<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 24, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission File Number: 0-20538
Isle of Capri Casinos, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1659606
- --------------------------------------------------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
711 Washington Loop, Second Floor, Biloxi, Mississippi 39530
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(228) 436-7000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (a) 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 (b) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Shares of Common Stock outstanding at March 3, 1999: 23,568,562
<PAGE>
ISLE OF CAPRI CASINOS, INC.
FORM 10-Q
INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets, January 24, 1999
(unaudited) and April 26, 1998 1-2
Consolidated Statements of Operations
for the Three Months and Nine Months Ended
January 24, 1999 and January 25, 1998
(unaudited) 3
Consolidated Statement of Stockholders' Equity
(unaudited) 4
Consolidated Statements of Cash Flows for the
Nine Months Ended January 24, 1999 and
January 25, 1998 (unaudited) 5
Notes to Unaudited Consolidated Financial
Statements 6-11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12-20
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 21-22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of
Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
EXHIBIT LIST 24
<PAGE>
ISLE OF CAPRI CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
JANUARY 24, 1999 April 26, 1998
---------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 68,735 $ 52,460
Accounts receivable 7,177 5,715
Income taxes receivable --- 3,563
Deferred income taxes 3,279 3,279
Prepaid expenses and other assets 4,252 4,240
-------- --------
TOTAL CURRENT ASSETS 83,443 69,257
Property and equipment, net 387,093 333,811
OTHER ASSETS:
Other investments 1,762 1,709
Property held for development or sale 5,542 7,943
Licenses, and other intangible assets net of accumulated
amortization of $8,235 and $6,058, respectively 64,134 66,311
Goodwill, net of accumulated amortization of $7,993 and $6,023,
respectively 58,579 60,550
Berthing, concession and leasehold rights, net of accumulated
amortization of $2,071 and $1,836, respectively 4,198 4,432
Deferred financing costs, net of accumulated amortization of
$4,808 and $3,073, respectively 13,592 15,313
Restricted cash 12,880 50,341
Prepaid expenses, deposits and other 5,834 6,068
-------- --------
TOTAL ASSETS $637,057 $615,735
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
1
<PAGE>
ISLE OF CAPRI CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
January 24, 1999 April 26, 1998
---------------- --------------
(Unaudited)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Current maturities of long-term debt $ 12,458 $ 12,453
Accounts payable - trade 15,219 14,365
Accrued liabilities:
Interest 23,647 11,771
Payroll and related 19,541 17,854
Property and other taxes 9,525 10,095
Progressive jackpots and slot club awards 4,041 3,505
Other 10,596 7,912
-------- --------
Total current liabilities 95,027 77,955
-------- --------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 429,924 429,642
DEFERRED INCOME TAXES 16,155 16,155
Minority interest 4,155 5,852
Stockholders' equity
Preferred stock, $0.01 par value; 2,050,000 shares authorized; none
issued --- ---
Common stock, $0.01 par value; 45,000,000 shares authorized;
23,568,562 shares issued and outstanding 236 236
Class B common stock, $0.01 par value; 3,000,000 shares authorized;
none issued --- ---
Additional paid-in capital 63,146 63,146
Retained earnings 28,414 22,749
-------- --------
TOTAL STOCKHOLDERS' EQUITY 91,796 86,131
-------- --------
Total Liabilities and Stockholders' Equity $637,057 $615,735
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
ISLE OF CAPRI CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ ------------------------------------
January 24, 1999 January 25, 1998 January 24, 1999 January 25, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenue
Casino $101,893 $ 93,052 $297,744 $288,020
Rooms 2,167 1,943 7,988 6,716
Pari-mutuel commissions and fees 5,542 6,047 13,514 14,373
Food, beverage and other 5,518 4,777 16,879 14,720
-------- -------- -------- --------
Total revenue 115,120 105,819 336,125 323,829
Operating expenses:
Casino 19,629 20,548 55,821 58,409
Rooms 798 646 2,793 2,327
Gaming taxes 20,912 19,539 61,288 58,433
Pari-mutuel 4,083 4,366 10,193 10,781
Food, beverage and other 3,262 2,285 10,429 9,740
Marine and facilities 7,227 6,558 20,577 19,650
Pre-opening 3,320 --- 3,320 ---
Valuation allowance 5,097 --- 5,097 ---
Accrued litigation settlement (reversal) (4,215) --- (4,215) ---
Marketing and administrative 34,343 31,267 101,417 97,497
Depreciation and amortization 8,762 8,391 25,894 24,813
-------- -------- -------- --------
Total operating expenses 103,218 93,600 292,614 281,650
-------- -------- -------- --------
Operating income 11,902 12,219 43,511 42,179
Interest expense, net of capitalized interest
of $2,422, $688, $6,263 and $1,360,
respectively (11,676) (13,059) (35,701) (37,693)
Interest income 710 954 2,349 2,472
Minority interest 1,670 498 2,197 819
Equity in loss of unconsolidated joint venture (479) --- (1,140) ---
-------- -------- -------- --------
Income before taxes 2,127 612 11,216 7,777
Income tax expense 1,082 352 5,551 3,491
-------- -------- -------- --------
Net income $ 1,045 $ 260 $ 5,665 $ 4,286
======== ======== ======== ========
Net income per share - basic/diluted $0.04 $0.01 $0.24 $0.18
======== ======== ======== ========
Weighted average common shares - diluted 23,684 23,523 23,663 23,427
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
ISLE OF CAPRI CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Total
Shares of Additional Paid-In Stockholders'
Common Stock Common Stock Capital Retained Earnings Equity
------------ ------------ ------------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, April 26, 1998 23,569 $236 $63,146 $22,749 $86,131
Net income --- --- --- 5,665 5,665
------ ---- ------- ------- -------
Balance, January 24, 1999 23,569 $236 $63,146 $28,414 $91,796
====== ==== ======= ======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
ISLE OF CAPRI CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
January 24, 1999 January 25, 1998
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 5,665 $ 4,286
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 25,894 24,813
Amortization of bond discount and deferred financing costs 1,736 1,332
Valuation allowance 5,097 ---
Equity in loss of unconsolidated joint venture 1,140 ---
Changes in current assets and liabilities:
Accounts receivable (4,164) (1,778)
Income tax receivable 6,265 6,315
Prepaid expenses and other 266 (1,675)
Accounts payable and accrued liabilities 17,495 11,951
-------- ---------
Net cash provided by operating activities 59,394 45,244
Cash flows from investing activities
Purchases of property and equipment (73,243) (40,228)
Net cash paid for acquisitions 500 (795)
Minority interest (2,197) (819)
Decrease (increase) in restricted cash 37,461 (67,337)
Other (2,726) 1,118
-------- ---------
Net cash used in investing activities (40,205) (108,061)
Cash flows from financing activities
Proceeds from debt 6,589 72,017
Principal payments on debt (9,496) (11,477)
Deferred financing costs (7) (2,449)
Proceeds from sale of stock and options --- 508
-------- ---------
Net cash provided by (used in) financing activities (2,914) 58,599
Net increase (decrease) in cash and cash equivalents 16,275 (4,218)
Cash and cash equivalents at beginning of period 52,460 51,846
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 68,735 $ 47,628
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest 28,353 24,311
Income taxes, net of refunds received 2,663 (1,721)
Supplemental schedule of noncash investing and financing activities:
Notes Payable and Debt Issued For:
Underwriting fees on first mortgage notes --- 3,000
Land --- 1,398
Capital Contributions:
Land, net of mortgage of $396,000 --- 7,504
Financing fees --- 137
Property and equipment --- 180
Other:
Property and equipment funded through accounts payable 43 3,798
Discount on note payable 95 ---
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
Isle of Capri Casinos, Inc. (the "Company") was incorporated as a
Delaware corporation named Casino America, Inc. on February 14, 1990
and changed its name to Isle of Capri Casinos, Inc. on October 1,
1998. The Company, through its subsidiaries, is engaged in the
business of developing, owning and operating riverboat, dockside and
land-based casinos and related facilities. The Company has licenses to
conduct and currently conducts gaming operations in Biloxi and
Vicksburg, Mississippi, in Bossier City and Lake Charles, Louisiana,
and in Black Hawk, Colorado through its subsidiaries.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation
have been included. Operating results for the nine-month period ended
January 24, 1999 are not necessarily indicative of the results that
may be expected for the fiscal year ending April 25, 1999. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form
10-K for the year ended April 26, 1998.
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 St. Charles Gaming Company, Inc.
("SCGC"), Grand Palais Riverboat, Inc. ("GPRI") and Louisiana
Riverboat Gaming Partnership ("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 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 Isle of Capri Black
Hawk L.L.C. (the "First Mortgage Notes") held in trust by IBJ Schroder
Bank and Trust in New York, as trustee for Isle of Capri Black Hawk
L.L.C. ("ICBH"), a majority owned subsidiary of the Company of which
the company owns a 57% equity interest. 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 the issuance
of the First Mortgage Notes (the "Indenture"). Amounts in the
Construction Disbursement Account as of January 24, 1999,
approximately $4.1 million, will be used to complete the construction
of a casino entertainment complex by ICBH in Black Hawk, Colorado
which opened on December 30, 1998. Amounts in the Completion Reserve
Account, approximately $0.9 million, will be used in the event there
are insufficient funds in the Construction Disbursement Account to
complete the casino entertainment complex. The amount in the Interest
Reserve Account, approximately $4.5 million, were subsequently used to
pay the
6
<PAGE>
February 28, 1999 interest payment on the First Mortgage Notes. The
complex was opened for business on December 30, 1998. In addition, the
Company has other restricted cash totaling $3.4 million related to
various operating deposits.
Earnings per 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.
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------
01/24/99 01/25/98
--------- ---------
(In thousands, except per share data)
<S> <C> <C>
Numerator:
Income (loss) before extraordinary item.............................. $ 5,665 $ 4,286
Extraordinary loss................................................... --- ---
--------- ---------
Net income (loss).................................................... 5,665 4,286
Numerator for basic earnings per share - income available to
common stockholders............................................... 5,665 4,286
Effect of dilutive securities --- ---
--------- ---------
Numerator for diluted earnings per share - income available to
common stockholders after assumed conversions...................... $ 5,665 $ 4,286
========= =========
Denominator:
Denominator for basic earnings per share - weighted - average shares 23,568 23,418
Effect of dilutive securities
Employee stock options.............................................. 95 9
Warrants............................................................ --- ---
Dilutive potential common shares..................................... 95 9
Denominator for diluted earnings per share - adjusted weighted -
average shares and assumed conversions............................. 23,663 23,427
BASIC EARNINGS PER SHARE
Income (loss) before extraordinary item.............................. $ 0.24 $ 0.18
Extraordinary loss................................................... --- ---
--------- ---------
Net income (loss).................................................... $ 0.24 $ 0.18
DILUTED EARNINGS PER SHARE
Income (loss) before extraordinary item.............................. $ 0.24 $ 0.18
Extraordinary loss................................................... --- ---
--------- ---------
Net income (loss).................................................... $ 0.24 $ 0.18
</TABLE>
7
<PAGE>
Reclassifications
Certain prior period amounts have been reclassified to conform with
the current presentation.
Note 2. Isle of Capri Black Hawk L.L.C.
On April 25, 1997, a wholly owned subsidiary of the Company, Casino
America of Colorado, Inc. 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 a casino
entertainment complex in Black Hawk, Colorado (the "Isle-Black Hawk"),
which opened on December 30, 1998. ICBH plans to construct a hotel
containing a minimum of 100 rooms at the site of the Isle-Black Hawk,
and the Company is assisting ICBH in its efforts to secure financing
for the development of a hotel; however, as of the date of this
filing, no definitive arrangements have been made with respect to
financing the hotel and ICBH commenced operations without a hotel. The
Company has a majority ownership interest in 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.
Note 3. Capri Cruises L.L.C.
On April 20, 1998, the Company signed an agreement with Commodore
Holdings Limited, parent company of Commodore Cruise Line, to create a
joint venture named Capri Cruises to operate cruise ships in strategic
markets. Cruise operations began in early June, 1998. As of January
24, 1999, the Company had invested $2.9 million into this 50/50 joint
venture, which is operating one cruise ship from the Port of New
Orleans.
