ day of April, 1998.
COMMODORE CRUISES LIMITED, a
Bermuda corporation
By:______________________________
Title:___________________________
ISLE OF CAPRI CORPORATION, a
Mississippi corporation
By:______________________________
Title:___________________________
The undersigned agree to be bound by the provisions contained in Article 9
of this Joint Venture Agreement.
COMMODORE HOLDINGS LIMITED
By:______________________________
Title:___________________________
CASINO AMERICA, INC.
By:______________________________
Title:___________________________
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Schedule 1
Names Addresses and Initial Capital Contributions of Partners
Initial Capital
Name of Partner Address Contribution Schedule
- --------------- ------- ---------------------
Commodore Cruises Limited 4000 Hollywood Blvd. $1,000,000 paid to
Suite 385-S owner of Vessel
South Tower
Hollywood, FL 33021 $212,000 paid to
Federal Maritime
Commission
$288,000 upon execution
$1,000,000 at a date to
be agreed upon between
the parties
Isle of Capri Corporation 711 Washington Loop $1,500,000 upon execution
Biloxi, MS 30530
$1,000,000 at a date to
be agreed upon between
the parties
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Schedule 2
Initial Percentage Interests
Percentage
Name of Partner Interest
--------------- -----------
Commodore Cruises Limited 50%
Isle of Capri Corporation 50%
100%
----
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Schedule 3
Initial Directors
For Commodore Cruises Limited
- -----------------------------
Jeffrey Binder
Frederick Mayer
Phone: (954) 967-2101
Fax: (954) 967-2147
For Isle of Capri Corporation
- -----------------------------
John M. Gallaway
Allan B. Solomon
Phone: (228) 436-7000
Fax: (228) 435-5998
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Schedule 4
Capital Accounts and Profits and Losses
ARTICLE 1
Capital Accounts
1.1 A separate Capital Account shall be maintained for each Partner in
accordance with the capital accounting rules of section 704(b) of the Code and
the regulations thereunder (including without limitation section 1.704-
1(b)(2)(iv) of the Income Tax Regulations). Each Partner's Capital Account
shall be:
(a) increased by (A) the amount of money contributed by such Partner
to the Joint Venture (including the amount of any Joint Venture liabilities
that are assumed by such Partner other than in connection with distribution
of Joint Venture property), (B) the fair market value of property
contributed by such Partner to the Joint Venture, determined as of the date
of each such contributions, net of liabilities secured by such property
that the Joint Venture is considered to assume or to which the Joint
Venture's ownership of the property is subject pursuant to section 752 of
the Code, and (C) items of Joint Venture income and gain, including income
and gain exempt form tax, that are allocated to such Partner pursuant to
Article 2 of this Schedule 4;
(b) decreased by (A) the amount of money distributed to or for the
benefit of such Partner by the Joint Venture (including the amount of such
Partner's individual liabilities that are assumed by the Joint Venture
other than in connection with contribution of property to the Joint
Venture), (B) the fair market value of property distributed to such Partner
by the Joint Venture, determined as of the date of each such distribution,
net of liabilities secured by such property that such Partner is considered
to assume or to which such Partner's ownership of the property is subject
pursuant to section 752 of the Code (c) items of Joint Venture expenditures
not deductible in computing its taxable income and not properly chargeable
to the Capital Account that are allocated to such Partner pursuant to
Article 2 of this Schedule 4; and
(c) increased or decreased by any adjustments to such Partner's tax
basis in its interest in the Joint Venture pursuant to section 48(q)(6) of
the Code.
1.2 When Joint Venture property is distributed in kind (whether in
connection with liquidation and dissolution or otherwise), the Capital Accounts
of the Partners shall first be adjusted to reflect the manner in which the
unrealized income, gain, loss and deduction inherent in such property (that has
not been reflected in the Capital Account previously) would be allocated among
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the Partners if there were a taxable disposition of such property for the fair
market value of such property (taking into account section 7701(g) of the Cod)
on the date of distribution.
1.3 The Joint Venture shall make or cause to be made all necessary
adjustments in each Partner's Capital Account as required by the capital
accounting rules of section 704(b) of the Code and the regulations thereunder.