Note 4. Long-term Debt
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 semi-annually on each February 1 and
August 1 through maturity. The Senior Secured Notes are redeemable at
the option of the Company, in whole or in part, at any time on or
after August 1, 2000 at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and
unpaid interest to the redemption date, if redeemed during the 12-
month period beginning on August 1, of the years indicated below:
Year Percentage
---- ----------
2000................... 106.250%
2001................... 103.125%
2002 and thereafter.... 100.000%
The Senior Secured Notes restrict, among other things: (i) the
incurrence of additional debt, except under certain circumstances
including meeting certain pro forma coverage tests; (ii) the payment
of dividends on and redemptions of capital stock; (iii) the businesses
in which the Company may engage; (iv) the use of proceeds from the
sale of assets; (v) transactions with affiliates; (vi) the creation of
liens; and (vii) sale and leaseback transactions. At January 24,
1999, no dividends were permitted to be paid under these restrictions.
The Company has $6,500,000 available in bank lines of credit. As of
January 24, 1999, the Company had no outstanding balances under these
lines of credit.
8
<PAGE>
Substantially all of the Company's assets are pledged as collateral
for long-term debt. At January 24, 1999, the Company was in compliance
with all debt covenants.
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 members of ICBH. 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 ICBH's Consolidated Cash Flow (as defined in
the Indenture), beginning with respect to the two fiscal quarters
ending July, 1999. 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:
Year Percentage
---- ----------
2001...................... 106.5%
2002...................... 103.2%
2003 and thereafter....... 100.0%
Beginning with respect to the four fiscal quarters ending in January,
2000, 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 in the
indenture.
Substantially all of ICBH's assets are pledged as collateral for long-
term debt.
ICBH posted 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 reason ICBH fails to fulfill its obligations under its subdivision
agreement with the City, which includes making certain public
improvements and constructing a hotel containing a minimum of 100
rooms within specified time periods. 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 a 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 $5.5 million had been drawn as of January
24, 1999. The Company plans to fund the balance in excess of $19
million of the Isle-Bossier City hotel project from existing cash
flows.
On July 31, 1998, ICBH secured financing from a third party in the
amount of $1.6 million to purchase furniture, fixtures and equipment
for the entertainment complex for the Isle-Black Hawk. The remainder
of the furniture, fixtures and equipment needed for the Isle-Black
Hawk was acquired through operating leases from the same third party.
Note 5. Contingencies
A subsidiary of the Company has been named, along with numerous
manufacturers, distributors and gaming operators, including many of
the country's largest gaming
9
<PAGE>
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 Gaming
Industry Defendants are committed to vigorously defend all claims
asserted in the consolidated action.
LRGP challenged a statute that purported to permit 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. On November 6, 1998, the
Louisiana Supreme Court declined to hear the Bossier Parish Police
Jury's appeal of the decision by the Louisiana State Court of Appeals.
The Bossier Parish Police Jury did not appeal to the United States
Supreme Court, with the result that the matter was finally resolved in
favor of the Company. As of January 24, 1999, the Company accordingly
reversed a recorded accrued liability of approximately $4.2 million
related to this matter.
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 percentage of revenue to various local
governmental entities, including the City of Bossier and the Bossier
Parish School Board, in lieu of payment of a boarding fee per
passenger. Summary judgment in favor of LRGP was granted on June 4,
1998.
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, Mississippi 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 on
the Big Black River (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.
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 purported agreement to
construct a casino facility on the property by the end of 1995. In
December, 1998, the Company's motion to dismiss the complaint was
granted by the United States District Court in Denver, Colorado. The
plaintiff has appealed this decision to the Tenth Circuit Court of
Appeals. The Company intends to vigorously defend all claims and
allegations in the action.
10
<PAGE>
The Company is engaged in various other 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
expected to be material to the Company's consolidated financial
position or results of operations.
Note 6. Preopening Expenses
Preopening expenses represent salaries, benefits, training, marketing
and other non-capitalizable costs, which were incurred prior to and
expensed in connection with the opening of the Isle-Black Hawk.
Note 7. Valuation Allowance
In the third quarter ended January 24, 1999, the Company recorded a
valuation allowance totaling $5.1 million. The Valuation allowance
reflects the write-down of assets held for development or sale of $2.4
million related to its two original riverboat casino vessels and land
the Company was planning to develop in Cripple Creek, Colorado. During
the third quarter ended January 24, 1999, the Company entered an
agreement to sell one of its two original riverboats for less than the
recorded value. This sale had not closed as of the end of the quarter,
however, the Company has adjusted the valuation allowance related to
both riverboats to reflect the fair value, based on the agreed upon
sales price. Also, management has delayed its plans to develop a
casino on land it owns in Cripple Creek, Colorado. Accordingly,
management has established a valuation allowance on the land it owns
in Cripple Creek to reflect the fair value as the carrying value.
Additionally, the valuation allowance includes $2.7 million related to
future obligations under an operating lease related to its Cripple
Creek, Colorado project.
Note 8. Subsequent Events
In February 1999, the Company entered into an agreement with a
subsidiary of Harrah's Entertainment, Inc. to acquire the original
Harrah's casino facility in Tunica, Mississippi. The Company received
approval of the acquisition from the Mississippi Gaming Commission at
its February meeting and on March 2, 1999, completed the acquisition.
The Company plans to renovate the facility and commence gaming
operations as an Isle of Capri Casino (the "Isle-Tunica") during the
summer of 1999. The total purchase price was $9.5 million, a portion
of which is seller financed. The Company's aggregate initial cost of
purchasing, renovating and opening the Isle-Tunica, including the
purchase price, is estimated to be approximately $33.5 million.
On February 19, 1999, the Company opened a 124-room hotel at the Isle-
Vicksburg.
On March 2, 1999 the Company entered into a joint venture agreement
with Wayne Newton to develop theaters at the Isle of Capri Casino
locations. The joint venture plans to develop and operate its first
theater complex at the Isle-Tunica, which will include two theaters
with combined seating for over 2,000 people and a separate residence
for performers.
11
<PAGE>
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 unaudited consolidated financial statements, including the
notes thereto, included elsewhere in this report.
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,
plans to develop a hotel at the Isle-Black Hawk and to develop hotels at the
Isle-Bossier City, the Isle-Lake Charles, the Isle-Biloxi and the Isle-Tunica
and the expansion of non-gaming amenities at all facilities, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, there can be no assurance that
such expectations are reasonable or that they will be correct. Actual results
may vary materially from those expected. Important factors that could cause
actual results to differ with respect to the Company's planned capital
expenditures principally include a lack of available capital resources,
construction and development risks such as shortages of materials and labor and
unforeseen delays resulting from a failure to obtain necessary approvals, and
the Company's limited experience in developing hotel operations. Other important
factors that could cause the actual results to differ materially from
expectations are discussed under "Risk Factors" in the prospectus dated August
1, 1996 relating to the issuance of the Company's Senior Secured Notes and the
prospectus dated December 22, 1997 relating to an exchange offer with respect to
the ICBH First Mortgage Notes.
GENERAL
The Company's results of operations for the three fiscal months and nine fiscal
months ended January 24, 1999 and January 25, 1998 reflect the consolidated
operations of all of the Company's subsidiaries, including Isle of Capri Casino
in Biloxi, Mississippi (the "Isle-Biloxi"), Isle of Capri Casino in Vicksburg,
Mississippi (the "Isle-Vicksburg"), Isle of Capri Casino in Bossier City,
Louisiana (the "Isle-Bossier City"), Isle of Capri Casino in Lake Charles,
Louisiana (the "Isle-Lake Charles"), Pompano Park, Inc. ("PPI") and the Isle of
Capri in Black Hawk, Colorado (the "Isle-Black Hawk"). The following discussion
relates to the period for the three fiscal months and the nine fiscal months
ended January 24, 1999 and will be compared with the three fiscal month and the
nine fiscal month periods ending January 25, 1998.
The Company believes that its historical results may not be indicative of future
results of operations 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. Management believes that the Company's operating results are
affected by seasonality. Seasonality has historically caused the operating
results for the Company's first and fourth fiscal quarters ending July and
April, respectively, to be notably better than the operating results second and
third fiscal quarters ending October and January, respectively.
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RESULTS OF OPERATIONS
Three Fiscal Months Ended January 24, 1999 Compared to the Three Fiscal Months
Ended January 25, 1998 - Consolidated Company
Total revenue for the quarter ended January 24, 1999 was $115.1 million which
included $101.9 million of casino revenue, $2.2 million of rooms revenue, $5.5
of pari-mutuel commissions, and $5.5 million of food, beverage and other
revenue. Comparably, total revenue for the quarter ended January 25, 1998 was
$105.8 million which included $93.1 million of casino revenue, $1.9 million of
rooms revenue, $6.0 million of pari-mutuel commissions and $4.8 million of
food, beverage and other revenue. Casino revenue increased primarily as a
result of the opening of the Isle-Black Hawk on December 30, 1998 and improved
market share at the Isle-Lake Charles. Room revenue and food, beverage and
other revenue have increased as a result of the increased hotel occupancy and
the development of the Company's themed restaurant, Farraddays', which opened at
each of the Company's casino properties during fiscal 1998. Pari-mutuel
commissions have decreased slightly due to increased competition for
simulcasting contracts. Revenue does not reflect the retail value of any
complimentaries.
Casino operating expenses for the quarter ended January 24, 1999 totaled $19.6
million, or 19% of casino revenue versus $20.5 million, or 22% of casino revenue
for the three months ended January 25, 1998. These expenses were primarily
comprised of salaries, wages and benefits, and other operating expenses of the
casinos. Casino operating expenses have decreased primarily as a result of
continued refinement of the Company's payroll and operating cost control
programs.
Operating expenses for the quarter ended January 24, 1999 also included room
expenses of $0.8 million from the hotels at the Isle-Biloxi (the "Isle-Biloxi
Hotel"), the Isle-Bossier City (the "Isle-Bossier City Hotel") and the Isle-Lake
Charles (the "Inn at the Isle"). Comparably, operating expenses for the three
months ended January 25, 1998 included $0.6 million of room expenses from the
hotels at the Isle-Biloxi, the Isle-Bossier City and the Isle-Lake Charles.
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. Room expenses increased primarily due
to the increase in room occupancy.
State and local gaming taxes paid in Mississippi, Louisiana and Colorado totaled
$20.9 million for the quarter ended January 24, 1999 versus $19.5 million for
the three months ended January 25, 1998. The increase is consistent with the
increase in casino revenues, relative to each jurisdiction's applicable gaming
tax.
Food, beverage and other expenses totaled $3.3 million, or 59% of food, beverage
and other revenues, for the quarter ended January 24, 1999 versus $2.3 million,
or 48% of food, beverage and other revenues, for the quarter ended January 25,
1998. These expenses are comprised primarily of the cost of goods sold,
salaries, wages and benefits, and the operating expenses of these departments.
Food, beverage and other expenses have increased as a result of increased
revenues and start up operations at the Isle-Black Hawk.
Marine and facilities expenses totaled $7.2 million for the three fiscal months
ended January 24, 1999 versus $6.6 million for the fiscal quarter ended January
25, 1998. These expenses included salaries, wages and benefits, operating
expenses of the marine crews, insurance, housekeeping and general maintenance of
the riverboats and floating pavilions. Marine and facilities expenses have
increased due to the maturity of the Company's vessels and facilities and the
inclusion of the Isle-Black Hawk.
Marketing and administrative expenses totaled $34.3 million, or 30% of total
revenues, for the quarter ended January 24, 1999 versus $31.8 million, or 30% of
total revenues, for the quarter
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ended January 25, 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 and property taxes. Marketing and administrative
expenses have increased as a result of increased total revenues and the addition
of the Isle-Black Hawk.
Preopening expenses of $3.3 million in the three months ended January 24, 1999
represent salaries, benefits, training, marketing and other non-capitalizable
costs, which were expensed in connection with the opening of the Isle-Black
Hawk.
The Company's third quarter results of operations include the reversal of an
accrued litigation settlement of $4.2 million related to the boarding tax
liability at the Isle-Bossier City, for which the courts have finally determined
the Company is not liable. The Company has also recorded a write-down of the
assets held for development or sale of $2.4 million related to its two original
riverboat casino vessels and land the Company was planning to develop in Cripple
Creek, Colorado. During the third quarter ended January 24, 1999, the Company
entered an agreement to sell one of its two original riverboats for less than
the recorded value. This sale had not closed as of the end of the quarter,
however, the Company has adjusted the value of both riverboats to reflect the
fair value, based on the agreed upon sales price. Also, management has delayed
its plans to develop a casino on land its owns in Cripple Creek, Colorado.
Accordingly, management has established a valuation allowance on the land it
owns in Cripple Creek to reflect the fair value as the carrying value.
Additionally, the Company wrote-off future obligations under an operating
lease of $2.7 million related to its Cripple Creek, Colorado project.
Depreciation and amortization expense was $8.8 million for the quarter ended
January 24, 1999, versus $8.4 million for the quarter ended January 25, 1998.
These expenses relate to property and equipment, berthing and concession rights,
and intangible assets. The increase in depreciation and amortization expense is
consistent with the increase in fixed assets placed into service, primarily
related to the commencement of operations at the Isle-Black Hawk.
Interest expense was $11.0 million for the quarter ended January 24, 1999, net
of capitalized interest of $2.4 million and interest income of $0.7 million,
versus $12.1 million for the quarter ended January 25, 1998, net of capitalized
interest of $0.7 million and interest income of $1.0 million. Interest expense
primarily relates to 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. Additionally, interest expense, capitalized interest and interest income
of $2.9 million, $1.6 million and $0.2 million respectively, related to ICBH are
included in the results for the quarter ended January 24, 1999. This compares to
$2.5 million, $0.7 million and $0.6 million for the comparable prior year
quarter ended January 25, 1998.
The Company's effective tax rate for the quarter was approximately 50.9%, which
includes the effects of non-deductible goodwill amortization.
Three Fiscal Months Ended January 24, 1999, Compared to the Three Fiscal Months
Ended January 25, 1998-By Casino Location
Isle-Biloxi
For the quarter ended January 24, 1999, the Isle-Biloxi had total revenue of
$21.9 million of which $19.0 million was casino revenue, compared to total
revenue of $20.9 million of which $18.4 million was casino revenue for the
quarter ended January 25, 1998. Operating income for the three fiscal months
ended January 24, 1999 totaled $4.3 million or 20% of total revenues compared to
$2.4 million or 11% of total revenues for the three months ended January 25,
1998. Operating income and operating income percentage increased, due primarily
to the inclusion of $0.6 million of business
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interruption claim funds collected in the current third quarter related to
Hurricane Georges, a low table hold in the prior year third quarter related to a
few players, and aggressive marketing expenditures in the prior year third
quarter.
Isle-Vicksburg
For the quarter ended January 24, 1999, the Isle-Vicksburg had total revenue of
$12.4 million of which $11.8 million was casino revenue, compared to total
revenue of $11.8 million of which $11.4 million was casino revenue for the
quarter ended January 25, 1998. Operating income for the three fiscal months
ended January 24, 1999 totaled $2.0 million or 16% of total revenue compared to
$2.5 million or 21% of total revenue for the three months ended January 25,
1998. The slight increase in revenues is due primarily to overall market
revenue growth. The decrease in operating income and operating income margin is
primarily due to increased competition from the opening of a competitor's new
hotel and the inclusion of additional maintenance expenses related to the
replacement of carpet in the facility during the current third quarter.
Isle-Bossier City
For the quarter ended January 24, 1999, the Isle-Bossier City had total revenue
of $29.4 million of which $28.2 million was casino revenue, compared to total
revenue of $29.6 million of which $28.3 million was casino revenue for the
quarter ended January 25, 1998. Revenue remained flat while the market revenues
increased, due to decreased market share relating primarily to increased
competition from the opening of a competitor's new hotel and expanded gaming
facility in the market. Operating income for the three fiscal months ended
January 24, 1999 totaled $6.0 million or 20% of total revenue compared to $5.6
million or 19% of total revenue for the three months ended January 25, 1998.
Increased operating income and operating income margin is due primarily to
reduced marketing expenses.
Isle-Lake Charles
For the quarter ended January 24, 1999, the Isle-Lake Charles had total revenue
of $39.6 million of which $38.3 million was casino revenue, compared to total
revenue of $36.2 million of which $34.8 million was casino revenue for the
quarter ended January 25, 1998. Operating income for the three months ended
January 24, 1999 totaled $6.9 million or 17% of total revenue compared to
operating income of $4.7 million or 13% of total revenue for the three months
ended January 25, 1998. The increase in revenue, operating income and operating
income margin has resulted primarily from increased market share due to improved
utilization of the 241-room Inn at the Isle during September 1997, increased use
of the casino's player database, and the increased utilization of the Isle-Lake
Charles' entertainment center.
Isle-Black Hawk
For the quarter ended January 24, 1999 (Isle-Black Hawk commenced operations on
December 30, 1998), the Isle-Black Hawk had total revenue of $4.7 million of
which $4.4 million was casino revenue. Operating income for the period ended
January 24, 1999 was $0.6 million, before a preopening charge of $3.3 million
but after a gaming equipment operating lease expense of $0.3 million.
Nine Fiscal Months Ended January 24, 1999 Compared to the Nine Fiscal Months
Ended January 25, 1998 - Consolidated Company
Total revenue for the nine months ended January 24, 1999 was $336.1 million,
which included $297.7 million of casino revenue, $8.0 million of rooms revenue,
$13.5 million of pari-mutuel commissions, and $16.9 million of food, beverage
and other revenue. Comparably, total revenue for the nine months ended January
25, 1998 was $323.8 million which included $288.0 million of casino revenue,
$6.7 million of rooms revenue, $14.4 million of pari-mutuel commissions, and
$14.7 million of food, beverage and other revenue. Casino revenue increased
primarily as a result of increased revenue at the Isle-Lake Charles in
connection with the addition of the 241-room Inn at the Isle in Lake Charles,
which opened in September 1997 and the commencement of operations at the Isle-
Black Hawk on December 30, 1998. Room revenue and food, beverage and other
revenue have increased as a result of the increased number of hotel rooms
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and the development of the Company's themed restaurant, branded Farraddays',
which opened at each of the Company's casino properties during fiscal 1998.
Pari-mutuel commissions and fees have decreased slightly compared to the prior
year as a result of adverse weather conditions and increased competition for
simulcasting contracts at Pompano Park. Revenue does not reflect the retail
value of any complimentaries.
Casino operating expenses for the nine months ended January 24, 1999 totaled
$55.8 million, or 18.7% of casino revenue versus $58.4 million, or 20% of casino
revenue for the nine months ended January 25, 1998. These expenses were
primarily comprised of salaries, wages and benefits, and other operating
expenses of the casinos. Casino operating expenses have decreased primarily as
a result of continued refinement of the Company's payroll and operating cost
control programs.
Operating expenses for the nine months ended January 24, 1999 also included room
expenses of $2.8 million from the Isle-Biloxi Hotel, the Isle-Bossier City Hotel
and the Inn at the Isle, Lake Charles. Comparably, operating expenses for the
nine months ended January 25, 1998 included $2.3 million of room expenses from
the hotels at the Isle-Biloxi, the Isle-Bossier City and the Isle-Lake Charles.
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. Room expenses increased in line with
the increase in rooms revenue primarily as a result of the addition of rooms at
the Isle Lake-Charles in September, 1997.
State and local gaming taxes paid in Mississippi, Louisiana and Colorado totaled
$61.2 million for the nine months ended January 24, 1999 versus $58.4 million
for the nine months ended January 25, 1998. The increase is consistent with the
increase in casino revenues, relative to each jurisdiction's applicable gaming
tax rate.
Food, beverage and other expenses totaled $10.4 million, or 62% of food,
beverage and other revenues, for the nine months ended January 24, 1999 versus
$9.7 million, or 66% of food, beverage and other revenues, for the nine months
ended January 25, 1998. These expenses are comprised primarily of the cost of
goods sold, salaries, wages and benefits, and the operating expenses of these
departments. Food, beverage and other expenses have increased as a result of
the opening of the Isle-Black Hawk and were partially offset by the Company's
payroll and inventory cost reduction efforts.
Marine and facilities expenses totaled $20.6 million for the nine months ended
January 24, 1999 versus $19.7 million for the nine months ended January 25,
1998. These expenses included salaries, wages and benefits, operating expenses
of the marine crews, insurance, housekeeping and general maintenance of the
riverboats and floating pavilions. Marine and facilities expenses have
increased due to the maturity of the Company's vessels and facilities and the
opening of the Isle-Black Hawk.
Marketing and administrative expenses totaled $101.4 million, or 30% of total
revenues, for the nine months ended January 24, 1999 versus $97.5 million, or
30% of total revenues, for the nine months ended January 25, 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 and property taxes. Marketing and administrative expenses have increased
primarily due to the opening of the Isle-Black Hawk while these expenses as a
percentage of total revenues continue to benefit from the Company's refinement
of its direct response marketing and other expense reduction efforts.
Preopening expenses of $3.3 million for the nine months ended January 24, 1999
represent salaries, benefits, training, marketing and other non-capitalizable
costs, which were expensed in connection with the opening of the Isle-Black
Hawk, during the current year third quarter.
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The nine months ended January 24, 1999 includes the reversal of an accrued
litigation settlement of $4.2 million related to the boarding tax liability at
the Isle-Bossier City, for which the courts have determined the Company is not
liable. The Company has also recorded a write-down of the assets held for
development or sale of $2.4 million related to its two original riverboat casino
vessels and land the Company was planning to develop in Cripple Creek, Colorado.
During the third quarter ended January 24, 1999, the Company entered an
agreement to sell one of its two original riverboats for less than the recorded
value. This sale had not closed as of the end of the quarter, however, the
Company has adjusted the valuation allowance related to both riverboats to
reflect the fair value, based on the agreed upon sales price. Also, management
has delayed its plans to develop a casino on land it owns in Cripple Creek,
Colorado. Accordingly, management has established a valuation allowance on the
land it owns in Cripple Creek to reflect the fair value as the carrying value.
Additionally, the Company wrote-off future obligations under an operating lease
of $2.7 million related to its Cripple Creek, Colorado project. These items
occurred during the third quarter of the current year.
Depreciation and amortization expense was $25.9 million for the nine months
ended January 24, 1999, and $24.8 million for the nine months ended January 25,
1998. These expenses relate to property and equipment, berthing and concession
rights, and intangible assets. The increase in depreciation and amortization
expense is consistent with the increase in fixed assets placed into service,
including the assets placed into service upon the commencement of operations at
the Isle-Black Hawk.
Interest expense was $33.4 million for the nine months ended January 24, 1999,
net of capitalized interest of $6.3 million and interest income of $2.3 million,
versus $35.2 million for the nine months ended January 25, 1998, net of
capitalized interest of $1.4 million and interest income of $2.5 million.
Interest expense primarily relates to 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. Additionally, interest expense, capitalized
interest and interest income of $7.9 million, $4.8 million and $0.8 million,
respectively, related to the ICBH are included in the nine months ended January
24, 1999. This compares to $4.4 million, $1.1 million and $1.3 million,
respectively, in the comparable prior year nine-month period.
The Company's effective tax rate for the nine-month period was approximately
49.5%, which includes the effects of non-deductible goodwill amortization.
Nine Fiscal Months Ended January 24, 1999, Compared to Nine Fiscal Months Ended
January 25, 1998-By Casino Location
Isle-Biloxi
For the nine months ended January 24, 1999, the Isle-Biloxi had total revenue of
$68.5 million of which $58.0 million was casino revenue, compared to total
revenue of $68.4 million of which $58.7 million was casino revenue for the nine
months ended January 25, 1998. Casino revenues and total revenues were flat
compared to the prior year due to the closing of this location for one week due
to Hurricane Georges offset by an overall increase in hotel, food and beverage
revenues. Operating income for the nine months ended January 24, 1999 totaled
$13.9 million or 20% of total revenues compared to $11.4 million or 17% of total
revenues for the nine months ended January 25, 1998. Increased operating income
margin is due primarily to reduced marketing costs, more efficient management of
payroll costs and decreased depreciation expense, as a result of certain assets
becoming fully depreciated.
Isle-Vicksburg
For the nine months ended January 24, 1999, the Isle-Vicksburg had total revenue
of $37.6 million of which $35.9 million was casino revenue, compared to total
revenue of $37.2 million of which
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$35.7 million was casino revenue for the nine months ended January 25, 1998.
Operating income for the nine months ended January 24, 1999 totaled $6.9 million
or 18% of total revenue compared to $7.4 million or 20% of total revenues for
the nine months ended January 25, 1998. The slight decrease in operating income
and operating income margin are primarily due to increased competition from the
opening of a competitor's new hotel.
Isle-Bossier City
For the nine months ended January 24, 1999, the Isle-Bossier City had total
revenue of $91.2 million of which $87.1 million was casino revenue, compared to
total revenue of $94.5 million of which $89.9 million was casino revenue for the
nine months ended January 25, 1998. The decrease in revenue relates primarily
to increased competition from the opening of a competitor's new hotel and
expanded gaming facility in the market. Operating income for the nine months
ended January 24, 1999 totaled $18.6 million or 20% of total revenue compared to
$18.2 million or 19% of total revenue for the nine months ended January 25,
1998. The slight increase in operating income and operating income margin are a
result of reduced marketing costs and more efficient management of payroll
costs.