1.4 Loans by Partners to the Joint Venture. Any loan by a Partner to the
Joint Venture made in accordance with the provisions of this Agreement shall be
separately entered on the books of the Joint Venture as a loan to the Joint
Venture and not as a Capital Contribution, shall be evidenced by a promissory
note substantially in the form attached hereto as Exhibit B and shall be duly
executed by the Joint Venture and delivered to the lending member.
ARTICLE 2
ALLOCATION OF PROFITS AND
LOSSES; TAX AND ACCOUNTING MATTERS
(a) General Allocations. Each Partner's distributive share of the
Joint Venture's income, gain, loss, deduction or credit (or items thereof)
as shown on the annual federal income tax return prepared in accordance
with Section 6.4(b) of this Agreement or as finally determined by the
United States Internal Revenue Service or the courts, and as modified by
the capital accounting rules of section 704(b) of the Code and the Income
Tax Regulations thereunder, shall be determined as follows:
(b) Allocations. Except as otherwise provided in this Section 1.1,
items of income, gain, loss, deduction and credit shall be allocated among
the Partners proportionately in accordance with their Percentage Interests,
except that items of loss or deduction allocated to any Partner pursuant to
this Section 1.1 with respect to any taxable year shall not exceed the
maximum amount of such items that can be so allocated without causing such
Partner to have a deficit balance in his Capital Account at the end of such
year, computed in accordance with the rules of paragraph (b)(2)(ii)(d) of
section 1.704-1 of the Income Tax Regulations. Any such items of loss or
deduction in excess of the limitation set forth in the preceding sentence
shall be allocated as follows and in the following order of priority:
(i) first, to those Partners who would not be subject to such
limitation, proportionately in accordance with their Capital Accounts;
and
(ii) second, any remaining amount to the Partners in the manner
required by the Code and Income Tax Regulations.
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Subject to the provisions of subsections 1.1(b) through (j)
hereof, the items specified in this Section 2.1 shall be allocated to the
Partners as necessary to eliminate any deficit Capital Account balances and
thereafter to bring the relationship among the Partners' positive Capital
Account balances in accord with their Percentage Interest.
(c) Allocations With Respect to Property. In accordance with section
704(c) of the Code and sections 1.704-1(b)(2)(iv)(g) and 1.704-3(b) of the
Income Tax Regulations, items of income, gain, loss, and deduction with respect
to any property contributed to the capital of the Joint Venture shall, solely
for tax purposes, be allocated among the Partners in a manner consistent with
section 1.704-3(b) of the Income Tax Regulations so as to take into account to
the full extent required or permitted by the Code, the difference between the
adjusted basis of the property to the Partner contributing it and the fair
market value of the property determined by the Partners at the time of its
contribution or revaluation, as the case may be.
(d) Minimum Gain Chargeback. Notwithstanding anything to the contrary
in this Section 1.1, if there is a net decrease in Joint Venture Minimum Gain or
Joint Venture Nonrecourse Debt Minimum Gain (as such terms are defined in
sections 1.704-2(b) and 1.704-2(i)(2) of the Income Tax Regulations, but
substituting the term "Joint Venture" for the term "Partnership" as the context
requires) during a Joint Venture taxable year, then each Partner shall be
allocated items of Joint Venture income and gain for such year (and, if
necessary, for subsequent years) in the manner provided in section 1.704-2(i)(4)
of the Income Tax Regulations.
This provision is intended to be a "minimum gain chargeback"
within the meaning of sections 1.704-2(f) and 1.704-2(i)(4) of the Income Tax
Regulations and shall be interpreted and implemented as therein provided.
(e) Qualified Income Offset. Subject to the provisions of subsection
1.1(c), but otherwise notwithstanding anything to the contrary in this Section
1.1, if any Partner's Capital Account has a deficit balance in excess of such
Partner's obligation to restore its Capital Account balance, computed in
accordance with the rules of paragraph (b)(2)(ii)(d) of section 1.704-1 of the
Income Tax Regulations, then sufficient amounts of income and gain (consisting
of a pro rata portion of each item of Joint Venture Income, including gross
income, and gain for such year) shall be allocated to such Partner in an amount
and manner sufficient to eliminate such deficit as quickly as possible.