Isle-Lake Charles
For the nine months ended January 24, 1999, the Isle-Lake Charles had total
revenue of $117.4 million of which $112.2 million was casino revenue, compared
to total revenue of $106.6 million of which $103.4 million was casino revenue
for the nine months ended January 25, 1998. Operating income for the nine
months ended January 24, 1999 totaled $20.2 million or 17% of total revenue
compared to operating income of $15.9 million or 15% of total revenue for the
nine months ended January 25, 1998. The increase in revenue, operating income
and operating income margin are primarily related to increased market share
which has resulted from the addition of the 241-room Inn at the Isle, in
September 1997, increased use of the casino's player database, increased
utilization of the Isle-Lake Charles' entertainment center and lowered cost of
sales related to food and beverage.
Liquidity and Capital Resources
At January 24, 1999, the Company had cash and cash equivalents of $68.7 million
compared to $47.6 million at January 25, 1998. The increase in cash is
primarily a result of increased cash flows from operating activities including
the commencement of operations of the Isle-Black Hawk. During the nine-month
period ended January 24, 1999, the Company's operating activities provided $59.4
million of cash compared to $45.2 million of cash used in operating activities
in the first nine months of fiscal 1998.
The Company invested $73.2 million in property and equipment in the first nine
months of fiscal 1999, primarily for the development of the Isle-Black Hawk,
which was under construction as of the beginning of the fiscal year and
commenced operations on December 30, 1998. Additionally, the Company has also
incurred capital expenditures related to the construction of a 305-room all
suite hotel at the Isle-Bossier City which is expected to open in the summer of
1999 and a 124-room hotel at the Isle-Vicksburg, which opened on February 19,
1999.
On August 20, 1997, ICBH, a joint venture of which the Company owns 57%, 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 the ICBH'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 complex in Black
Hawk, Colorado. Interest payments due on February 28, 1998 and August 31, 1998
have been made and an interest payment due February 28, 1999 has been placed in
escrow at the discounted
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amount. Additionally, the Company had provided a completion capital commitment
of up to $5.0 million, which was required to be paid if the facility had not
commenced operations by April 1, 1999. This commitment expired upon the
commencement of operations at the Isle-Black Hawk on December 30, 1998. No
amounts were required to be funded related to this commitment.
On April 20, 1998, the Company signed an agreement with Commodore Holdings
Limited, parent company of Commodore Cruise Line, to create a joint venture
named Capri Cruises to operate cruise ships in strategic markets. Cruise
operations began in early June 1998. As of January 24, 1999, the Company had
invested $2.9 million into this 50/50 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 and a 124-
room hotel at the Isle-Vicksburg. The Company also anticipates that capital
improvements approximating $10.0 million will be made during fiscal 1999 to
maintain its existing facilities and remain competitive in its markets. On March
2, 1999, the Company acquired an existing, but closed casino facility in Tunica,
Mississippi. The Company intends to re-open this casino facility as an Isle of
Capri Casino (the "Isle-Tunica") during 1999. Total estimated initial cost of
this development is projected to be approximately $33.5 million including the
purchase price of $9.5 million, which is expected to be funded through seller
financing, equipment financing and through the Company's operating cash flows.
Additionally, ICBH plans to construct a hotel containing up to approximately 235
rooms but in no case less than 100 rooms in conjunction with the Isle-Black
Hawk, and the Company is assisting ICBH in its efforts to secure financing for
the development of the hotel, however, as of the date of this filing, no
definitive arrangements have been made with respect to financing construction of
the hotel.
An important component of the Company's operating strategy is to develop, open
and operate, either directly, through a 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 $5.5 million has been drawn as of January 24, 1999), for and is
currently constructing a 305-room all-suite hotel, at an anticipated cost of
approximately $42.5 million, at the Isle-Bossier City. Construction of this
hotel facility began on January 29, 1998. Additionally, the Company's 124-room
hotel at the Isle-Vicksburg opened on February 19, 1999. The hotel at the Isle-
Vicksburg cost approximately $11.5 million, which has been funded through the
Company's operating cash flows. Additionally, the Company has received the final
license from the Mississippi Gaming Commission to operate a dockside casino in
Coahoma County, Mississippi and has applied for permits and approvals to develop
the 138-acre property and build a casino, hotel and a restaurant and
entertainment center. This project is expected to cost approximately $58.0
million to develop. The Company is currently in the process of arranging
financing for the Coahoma project. The Company is currently seeking financing
and/or a joint venture partner or partners, among other alternatives, for the
development of additional hotels or time share facilities at its casino
facilities, and is exploring other financing alternatives with respect to its
existing hotel properties. Construction on any additional hotel facilities are
not expected to 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 in
new gaming markets, the Company believes that, in addition to developing hotels,
the development of enhancements to its non-gaming amenities will be important to
its operations. The Company may, in the future, also consider building a parking
garage and expanding its casino square footage and hotel capacity at the Isle-
Biloxi and adding hotels at the Isle-Lake Charles and the Isle-Tunica. 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 development and opening of the Isle-Tunica,
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 additional
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
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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
the year 2000). The evaluation included inquiries to the vendors of various
hardware and software products. Most of the Company's information technology
infrastructure is currently Year 2000 compliant, and the Company has received
assurances that it believes to be reasonable from the vendors of material
products used by the Company that their products are compliant. The Company is
currently in the process of changing to a casino player tracking and table
system which is Year 2000 compliant. As of this date, the Company's assessment
does not indicate that any material costs will 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 vendor
at no charge to the Company, excluding the new player tracking and table
management system, which will be implemented at an approximate cost of $0.4
million. The Company expects to have all software modifications in place by mid-
1999. The Company and its results of operations and financial condition could be
materially and adversely affected by a failure of one or more of the third
parties with whom it does business to satisfactorily address and resolve any
Year 2000 issues discovered in the future on a timely basis. In addition, Year
2000 difficulties, if any, experienced by public utilities, the banking system,
the postal system or other similar infrastructure enterprises could adversely
affect the Company. However, the Company believes that the impact of such
problems on the Company would be the same as on other businesses in the same
area or areas. The Company believes these risks range from slight financial
malfunctions, and in a worst case scenario, extensive and costly inability to
communicate with customers and suppliers. The Company can not be certain there
will not be a material adverse effect on the Company's result of operations,
liquidity or financial condition until the Company has substantially completed
the evaluation process. Management of the Company believes it has an effective
program in place to resolve the Year 2000 issues and although all phases of the
program are not yet complete, the Company feels confident this will occur.
The Company has no contingency plan in place at this time in the event it
does not complete all phases of the Year 2000 program. The Company plans to
evaluate the status of completion in mid-1999 and determine whether such a plan
is necessary.
20
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PART II - OTHER INFORMATION
Item 1. 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 Gaming Industry Defendants are
committed to vigorously defend all claims asserted in the consolidated
action.
LRGP challenged a statute that purported to permit 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. On November 6, 1998, the Louisiana Supreme Court declined to
hear the appeal of a decision in which the Louisiana State Court of
Appeals upheld the Company's challenge to a statute permitting the Bossier
Parish Police Jury to levy an additional $.50 per passenger boarding fee
against its Bossier City facility as of January 1, 1996. The Bossier Parish
did not appeal to the United States Supreme Court, with the result that
the matter was resolved in favor of the Company. As of January 24, 1999,
the Company accordingly reversed a recorded accrued liability of
approximately $4.2 million related to this matter.
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 percentage of revenue to various local governmental entities,
including the City of Bossier and the Bossier Parish School Board, in lieu
of payment of a boarding fee per passenger. Summary judgment in favor of
LRGP was granted on June 4, 1998.
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, Mississippi 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 on the Big Black River (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.
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 purported agreement to construct a casino facility
on the property by the end of 1995. In December, 1998, the Company's motion
to dismiss the complaint was granted by the United States
21
<PAGE>
District Court in Denver, Colorado. The Plaintiff has appealed this
decision to the Tenth Circuit Court of Appeals. The Company intends to
vigorously defend all claims and allegations in the action.
The Company is engaged in various other 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 expected to be
material to the Company's consolidated financial position or results of
operations.
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
The Annual Meeting of Stockholders was held September 25, 1998 at which
time the following matters where submitted to a vote of the stockholders:
(1) To elect seven persons to the Company's Board of Directors;
(2) To approve an amendment to the Company's Certificate of Incorporation
changing the name of the Company to "Isle of Capri Casinos, Inc.";
(3) To approve an amendment to the Company's 1993 Stock Option Plan to
increase the number of shares of the Company's common stock available
for issuance thereunder by 1,150,000 shares; and
(4) To approve the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending April 25, 1999.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
A list of the exhibits included as part of this Form 10-Q is set forth
in the Exhibit Index that immediately precedes such exhibits, which is
incorporated herein by reference.
B. Reports on Form 8-K
During the third quarter ended January 24, 1999, the Company filed the
following reports on Form 8-K for the following dates:
None
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ISLE OF CAPRI CASINOS, INC.
Dated: March 10, 1999 By: /s/ Rexford A. Yeisley
-------------- ------------------------------------------
Rexford A. Yeisley
Chief Financial Officer & Treasurer
(Duly Authorized Officer and
Principal Financial Officer
and Accounting Officer)
23
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INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.1 Lease by and among R. M. Leatherman, Jr.,
et al. and Isle of Capri-Tunica, Inc.
10.2 Asset Purchase Agreement
10.3 Amendment No. 1 to Asset Purchase
Agreement
10.4 Amendment No. 2 to Asset Purchase
Agreement
10.5 Promissory Note
27 Financial Data Schedule
24
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EXHIBIT 10.1
LEASE
THIS LEASE is entered into by and among R. M. Leatherman, Jr., et al
(collectively "Owner" or "Lessor"), and Isle of Capri-Tunica, Inc.("IOC-Tunica"
or "Lessee").
W I T N E S S E T H:
WHEREAS, Owner is the Landlord and Tunica Partners L.P.(successor in
interest to Harrah's Tunica Corporation) is the Tenant of a lease between Owner
and Tunica Partners L.P. ("the Lease"); and
WHEREAS, IOC-Tunica and Tunica Partners, L.P., have entered into an
agreement whereby IOC-Tunica will purchase Tunica Partners L.P.'s interest in
the property, real and personal, covered by the Lease; and
WHEREFORE, Owner and IOC-Tunica("the Parties") agree that, upon the closing
of the sale by Tunica Partners, L.P. to IOC-Tunica, this Lease shall become
effective:
I. DEMISING OF PREMISES
Owner hereby leases the Premises, a description of which is attached hereto
as Exhibit A, to IOC-Tunica and IOC-Tunica hereby takes and hires the Premises
from Owner, all subject only to the Permitted Exceptions, which are attached as
Exhibit B. The Premises are Leased to IOC-Tunica for the Term defined in this
Lease, upon all the terms and conditions of this Lease; provided, however, that
Owner reserves unto themselves, their successors and assigns, all oil, gas, and
other hydrocarbon minerals in, on and under the Land (the "Minerals"). Owner
covenants that the surface of the Land will not be used or disturbed for any
purpose in connection with the development of the Minerals, to the end that
Lessee's use of the surface of the Land will not be affected, diminished,
disturbed or impeded in any manner by Owner or any person claiming by or through
Owner.
II. VESSEL MOORING SITE
A Casino Vessel is currently sited on the Premises. The Casino Vessel is
capable of functioning as a casino but currently is not. IOC-Tunica agrees to
refurbish the Casino Vessel in the manner it deems necessary for reopening the
casino in due course. Without limitation IOC-Tunica will refurbish the Casino
Vessel in the manner set forth in Exhibit C.
The Lessee shall use the Premises solely for the purpose of mooring and
operating the Casino Vessel and facilities directly related to its maintenance
and operation and providing convenient access thereto, including as possible
uses a hotel, shops, restaurants, bars, entertainment facilities and other
structures.
<PAGE>
No part of the Premises can be used for pawn shops, adult entertainment,
"psychic shops" (e.g., fortune, palm, tarot reading) or for any purpose which
would otherwise require an "Adult Entertainment Premises License" under the
Tunica County ordinance governing adult entertainment as such ordinance existed
on or before June 1, 1997, and as recorded in Book 051, p. 427, of the Board of
Supervisors of Tunica County Minute Book, notwithstanding whether the ordinance
is constitutional or unconstitutional.
III. TERM
A. Initial Term and Additional Term
The first term of this Lease shall commence upon the closing of IOC-
Tunica's purchase from Tunica Partners L.P.(the "Commencement Date"). The
initial term of the Lease shall be for five years from the Commencement Date.
Lessee shall have the option to renew this Lease for up to seven successive
five-year terms, such that, assuming IOC-Tunica exercises all seven renewal
options, then the Lease shall extend for a period of forty (40) years from the
Commencement Date.
Unless the Lessee shall notify the Lessor in writing that the Lessee does
not desire to exercise its renewal option for a successive five-year term prior
to 180 days before the termination of the initial term or any successive
additional term, the Lease shall automatically be renewed for the next
successive term. Each additional term shall be upon the same terms, covenants,
and conditions, with the same annual rent payable, as provided in this Lease for
the initial term. Lessee's rights for the extension of this Lease shall expire
automatically upon the termination of this Lease for any reason, whether by
expiration of the initial term or any additional term, or otherwise.
IV. RENT, MANAGEMENT FEES, AND OTHER PAYMENTS
The following definitions apply to payment of rent, management fees and
other payments:
(i) "Gross Gaming Revenue" shall mean the total of all of the following,
less the total of all cash paid out as losses to patrons and those amounts
paid to purchase annuities to fund losses paid to patrons over several
years by independent financial institutions:
(a) Cash received as winnings;
(b) Cash received in payment for credit extended by a licensee to a
patron for purposes of gaming; and
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<PAGE>
(c) Compensation received for conducting any game in which the
licensee is not party to a wager.
For the purposes of this definition, cash or the value of noncash
prizes awarded to patrons in a contest or tournament are not losses;
The term does not include:
(a) Counterfeit money or tokens;
(b) Coins of other countries which are received in gaming devices;
(c) Cash taken in fraudulent acts perpetrated against a licenses for
which the licensee is not reimbursed; or
(d) Cash received as entry fees for contests or tournaments in which
the patrons compete for prizes.
(ii) "Percentage Rent Year" means the one year period (or less, in the
event IOC-Tunica changes its fiscal year), beginning with the first
day of IOC-Tunica's fiscal year.
(iii) "Cash Invested" is defined as the cash invested in
IOC-Tunica less any portion funded by debt. For example, if the total
investment in the entity is $20,000,000 and there is no debt, then the
"Cash Invested" is $20,000,000; if there is $10,000,000 in debt, then
the "Cash Invested" is $10,000,000. Beginning with the opening of the
Casino Vessel, Cash Invested may be adjusted from time to time,
provided that if Cash Invested is less than $4,000,000, Casino
America, Inc.'s guarantee pursuant to Section XX R shall become
effective. For purposes of calculating interest and Cash Return,
pursuant to this Section 2, if Cash Invested is adjusted during the
year, interest and Cash Return shall be calculated on a prorated
basis.
(iv) "EBITDA" shall be defined as income of IOC-Tunica before interest,
income taxes, depreciation and amortization but shall not include
hotel lease expense, if any.
1. BASE RENT
A. BASE RENT
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During the initial term and each additional term, as rent for the Premises
and rights granted to the Lessee by this instrument, the Lessee promises and
agrees to pay to the Lessor without notice or demand rent as follows:
(i) On the Commencement Date, Lessee shall pay to Lessor Fixed Rent (Fixed
Rent is defined as $66,666.67 paid monthly, annualized to $800,000 per
year) prorated by the number of days from the Commencement Date to the
end of the month in which the Commencement Date falls.
(ii) Subsequent to the Commencement Date and subject to subparagraph (iv),
on or before the first day of each month, IOC-Tunica shall pay Fixed
Rent in advance to Lessor in the amount of $66,666.67 for the
remainder of the term of the Lease and any renewal terms thereof.
(iii) Percentage Rent is to be paid in arrears. Subsequent to the
Commencement Date and subject to subparagraph (iv), on or before the
20/th/ day of each month, Lessee shall pay Lessor percentage rent in
an amount equal to 2% of Gross Gaming Revenue for the previous
calendar month less the Fixed Rent already paid on the 1/st/ of the
month.
(iv) Once Lessee has paid Lessor $800,000 during a Percentage Rent Year,
then Lessee shall not be obligated to make any further Base Rent
payments for that Percentage Rent Year unless and until such time as
Lessee's total Gross Gaming Revenue for that Percentage Rent Year
exceeds $40,000,000.
On the 20/th/ day of the month following the first month during which
total Gross Gaming Revenue for the Percentage Rent Year exceeded
$40,000,000, Lessee shall pay Lessor Base Rent in an amount equal to
2% of the amount by which total Gross Gaming Revenue for the
Percentage Rent Year exceeded $40,000,000.
Thereafter, on the 20/th/ day of each month for the remainder of the
Percentage Rent Year (including the 20/th/ day of the month following
the last month of the Percentage Rent Year), Lessee shall pay to
Lessor rent equal to 2% of the Gross Gaming Revenue for the prior
calendar month.
(v) It is the intent of the parties that Base Rent paid to Lessor for any
given Percentage Rent Year equal the greater of (x) 2% of Gross Gaming
Revenue for the Percentage Rent Year or (y) $800,000. By way of
example, and for clarification, Base Rent for any Percentage Rent Year
will be as follows:
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<PAGE>
GROSS GAMING REVENUE BASE RENT
-------------------- ---------
$30,000,000 $ 800,000
$37,000,000 $ 800,000
$42,000,000 $ 840,000
$50,000,000 $1,000,000
CHANGE IN IOC-TUNICA'S FISCAL YEAR
(vi) In the event IOC-Tunica changes its fiscal year during the term of this
lease, the minimum base rent for any such year shall be adjusted to
reflect the number of months in the adjusted fiscal year multiplied by
one-twelth (1/12th) the base rent set forth herein provided, however,
that the amount of monthly payments of Fixed Rent shall be unaffected by
such a change.
(vii) Percentage Rent, if any, to be paid for a partial percentage rent year
shall be paid consistent with the subparagraphs above.
(viii) By way of example, if IOC-Tunica's fiscal year in 1999 were to begin on
May 1, 1999, and there were a change of IOC-Tunica's fiscal year to a
calendar year (i.e., FY 1999 would end 12/31/99), then Isle of Capri-
Tunica would continue to pay monthly Fixed Rent in the amount of
$66,666.67. However, the minimum Base Rent for the partial fiscal year
would be $533,333 (i.e., 8 * $66,666.67.
Likewise, IOC-Tunica will also pay Lessor Percentage Rent as set forth
in (iii)above. However, once IOC-Tunica, Inc. pays $533,333.36 during
the partial percentage rent year (i.e., $800,000 * 8/12), then IOC-
Tunica shall not be obligated to make any further Base Rent payments for
that partial fiscal/Percentage Rent Year unless and until such time as
total Gross Gaming Revenue for that partial /fiscal Percentage Rent Year
exceeds $26,666,666 (i.e., $40,000,000 * 8/12).
2. Overage Rent and Overage Management Fee
For purposes of payment of Overage Rent and Overage Management Fees, the
following definition applies:
"Available Cash" shall mean EBITDA (after deducting the Base Rent and an
amount equal to 2% of Gross Gaming Revenue
-5-
<PAGE>
payable to Casino America, Inc. as a base management fee), less the following:
. A maintenance capital expenditure reserve of $1,000,000 per
year. If during the Percentage Rent Year Lessee does not spend
$1,000,000 for maintenance capital, then Lessee, at its
discretion, shall be entitled to accumulate such unspent amount
to be (i) spent on capital improvements in subsequent years or
(ii) distributed pursuant to distributions of Available Cash.
. Third party debt service insofar as such debt service relates
only to the Premises, the improvements located thereon, or the
Casino Vessel, or portions of Casino America, Inc. debt related
to the Premises, the improvements located thereon, or the Casino
Vessel. In no event shall the amount deducted for such third
party debt service exceed the amount of debt service related to
the total amount invested or lent by Casino America, Inc.
relating to the Premises, the Casino Vessel, or the improvements
located thereon.
. If a hotel is leased from another entity, then a hotel lease
expense, not to exceed $1.9 million per year, provided, however,
that such lease will be on such terms as available to non-
affiliated parties.
. In the event IOC-Tunica changes its fiscal year, the deductions
for maintenance capital expenditure reserve and hotel lease
expense shall be adjusted to reflect the number of months in the
adjusted fiscal year times one-twelfth (1/12).
Within 60 days of the end of a Percentage Rent Year, Available Cash, if
any, will be distributed sequentially as follows on an annual basis:
a. First Tier Distribution - An amount equal to 4% of Gross Gaming Revenue
less the amount paid to Lessor as Base Rent shall be payable to Lessor as
Overage Rent and an amount equal to 2% of Gross Gaming Revenue shall be payable
to Casino America, Inc. as an Overage Management Fee. In the event there is
not sufficient Available Cash to pay all of the Overage Rent/Overage Management
Fee due, then such payments, if any, shall be made on a pro-rata basis and any
unpaid amounts shall accumulate and become Back Overage Rent/Back Overage
Management Fees and shall remain as a First Tier Distribution.
-6-
<PAGE>
b. Second Tier Distribution - An amount equal to 25% of Cash Invested by
Casino America, Inc. or any other investor in IOC-Tunica ("Cash Return") shall
be paid to Casino America, Inc. or to any other investor. Cash Invested
specifically does not include the maintenance capital expenditure reserve or any
other cash generated by the operations conducted on the Premises or Casino
Vessel.
There shall be no Second Tier Distribution until all First Tier
Distributions (including Back Overage Rent/Back Overage Management Fee) have
been paid.
In the event there is not sufficient Available Cash to pay all of the Cash
Return, then such unpaid amounts shall accumulate and become Back Cash Return
and shall remain as a Second Tier Distribution.
c. Third Tier Distribution - If, after paying all First Tier Distributions
(including Back Overage Rent/Back Overage Management Fee) and Second Tier
Distributions, (including Back Cash Return) there remains Available Cash
("Remaining Available Cash"), then such Remaining Available Cash shall be
distributed 20% to Lessor (as "Additional Overage Rent") and 80% to Casino
America, Inc. and any other investor, provided, however, that in determining the
amount of Remaining Available Cash for purposes of a Third Tier Distribution
. IOC-Tunica may reserve any amount for capital expenditures at the
Tunica Facility (provided, however, that such reserved amounts shall
accumulate and be held by IOC-Tunica as cash, to be spent on capital
improvements or distributed as a Third Tier Distribution); and
. Hotel Lease expense, if any, regardless of amount, shall be deducted
from Remaining Available Cash.
Third Tier Distributions, if unpaid, do not accrue or accumulate
3. INFORMATION PROVIDED TO LESSOR
After the opening of the Tunica Facility, on or before the 20/th/ day of
each month, Lessee shall provide Lessor a written statement signed by an officer
of Lessee showing and certifying the Gross Gaming Revenue of Lessee as set forth
in subparagraph A above including verification of the Gross Gaming Revenue of
licensees or sub-tenants of Lessee conducting business on such vessels and the
Premises. Lessee gives its written and irrevocable consent for Lessor to obtain
copies of any and all reports of revenue or reports prepared by Lessee or
independent certified public accountants which are related to the business
-7-
<PAGE>
conducted on the Premises and which are filed with the State Tax Commission of
Mississippi or the Mississippi Gaming Commission directly from said commissions.
Any assignment or sub-Lease by Lessee will require the assignee or sub-lessee to
permit Lessor to obtain copies of any and all reports of revenue filed with the
State Tax Commission of Mississippi or the Mississippi Gaming Commission.
Within 120 days of the end of a Percentage Rent Year, Lessee shall provide
Lessor with financial statements of the Tunica Facility including all
information necessary to determine Available Cash and Remaining Available Cash.
The financial statements shall be unaudited but shall be those used in
connection with the audited financial statements of Casino America, Inc.
Lessor will keep all information received hereunder confidential unless
required to divulge such by a governmental body such as a court or regulatory
agency. In the event a court or other governmental body requires Lessor to
divulge such information, then Lessor will notify Lessee at least 5 days in
advance of divulging such information (unless such court or governmental body
requires that such information be divulged in less than 5 days, in which case
Lessor will notify Lessee as soon as possible).