This provision is intended to be a "qualified income offset"
within the meaning of section 1.704-1(b)(2)(ii)(d) of the Income Tax Regulations
and shall be interpreted and implemented as therein provided.
(f) Depreciation Recapture. Subject to the provisions of section
704(c) of the Code and subsections 1.1(b) through (d) hereof, gain recognized
(or deemed recognized under the provisions hereof) upon the sale or other
disposition of Joint Venture property, which is subject to
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depreciation recapture, shall be allocated to the Partner who was entitled to
deduct such depreciation.
(g) Tax Credits. Tax credits shall generally be allocated according to
section 1.704-1(b)(4)(ii) of the Income Tax Regulations or as otherwise provided
by law. Investment tax credits with respect to any property shall be allocated
to the Partners pro rata in accordance with the manner in which Joint Venture
profits are allocated to the Partners under subsection 1.1(a) hereof, as of the
time such property is placed in service. Recapture of any investment tax credit
required by section 47 of the Code shall be allocated to the Partners in the
same proportion in which such investment tax credit was allocated.
(h) Change of Pro Rata Interests. Except as provided in subsections
1.1(f) and (j) hereof or as otherwise required by law, if the Percentage
Interests of the Partners of the Joint Venture are changed during any taxable
year, all items to be allocated to the Partners for such entire taxable year
shall be prorated on the basis of the portion of such taxable year which
precedes each such change and the portion of such taxable year on and after each
such change according to the number of days in each such portion, and the items
so allocated for each such portion shall be allocated to the Partners in the
manner in which such items are allocated as provided in Section 2.1(a) during
each such portion of the taxable year in question.
(i) Effect of Special Allocations on Subsequent Allocations. Any
special allocation of income or gain pursuant to subsection 1.1(c) or (d) hereof
shall be taken into account in computing subsequent allocations of income and
gain pursuant to this section 1.1 so that the net amount of all such allocations
to each Partner shall, to the extent possible, be equal to the net amount that
would have been allocated to each such Partner pursuant to the provisions of
this Section 1.1 if such special allocations of income or gain under subsection
1.1(c) or (d) hereof had not occurred.
(j) Nonrecourse and Recourse Debt. Items of deduction and loss
attributable to Partner nonrecourse debt within the meaning of section 1.704-
2(b)(4) of the Income Tax Regulations shall be allocated to the Partners bearing
the economic risk of loss with respect to such debt in accordance with section
1.704-2(i)(1) of the Income Tax Regulations. Items of deduction and loss
attributable to recourse liabilities of the Joint Venture, within the meaning of
section 1.752-2 of the Income Tax Regulations, shall be allocated among the
Partners in accordance with the ratio in which the Partners share the economic
risk of loss for such liabilities.
(k) State and Local Items. Items of income, gain, loss, deduction,
credit and tax preference for state and local income tax purposes shall be
allocated to and among the Partners in a manner consistent with the allocation
of such items for federal income tax purposes in accordance with the foregoing
provisions of this Section 1.1.
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Schedule 5
Booking Rights and Commissions
Except during the Initial Period (as defined in the Casino Management
Agreement), Commodore or its Affiliate shall reserve ten (10%) percent of the
cabins on the Enchanted Isle for Casino or its Affiliate to sell to Casino
customers. For each passenger who is booked on the Enchanted Isle through
Casino or its Affiliate (and for whom no travel agent commission is paid),
Commodore or its Affiliate shall pay Casino or its Affiliate a preferred
wholesaler's commission of fifteen (15%) percent of the collected fare.
Commodore or its Affiliate shall pay such amount to Casino or its Affiliate on a
monthly basis, within 20 days after the end of each calendar month. Commodore
or its Affiliate shall provide Casino or its Affiliate with an accounting for
each such payment. Not more than 60 days prior to each cruise, Commodore or its
Affiliate shall review Casino's bookings and may release some or all of the
reserved but unbooked cabins. Casino's (or its Affiliate's) right to receive
such commission shall continue for as long as Casino owns an Interest and
Commodore operates the Enchanted Isle (or another vessel on similar itineraries)
regardless of whether Casino or its Affiliate elects to enter into the Casino
Management Agreement with respect to the Enchanted Isle.