V. DEFAULT
A. LESSEE DEFAULT: Each of the following events shall constitute a
Lessee Default:
1. The failure of Lessee to pay all monthly Rent or any other
monetary sum (including without limitation any additional rent) to be
paid by Lessee to Lessor hereunder within fifteen (15) days after the
date on which Lessee receives notice from Lessor of Lessee's failure
to make such payment. Should Lessor already have given such notice
three (3) times during any Percentage Rent Year during the term of the
Lease and Lessee during the same Percentage Rent Year fails to make
the payments contemplated by this subparagraph on a timely basis,
Lessor shall not be required to provide notice thereof, and Lessor at
its option may elect to terminate this Lease at any time thereafter as
provided herein.
2. The failure of Lessee to perform any other term, condition,
covenant or obligation of this Lease within thirty (30) days after the
date on which Lessee receives from Lessor notice
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<PAGE>
specifically describing such failure; provided, however, that if
Lessee shall exercise in good faith diligent efforts within such
thirty (30) day period to cure the failure specified in the notice but
shall not be able to do so because of a cause or causes beyond the
control of Lessee, then any such failure shall not be considered a
Lessee Default so long as Lessee shall continue to exercise in good
faith such diligent efforts to cure such failure and shall complete
such cure within a reasonable period of time.
B. LESSOR REMEDIES: In the event of a Lessee Default as defined in
the two preceding paragraphs, Lessor shall have the following rights and
remedies, if Lessee has not by then cured such Default:
1. To enter upon the Premises and again have, repossess and
enjoy the same as if this Lease had not been made, and all terms,
conditions, covenants and obligations of this Lease on the part of
Lessor to be performed shall cease and terminate, without prejudice,
however, to the right of Lessor to recover from Lessee all Rent
accrued hereunder as of the date of such entry by Lessor; and
2. To pursue all other rights and remedies to which Lessor may
be entitled hereunder, at law or in equity.
3. No waiver of breach of any of the covenants of this Lease
shall be construed to be a waiver of any succeeding breach of the same
on any other covenant.
C. LESSOR'S DEFAULT AND LESSEE'S REMEDIES: In the event of any
failure by Lessor to perform any term, condition, covenant or obligation of this
Lease on the part of Lessor to be performed within thirty (30) days after the
date on which Lessor receives from Lessee notice specifically describing such
failure (provided, however, that if Lessor shall exercise in good faith diligent
efforts within such thirty (30) day period to cure the failure specified in the
Notice but shall not be able to do so because of a cause or causes beyond the
control of Lessor, then any such failure shall not be considered a default under
this Lease by Lessor so long as Lessor shall continue to exercise in good faith
such diligent efforts to cure such failure and shall do so within a reasonable
period of time), Lessee (in addition to all other rights and remedies to which
Lessee may be entitled, elsewhere hereunder or at law or in equity) may cure
such default by Lessor on behalf of, and at the sole cost and expense of Lessor.
Lessor shall reimburse Lessee for its costs and expenses
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<PAGE>
in connection therewith within thirty (30) days after Lessee's delivery to
Lessor of an invoice therefor.
VI. FORCE MAJEURE
If, after the Commencement Date, operation of the casino shall be
interrupted for more than thirty consecutive days by fire, flood, storms, labor
disorder, accident or any other causes outside the Lessee's reasonable control
(all such causes plus an interruption of operation of the casino for more than
30 consecutive days shall hereinafter referred to as "Force Majeure"), the
Lessee shall have a reasonable time to make required repairs necessary to
recommence operation.
The current term of the Lease shall be extended at reopening of the casino
for the number of months that the casino was closed during the interruption of
the gaming operation.
In the event of Force Majeure, then payment of rent shall be abated (i.e.,
no rent shall be due) for the period beginning with the 31/st/ consecutive day
of interruption of casino operations and such rent abatement shall continue for
60 days or until the casino operations recommence, whichever is earlier ("Rent
Abatement Period"). Within 10 days following expiration of the Rent Abatement
Period, IOC-Tunica will pay Lessor the pro-rated Fixed Rent due for the
remaining portion of the month in which the Rent Abatement Period expired.
Subsequent to the expiration of the Rent Abatement Period, IOC-Tunica shall
resume making rent payments in the manner set forth in Article IV above.
Should the operation of the casino be interrupted for a period of twelve
(12) consecutive months on account of an event of Force Majeure, Lessee at its
option may terminate this Lease by delivering written notice to Lessor of
Lessee's election to do so within fifteen (15) days after the expiration of said
period.
VII. LESSEE TO COMPLY WITH LAWS
During the Term, Lessee shall, at its own expense, observe and comply with
all laws affecting the Premises if Lessee's failure to comply will or may
subject Lessor to any civil or criminal liability. If Lessee's failure to do so
will or may subject Lessor to any civil or criminal liability, then Lessee shall
procure every permit, license, certificate or other authorization required in
connection with the lawful and proper maintenance, operation, use and occupancy
of the Premises or required in connection with any improvements erected on the
Premises and comply with all such permits, licenses, certificates and other
authorizations. Notwithstanding the foregoing, Lessee shall have the right to
contest any such laws in accordance with
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<PAGE>
this Lease. Lessee shall make any mandated alterations required by law arising
during the primary term and any additional terms of this Lease.
The term "law" or "laws" means all laws, ordinances, requirements, orders,
directives, rules and regulations of any applicable government affecting the
development, improvement, alteration, use, maintenance, operation or occupancy
of the Premises or any part of the Premises, whether in force at the
Commencement Date or passed, enacted or imposed at some time in the future,
subject in all cases, however, to all applicable waivers, variances and
exemptions limiting the application of the foregoing to the Premises.
For purposes of determining Lessees's obligations under this Lease,
however, the term "law" or "laws" shall not include any of the foregoing that
require the correction or remediation of any condition that affected the land or
the Premises at the Commencement Date.
VIII. ASSIGNMENT AND SUBLETTING
For purposes of this Article relating to Assignment and Subletting:
(i) Assignment in addition to other transfers, shall also include the
subleasing of substantially all of the Premises or Casino Vessel to
one party.
(ii) "Business Day" means any weekday on which banks in Mississippi are
generally open for the conduct, with bank personnel, of regular
banking business. Specifically excluded are any weekdays on which a
national holiday falls or other weekday on which banks are closed.
A. ASSIGNMENT: Lessee shall have the right at all times during
the Term (or any renewal term) to assign its interest in this Lease without
Lessor's consent and without restriction to any person or entity which controls,
is controlled by, or is under common control with Lessee ("Successor Entity"),
provided that Lessee and such Successor Entity shall remain jointly and
severally liable for the performance of Lessee's obligations under this Lease.
Lessee shall also have the right to collaterally assign or grant a mortgage in
Lessee's Leasehold interest in this Lease for the purpose of securing financing.
Lessor agrees to subordinate payment of the Overage and Additional Overage Rent
to the terms of such financing, if so requested but only if Lessee so
subordinates its rights to receive Overage Management Fees and any Second and
Third Tier Distributions to which Lessee may otherwise be entitled.
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The Leasehold Mortgagee may transfer all or any part of its interest in
such a Leasehold mortgage to another person or entity, and, in addition, or, in
the alternative, may collaterally assign its interest in the Premises and a
Leasehold mortgage to another person or entity and such other person or entity
shall be deemed a Leasehold Mortgagee without Lessor's consent.
In addition to its rights of transfer with respect to a Successor Entity
and for financing, and subject to Lessors' right of first refusal set forth
below, Lessee shall have the right to assign its interest in the Lease:
(i) to any other person or entity with a minimum net worth of Twenty
Million Dollars ($20,000,000.00) as determined by generally accepted
accounting principles (the "Required Net Worth") or to an entity who
obtains a guaranty of these Lease obligations from a person or entity
having a net worth of Twenty Million Dollars ($20,000,000); or
(ii) only with Lessor's consent, which may be given or withheld in Lessor's
sole and absolute discretion, to any person or entity with a net worth
which is less than the Required Net Worth. Any assignee of Lessee
shall assume all obligations and liabilities of Lessee under this
Lease.
Following an assignment pursuant to (i) or (ii)(not including a sublease) of the
Lease to an entity other than a Successor Entity, Lessee shall be relieved of
all further liability hereunder.
B. SUBLETTING: Lessee shall have the right to sublet any part of
the Premises not used for gaming or gambling operations without Lessor's consent
and not subject to Lessors' right of first refusal. Lessee may extend, renew or
modify any such subLease, consent to any sub-subleasing (or further levels of
subleasing), terminate any subLease, or evict any sublessee. The term of any
subLease (including renewal options) shall not extend beyond the term of this
Lease (including only any renewal options previously exercised by the Lessee or
that Lessee agrees, in the subLease, to exercise). If Lessee enters into any
SubLease, then each SubLease shall be subordinate to this Lease and shall
contain provisions in form and substance substantially as follows, and each
Sublessee by executing its SubLease shall be deemed to have agreed to the
following (the term "Sublessor" to be defined in the SubLease to refer to Lessee
as Sublessor under the SubLease):
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Sublessee agrees that if, by reason of a default under any underlying Lease
(including an underlying Lease through which Sublessor derives its
Leasehold estate in the demised subpremises), such underlying Lease and the
Leasehold Estate of Sublessor in the demised subpremises is terminated,
then Sublessee, at the option and request of the then fee owner of the
demised subpremises (the "Fee Lessor"), shall attorn to such Fee Lessor and
shall recognize such Fee Lessor as Sublessee's direct lessor under this
SubLease. Sublessee agrees to execute and deliver, at any time and from
time to time, upon the request of Sublessor or of the Fee Lessor or any
mortgagee of either, any instrument that may be necessary or appropriate to
evidence such attornment. Sublessee hereby appoints Sublessor or such Fee
Lessor or such mortgagee the attorney-in-fact, irrevocably, with full power
of substitution, of Sublessee to execute and deliver any such instrument
for and on behalf of the Sublessee. This appointment is coupled with an
interest and is irrevocable. Sublessee waives any statute or rule of law
now or subsequently in effect that may give or purport to give Sublessee
any right to elect to terminate this SubLease or to surrender possession of
the demised subpremises in the event that any proceeding is brought by a
Fee Lessor to terminate any such underlying Lease. Sublessee agrees that
this SubLease shall not be affected in any way whatsoever by any such
proceeding.
C. NOTICE TO LESSOR; COPIES OF ASSIGNMENT OR SUBLease: Lessee shall
provide written notice to Lessor of any assignment or subLease in accordance
with the terms hereof, together with copies of any documents effecting same
certified by Lessee as being complete and accurate.
D. LESSOR'S RIGHT OF FIRST REFUSAL
Notwithstanding Lessee's right to assign this Lease, prior to making an
assignment to a third party, Lessee shall give Lessor a right of first refusal
to purchase the Lease and Casino Vessel on the same terms and conditions agreed
upon by Lessee and the third party purchaser. This right of first refusal shall
not, however, apply to a change in control of Casino America, Inc. by merger or
consolidation with another entity or a sale of substantially all of Casino
America, Inc.'s assets. Such right shall, however, apply to any assignment of
the Lease by such new entity.
Lessor shall have forty-five (45) Business Days after receiving notice from
Lessee of the terms of the proposed assignment, transfer or sale to accept the
terms agreed upon by
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the third party and Lessee. Accompanying such notice, Lessee shall provide, at
Lessee's option, either: (a) the same financial information (if any) that Lessee
supplied to the third party purchaser in connection with its prospective
purchase; or, if no such information was supplied to such third party, then (b)
financial information maintained by Lessee in the ordinary course of its
business and reasonably necessary, in Lessee's judgment, in order for Lessor to
determine whether to exercise Lessor's right of first refusal; provided that,
Lessee's obligation to provide such information shall be conditioned on Lessor's
executing a confidentiality agreement reasonably acceptable to Lessee. If Lessor
fails to notify Lessee within said forty-five (45) Business Days of its
willingness to purchase Lessee's Leasehold estate on said terms, Lessee shall be
free to assign, transfer or sell this Lease and its Leasehold estate to such
third party without further obligation to Landlord, subject to the Required Net
Worth provision set forth above and so long as the terms of such assignment,
transfer or sale do not change.
Any other or subsequent assignment, transfer or sale of the Lease, Casino
Vessel, and/or the Leasehold estate by Casino America, Inc., IOC-Tunica, or any
assignee or sublessee, of whatever degree, shall again be subject to the
provisions of this Article on Assignment and Subletting including the Required
Net Worth provisions and Lessor's Right of First Refusal.
The right of first refusal provision set forth above shall not apply to a
Leasehold Mortgagee during its acquisition or disposition of the Leasehold
Estate created by this Lease or to an assignment to an entity which is a
subsidiary of or controlled by Casino America, Inc..
E. EFFECT OF TRANSFER BY LESSEE. If Lessee assigns this Lease, then as
between Lessor and Lessee, Lessee shall be deemed to have assigned to the
assignee or transferee all claims against Lessor then existing, together with
all liabilities and obligations of Lessee thereafter arising under this Lease
(except as otherwise expressly provided in this Lease) and the assignee or
transferee thereafter shall be deemed the Lessee. Lessee shall, however, remain
liable for any obligations due and owing prior to the date of assignment.
IX. USE OF PREMISES
Lessee may use the Premises only for the conduct of casino gambling and
ancillary uses related thereto, i.e., hotel, restaurants, cocktail lounges,
shops, entertainment facilities and other related structures. Nothing in this
Lease shall be construed to impose upon Lessee any obligation to actually
operate the or the Casino Vessel(s) on or from the Premises or otherwise conduct
business of any nature thereon, provided,
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however, that Lessee is obligated to make renovations to the Premises and Casino
Vessel and open the Tunica Facility as a casino. Lessor agrees that the Fixed
Rent described above in and of itself, constitutes sufficient consideration to
bind Lessor to their obligations under this Lease and Lessee is under no
obligation, express or implied, to use the Premises in such a manner as to
produce percentage rent.
X. INSURANCE
Lessee shall, at Lessee's sole cost and expense, during the Term, maintain
the following insurance:
A. CASUALTY: Casualty insurance providing coverage for the Premises
and all equipment, fixtures, and machinery at or in the Premises, against loss,
damage and destruction by fire and other hazards encompassed under broad form
coverage as may be customary for like properties in the County (but Lessee shall
in no event be required to maintain earthquake or war risk insurance) from time
to time during the Term, in an amount not less than eighty per cent (80%) of the
replacement value of the insurable buildings, structures, improvements and
equipment (excluding excavations and foundations) located at the Premises, but
in any event sufficient to avoid co-insurance in the event of a partial loss.
To the extent customary for like properties at the time, such insurance shall
include coverage for explosion of steam and pressure boilers and similar
apparatus located at the Premises; an "increased cost of construction"
endorsement, and an endorsement covering demolition and cost of debris removal.
B. LIABILITY: General public liability insurance against claims for
personal injury, death, liquor or dram shop liability, or property damage
occurring upon, in or about the Premises and the Casino Vessel, and adjoining
streets and passageways, including so-called Garage Keeper's Legal Liability
coverage. The coverage under all such liability insurance shall be at least Ten
Million Dollars ($10,000,000.00) in respect of injury or death to a single
person, and at least Ten Million Dollars ($l0,000,000.00), in respect of any one
accident, and not less than Five Million Dollars ($5,000,000.00) for property
damage. Lessor shall be entitled from time to time, upon 90 days' Notice to
Lessee, to increase the dollar limits set forth in this paragraph; provided,
however, that such increased limits shall in no event exceed the greater of (a)
the limits initially set forth plus an increase proportionate to the increase in
the consumer price index from the Commencement Date to the date of the
adjustment, rounded to the nearest million dollars, or (b) the limits
customarily maintained for similar gambling resort properties owned and operated
by Casino America, Inc.(or, if Casino America, Inc. has no such properties, then
for similar
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gambling resort properties in the U.S.A.); and provided further, that Lessor
shall not be entitled to increase such limits more frequently than once every
five years. Notwithstanding the foregoing, if Lessee constructs a hotel on the
Premises, Lessor shall have the right to require Lessee to increase the amount
of liability insurance to levels comparable to that carried on hotels owned or
operated by Casino America, Inc., or if Casino America, Inc. has no such
properties, then for similar hotel properties in the U.S.A.
C. WORKERS' COMPENSATION: Appropriate workers' compensation
insurance covering all persons employed in connection with the construction,
alteration, repair or operation of the Premises and the Casino Vessel and with
respect to whom any claim could be asserted against Lessor or the Fee Estate,
including if applicable, any of Lessee's employees who may be subject to the
United States Longshoreman and Harbor Workers Act or the Jones Act.
D. CONSTRUCTION PERIOD: For the period from the Commencement Date
through completion of the renovations to the Premises and Casino Vessel
contemplated hereby, Lessee shall also provide the following insurance coverage:
(a) Contractor's Comprehensive and Motor Vehicle Liability Insurance having a
combined single limit of not less than $10,000,000.00 (and, if the contractor is
undertaking foundation, excavation or demolition work, an endorsement stating
that such operations are covered and that the "XCU Exclusions" have been
deleted); and (b) Builder's Risk Insurance (having such scope of coverage as may
be customary for like construction projects in the County at the time) written
on a completed value non-reporting basis (with an endorsement stating that
"permission is granted to complete and occupy").
E. OTHER: All insurance required by any Leasehold Mortgage and such
other insurance as Lessee determines appropriate in the exercise of Lessee's
reasonable business judgment.
F. NATURE OF INSURANCE PROGRAM: Any or all insurance required by
this Lease may be provided, by notice to Lessor specifying the risks being
covered by self-insurance, through a self-insurance program provided, that the
self-insuring entity is (a) an affiliate or subsidiary of the Lessee or its
parent company, or (b) any other substantial entity that, in Owner's reasonable
judgment, has sufficient assets and net worth under the circumstances; provided
that the amount of loss to be self-insured shall not exceed $250,000.00.
G. POLICY REQUIREMENTS AND ENDORSEMENTS: All insurance policies
required by this Lease shall contain (by endorsement or otherwise) the following
provisions:
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1. Additional Insureds. All insurance policies shall name as
additional insureds Lessors, fee mortgagees, and Leasehold mortgagees to the
extent of each party's insurable interest.
2. Primary Coverage. All policies shall be written as primary
policies not contributing with or in excess of any coverage that Lessors may
carry.
3. Lessee's Acts or Omissions. Each policy shall include, if
available without additional cost, a provision that any act or omission of
Lessee shall not prejudice any party's rights (other than Lessee's) under such
insurance coverage.
4. Contractual Liability. Policies of liability insurance shall
contain contractual liability coverage, relating to Lessee's indemnity
obligations under this Lease.
5. Insurance Carrier Standards. Each insurance carrier shall be
authorized to do business in the State and shall have a "Best's" rating of at
least A-/IX, except to the extent such insurance is provided in compliance with
this Lease by an affiliated "captive" insurance company or pursuant to Lessee's
self-insurance program.
6. Notice to Lessor. Lessee shall obtain the insurance carrier's
agreement to give Lessor thirty days' prior notice of cancellation, other than
on account of nonpayment of premiums, provided that (except in the case of a
"captive" insurance carrier) failure to give such notice shall not adversely
affect the rights or increase the obligations of the insurance carrier.
7. Deliveries to Lessor. At least ten days before expiration of any
then current policy, Lessee shall deliver to Lessor declaration pages from and
proof of premium payment, or upon Lessor's request therefor certified copies of,
the insurance policies required by this Lease.
8. Blanket and Umbrella Policies. Lessee may provide any insurance
required by this Lease pursuant to a "blanket" or "umbrella" insurance policy,
provided that (i) such policy or a certificate of such policy shall specify the
amount(s) of the total insurance allocated to the Premises, which amount(s)
shall not be subject to reduction on account of claims made with respect to
other properties and (ii) such policy otherwise complies with this Lease.
9. Lessee's Inability to Obtain Insurance. If (a) any insurance
required by this Lease should, after diligent effort by Lessee, be unobtainable
at commercially reasonable rates through no act or omission of Lessee, and (b)
Lessee has
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obtained the maximum insurance reasonably obtainable and give notice to Lessor
of the extent of Lessee's inability to obtain any insurance required to be
maintained under this Lease, then unless Lessee's inability to procure and
maintain such insurance results from some activity or conduct within Lessee's
reasonable control, Lessee's obligation to procure and maintain such insurance
as is unobtainable shall be excused. To the extent that such insurance may be
obtainable by Lessor at a cost per million dollars of coverage not exceeding
110% of the cost per million dollars of coverage of the insurance of the same
type actually obtained by Lessee, Lessor may (unless Lessee has elected to self
insure, in compliance with this Lease, the risk in question) at Lessee's cost
and expense procure and maintain such insurance, which shall be issued in
Lessee's name and otherwise comply with all applicable requirements of this
Lease.
10. Waiver of Certain Claims. To the extent that Lessor or Lessee
purchases any hazard insurance relating to the Premises or the Casino Vessel,
the party purchasing such insurance shall attempt to cause the insurance carrier
to agree to a Waiver of Subrogation. If any insurance policy cannot be obtained
with a Waiver of Subrogation, or a waiver of Subrogation is obtainable only by
the payment of an additional premium, then the party undertaking to obtain the
insurance shall give notice of such fact to the other party. The other party
shall then have ten Business Days after receipt of such notice either to place
the insurance with a company that is reasonably satisfactory to the other party
and that will issue the insurance with a Waiver of Subrogation at no additional
cost, or to agree to pay the additional premium if such a policy can be obtained
only at additional cost. To the extent that the parties actually obtain
insurance with a waiver of Subrogation, the parties release each other, and
their respective authorized representatives, from any claims for damages to any
person, the Premises, or the Casino Vessel that are caused by or result from
risks insured against under such insurance policies, but only to the extent of
the available insurance proceeds.
XI. COLLECTION COSTS
If a court of competent jurisdiction rules that a party has defaulted, such
party shall pay the non-defaulting party's costs of collection, including
reasonable attorney's fees.
XII. EQUIPMENT LIENS
If at any time or from time to time Lessee desires to enter into or grant
any equipment liens, then upon Lessee's request Lessor shall enter into such
customary documentation with respect to the property Leased or otherwise
financed pursuant to such equipment liens as Lessee shall request, providing for
matters
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such as the following: (a) Lessor's waiver of the right to take possession of
such property upon occurrence of an event of default; and (b) customary
agreements by Lessor to enable the secured party to repossess such property in
the event of a default by Lessee as may be permitted by the agreement subsisting
between Lessee and the secured party.
XIII MUTUAL INDEMNITY OBLIGATIONS
A. MUTUAL INDEMNITY OBLIGATIONS: Lessor and Lessee shall each
indemnify the other against (a) any wrongful act, wrongful omission or
negligence of the indemnitor (or, in the case of Lessee, that of any of Lessee's
Sublessees) or its or their partners, directors, officers or employees; and (b)
any, breach or default by the indemnitor under this Lease. In addition to and
without limiting the generality of the foregoing indemnity, Lessee shall
indemnify Lessor against all the following matters (except to the extent any
claim arises from any wrongful act, omission or negligence of Lessor): (x) the
conduct, management, or occupancy of or from any work or activity performed in
and on the Premises and the Casino Vessel during the Term; (y) the condition of
the Premises, the Casino Vessel or any street, curb or sidewalk adjoining the
Premises, or of any vaults, tunnels, passageways or space under, adjoining or
appurtenant to the Premises; and (z) any accident, injury or damage whatsoever
caused to any person or property occurring during the Term, in or on the
Premises, or the Casino Vessel or upon or under the sidewalks adjoining the
Premises. Furthermore, Lessee agrees to pay, and to indemnify Lessor against,
reasonable legal costs, including reasonable counsel fees and disbursements
incurred by Lessor in obtaining possession of the Premises if Lessee fails to
surrender possession upon the expiration or earlier termination of the Term.
Notwithstanding anything to the contrary in this Lease, neither party shall be
required to indemnify the other party from or against such other party's
negligence, omissions, or intentional acts, and Lessee shall not be required to
indemnify Lessor from or against any condition that existed on or at the
Premises on or before the Commencement Date.
B. LIABILITY OF LESSOR: Lessee is and shall be in exclusive control
and possession of the Premises and the Casino Vessel during the Term as provided
in this Lease. Except for Lessor's own negligence, Lessor shall not be liable
for any injury or damage to any property or to any person occurring on or about
the Premises and the Casino Vessel, nor for any injury or damage to any property
of Lessee, or of any other person, during the Term. The provisions of this
Lease permitting Lessor to enter and inspect the Premises are intended to allow
Lessor to be informed as to whether Lessee is complying with the agreements,
terms, covenants and conditions of this Lease, and to the extent
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permitted by this Lease, to perform such other acts required by this Lease as
Lessee shall fail to perform. Such provisions shall not be construed to impose
upon Lessor any liability to third parties, but nothing in this Lease shall be
construed to exculpate, relieve or indemnify Lessor from or against any
liability of Lessor to third parties existing or arising from facts or
circumstances in existence on or before the date IOC-Tunica takes possession of
the Premises.