5-1
<PAGE>
EXHIBIT A
GUARANTY
A-1
<PAGE>
EXHIBIT B
FORM OF JOINT VENTURE CHARTER AND ASSIGNMENT
B-1
<PAGE>
EXHIBIT C
LICENSE AGREEMENT
C-1
<PAGE>
EXHIBIT D
INITIAL BUSINESS PLAN
D-1
<PAGE>
EXHIBIT E
INITIAL BUDGET
E-1
<PAGE>
EXHIBIT F
CASINO MANAGEMENT AGREEMENT
F-1
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF CASINO AMERICA, INC.
NAME
- ----
Riverboat Corporation of Mississippi
Riverboat Corporation of Mississippi - Vicksburg
Riverboat Services, Inc.
CSNO, Inc.
Louisiana Riverboat Gaming Partnership
St. Charles Gaming Company, Inc.
PPI, Inc.
LRGP Holdings, Inc.
ASMI Management, Inc.
Isle of Capri Casino Colorado, Inc.
Riverboat Corporation of Mississippi - Tunica
Casino Career Training Center, Inc.
Riverboat Corporation of Indiana, Inc.
Riverboat Corporation of Indiana, L.L.C.
Capri Air, Inc.
Riverboat Corporation of Missouri, Inc.
Grand Palais Riverboat, Inc.
Isle of Capri Entertainment Elkton, Inc.
Pompano Park Gaming School, Inc.
LRG Hotels, L.L.C.
Isle of Capri Hotels on Lake Charles, L.L.C.
Isle of Capri Hotels - Bossier City, L.L.C.
Casino Parking, Inc.
Isle of Capri Corporation
ICH, L.L.C.
Isle of Capri Casino, Inc.
Isle of Capri - Iowa
Isle of Capri - Detroit, L.L.C.
Isle of Capri, S.A.
<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 10, 1998, 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 26, 1998:
. 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, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 18,585
<SECURITIES> 0
<RECEIVABLES> 4,935
<ALLOWANCES> 0
<INVENTORY> 786
<CURRENT-ASSETS> 27,379
<PP&E> 129,306
<DEPRECIATION> 22,209
<TOTAL-ASSETS> 226,474
<CURRENT-LIABILITIES> 38,311
<BONDS> 130,894
0
0
<COMMON> 160
<OTHER-SE> 50,110
<TOTAL-LIABILITY-AND-EQUITY> 226,474
<SALES> 0
<TOTAL-REVENUES> 157,963
<CGS> 0
<TOTAL-COSTS> 61,631
<OTHER-EXPENSES> 93,954
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,293
<INCOME-PRETAX> 4,888
<INCOME-TAX> 3,333
<INCOME-CONTINUING> 1,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,555
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> APR-26-1998 APR-27-1997
<PERIOD-START> APR-28-1997 MAY-01-1996
<PERIOD-END> APR-26-1998 APR-27-1997
<CASH> 52,460 51,846
<SECURITIES> 0 0
<RECEIVABLES> 5,715 4,848
<ALLOWANCES> 0 0
<INVENTORY> 0 2,668
<CURRENT-ASSETS> 69,257 78,155
<PP&E> 333,811 285,234
<DEPRECIATION> 84,194 58,339
<TOTAL-ASSETS> 615,735 528,421
<CURRENT-LIABILITIES> 77,955 69,538
<BONDS> 429,642 364,617
0 0
0 0
<COMMON> 236 233
<OTHER-SE> 85,895 77,740
<TOTAL-LIABILITY-AND-EQUITY> 615,735 528,421
<SALES> 0 0
<TOTAL-REVENUES> 440,816 373,391
<CGS> 0 0
<TOTAL-COSTS> 187,623 158,653
<OTHER-EXPENSES> 192,091 186,215
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 51,579 40,332
<INCOME-PRETAX> 15,044 (10,354)
<INCOME-TAX> 7,497 (1,560)
<INCOME-CONTINUING> 7,547 (8,794)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (12,257)
<CHANGES> 0 0
<NET-INCOME> 7,547 (21,051)
<EPS-PRIMARY> 0.32 (0.94)
<EPS-DILUTED> 0.32 (0.94)
</TABLE>