C. INDEMNIFICATION PROCEDURES: Wherever this Lease requires an
indemnitor to indemnify an indemnitee, the following procedures and requirements
shall apply:
1. Prompt Notice. The indemnitee shall give the indemnitor prompt
notice of any claim. To the extent, and only to the extent, that both (a) the
indemnitee fails to give prompt notice and (b) the indemnitor is thereby
prejudiced, the indemnitor shall be relieved of its indemnity obligations under
this Lease.
2. Selection of Counsel. The indemnitor shall be entitled to select
counsel (reasonably acceptable to the indemnitee, but counsel to the
indemnitor's insurance carrier shall be deemed satisfactory). The indemnitee
shall be entitled to approve the indemnitor's choice of counsel or select the
indemnitee's own counsel and be represented by such counsel. If the indemnitee
selects its own counsel, then such counsel shall consult with (but not be
controlled by) the indemnitor's counsel and the indemnitor and the indemnitee
shall each pay fifty percent (50%) of the reasonable attorney's fees of the
indemnitee's counsel.
3. Settlement. The indemnitor may, with the consent of the
indemnitee, not to be unreasonably withheld, settle the claim, except that no
consent by the indemnitee shall be required as to any settlement by which (x)
the indemnitor procures (by payment, settlement or otherwise) a release of the
indemnitee pursuant to which the indemnitee is not required to make any payment
whatsoever to the third party making the claim, (y) neither the indemnitee nor
the indemnitor acting on behalf of the indemnitee makes any admission of
liability, and (z) the continued effectiveness of this Lease is not jeopardized
in any way.
4. Insurance Proceeds. The indemnitor's obligations shall be reduced
by net insurance proceeds actually collected by the indemnitee on account of the
loss.
As used herein, wherever this Lease provides that a party shall "indemnify"
another from or against a particular matter, such term means that the indemnitor
shall indemnify the indemnitee (and its parent company, and their affiliates and
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subsidiaries and their respective officers, directors, agents, and employees)
and defend and hold the indemnitee (and its parent company and their affiliates
and subsidiaries and their respective officers, directors, agents and employees)
harmless from and against any and all loss, cost, claims, liability, penalties,
judgments, damage or other injury, detriment, or expense (including reasonable
attorney's fees, court costs, interest and penalties) reasonably incurred or
suffered by the indemnitee (and its parent company and their affiliates and
subsidiaries and their respective officers, directors, agents and employees) on
account of the matter that is the subject of such indemnification or in
enforcing the indemnitor's indemnity.
XIV. LESSOR'S WARRANTIES & REPRESENTATIONS
A. QUIET ENJOYMENT: Lessor covenants that, so long as Lessor has not
terminated this Lease on account of an event of default by Lessee, Lessee shall
and may peaceably and quietly have, hold and enjoy the Premises for the Term
without molestation or disturbance by or from Lessor or anyone claiming by or
through Lessor or having title to the Premises paramount to Lessor, and free of
any encumbrance created or suffered by Lessor, except Permitted Exceptions.
B. ALL PROPERTY COVERED: Lessor is leasing to Lessee all property
within the Premises, whether deemed to be real or personal (including signs,
buildings and any other personal property attached thereto or contained
therein), owned or controlled by them which are useful or necessary for the
operation of the improvements on the Premises or the Casino Vessel. The parties
acknowledge that the Casino Vessel is personal property and is not owned or
controlled by Lessor.
XV. ADDITIONAL PAYMENTS BY LESSEE; IMPOSITIONS
A. LESSOR'S NET RETURN: The parties intend that this Lease shall
constitute a "net Lease," so that the fixed rent and percentage rent shall
provide Lessor with "net" return for the Term, free of any expenses or charges
with respect to the Premises, except as specifically provided in this Lease.
Accordingly, Lessee shall pay as additional rent and discharge, before failure
to pay the same shall create a material risk of forfeiture or give rise to a
penalty, each and every item of expense, of every kind and nature whatsoever,
related to or arising from the Premises, or by reason of or in any manner
connected with or arising from the development, leasing, operation, management,
maintenance, repair, use or occupancy of the Premises or any portion of the
Premises. Notwithstanding anything to the contrary in this Lease, Lessee shall
not be required to pay any of the following incurred by Lessor: (a) principal,
interest, or other charges payable under any fee
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mortgage; (b) depreciation, amortization, brokerage commissions, financing or
refinancing costs, management fees or leasing expenses incurred by Lessor with
respect to the fee estate or the Premises; (c) consulting, overhead, travel,
legal, staff, and other similar costs incidental to Lessor's ownership of the
Premises; and (d) any costs arising from or pursuant to any instrument or
agreement affecting the Premises that is not a Permitted Exception and to which
Lessor is a party and Lessee is not a party.
B. IMPOSITIONS: For any period within the term (with daily proration
for periods partially within the term and partially outside the term), Lessee
shall pay and discharge, before failure to pay the same shall create a material
risk of forfeiture or give rise to a penalty, all impositions. Lessee shall
also pay all interest and penalties assessed by any government on account of
late payment of any imposition, unless such late payment was caused by Lessor's
failure to remit an imposition (paid to Lessor by Lessee) in accordance with
Lessee's reasonable instructions or Lessor's failure to promptly forward Lessee
a copy of a tax bill received by Lessor, in which case Lessor shall pay such
interest and penalties.
As used herein, the terms "impositions' shall mean all taxes, special and
general assessments, water rents, rates and charges, commercial gross receipts
or rent taxes, sewer rents and other impositions and charges of every kind and
nature whatsoever with respect to the Premises, that may be assessed, levied,
confirmed, imposed or become a lien on the Premises (other than on account of
any actions or omissions of Lessor or conditions existing on, at or with respect
to the Premises before the Commencement Date by or for the benefit of any
government with respect to any period during the term together with any taxes
and assessments that may be levied, assessed or imposed by the State of
Mississippi or by any political or taxing subdivision of the State upon the
gross income arising from any rent or in lieu of or as a substitute, in whole or
in part, for taxes and assessments imposed upon or related to the Premises and
commonly known as real estate taxes. The term "impositions" shall, however, not
include any of the following, all of which Lessor shall pay before delinquent or
payable only with a penalty: (a) any franchise, income, excess profits, estate,
inheritance, succession, transfer, gift, corporation, business, capital levy, or
profits tax of Lessor, (b) if the Premises is part of a combined tax lot, any
taxes and other impositions reasonably allocable to any portion of such combined
tax lot other than the Premises, in accordance with the applicable provisions of
this Lease, and (c) interest, penalties and other charges with respect to items
"a" through "c."
C. COMBINED TAX LOTS: If, as of the date of this Lease, the Premises
are part of a tax lot (a "Combined Tax Lot")
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that includes any land or improvements (other than the Premises), then the
parties shall diligently and expeditiously cooperate (including by bringing such
proceedings as may be necessary), all at Lessor's expense, including Lessee's
reasonable attorneys' fees, to cause the Combined Tax Lot to be divided so that
the Premises (including the fee estate and the Leasehold estate) shall be a
single separate tax lot that is no longer a Combined Tax Lot. Pending such
division of the Combined Tax Lot: (a) each party shall promptly provide the
other with a copy of any tax bill received by such party relating to the
Combined Tax Lot; (b) Lessee shall pay a portion of the impositions assessed
with respect to the Combined Tax Lot equal to the estimated assessment of the
Premises divided by the assessment of the Combined Tax Lot (except to the extent
that Lessee reasonably determines that a particular imposition, other than real
estate taxes, is more appropriately allocated in some other way); (c) Lessor
shall pay all impositions (and the items excluded from the definition of such
term by clauses "a" through "e" in such definition) with respect to the balance
of the Combined Tax Lot; (d) the estimated assessment for the Premises shall be
determined, to the extent possible, based on preliminary information from the
tax assessment authorities and otherwise by Lessee, in consultation with Lessor
(and, in any event, when the assessment of the Premises has been determined the
parties shall make such adjusting payments [with interest at the Prime Rate] as
shall be appropriate to compensate for errors in the estimated payments
previously made); and (e) if either party fails to pay its share of taxes and
charges for the Combined Tax Lot before delinquency and such failure continues
for ten business days after notice from the other party, then such other party
shall be entitled to pay the first party's unpaid impositions with respect to
the Combined Tax Lot, and the first party shall promptly upon demand reimburse
the other party's advances made on the first party's account ("Tax Reimbursement
Payments").
D. DIRECT PAYMENT BY LESSOR: If any imposition or other item of rent
is required to be paid directly by Lessor, then: (a) Lessor appoints Lessee as
Lessor's attorney in fact for the purpose of making such payment; and (b) if the
person entitled to receive such payment refuses to accept it from Lessee, then
Lessee shall give Lessor notice of such fact and shall remit payment of such
imposition to Lessor in a time or manner accompanied by reasonable instructions
as to the further remittance of such payment. Lessor shall with reasonable
promptness comply with Lessee's reasonable instructions and shall indemnify
Lessee against Lessor's failure to do so.
E. UTILITIES: Lessee shall pay all fuel, gas, light, power, water,
sewage, garbage disposal, telephone and other utility charges, and the expenses
of installation, maintenance, use and service in connection with the foregoing,
relating to the Premises and the Casino Vessel during the Term.
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XVI. EMINENT DOMAIN
A. REPAIR AND RESTORATION: In the event that all or any portion of
the Premises shall be taken or threatened to be taken under the power of eminent
domain or settlement in lieu thereof for any public or quasi-public use, Lessor
promptly shall deliver to Lessee notice thereof. Regarding any condemnation
award, the parties will seek reasonable compensation for the Premises, and the
Lessee's improvements. Unless terminated pursuant to the paragraphs which
follow, this Lease shall remain in full force and effect.
If any of such property hereby leased is taken by eminent domain or threat
thereof the aggregate proceeds of any eminent domain award or settlement for
Lessor's and Lessee's interest under this Lease will be divided between Lessor
and Lessee depending upon the time of taking as follows:
Period during which Percentage to Percentage to
taking occurs Lessor Lessee
Cm Dt - 12/31/2006 20% 80%
1/1/2007 - 12/31/2016 25% 75%
1/1/2017 - 12/31/2026 30% 70%
1/1/2026 - 12/31/2031 35% 65%
1/1/2032 - 12/31/2038 40% 60%
B. RIGHT OF TERMINATION: In addition to the rights conferred above,
Lessee shall have the right to terminate this Lease upon the occurrence of a
taking or a threatened taking under the power of the eminent domain or
settlement in lieu thereof if, as a result thereof, the Premises no longer shall
be fit and suitable for the use and occupancy thereof by Lessee for the conduct
of its business operations, in which Event Lessee may elect to terminate this
Lease by delivery of Notice to Lessor within thirty (30) days after the earlier
of: (i) Lessor's delivery to Lessee of notice regarding such taking or
threatened taking; or (ii) the date on which possession of the Premises or
portion thereof shall be required by the public or quasi-public body. Upon
delivery of such Notice to Lessor, this Lease shall terminate as of the date on
which such possession shall be required by the public or quasi-public body
unless otherwise provided in such notice.
XVII. TERMINATION
A. IMPOSSIBILITY: If at any time it should become impossible for
Lessee to operate a casino on the Premises due to changes in applicable law,
regulations or interpretations thereof which prohibit casino gambling on the
Premises, Lessee may immediately terminate the Lease. The loss of Lessee's
gaming
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license or the impossibility of further performance for reasons reasonably
within the control of Lessee shall not constitute cause for termination of the
Lease by Lessee under this paragraph.
B. Upon termination of this Lease for any reason, all improvements
constituting part of the Premises (other than (i) the signs bearing any
trademark, service mark, or other mark owned by Lessee, all of which Lessee may
remove; and (ii) the Casino Vessel, shall become Landlord's property (subject to
Permitted Exceptions), and Lessor and Lessee shall have the rights and
obligations set forth in this Article. If the Term has expired because of an
Event of Default, then Lessor shall be entitled to claim a credit against any
payments due by Lessor to Lessee pursuant to this Article in an amount equal to
any unpaid Rent through the Termination Date or damages payable by Lessee on the
Termination Date.
Upon termination, Lessee shall, at its option, pay Lessor a one-time
termination fee of $250,000 and remove the Casino Vessel or pay no termination
fee and leave the Casino Vessel on the Premises.
If IOC-Tunica decides to remove the Casino Vessel, Lessee will give Lessor
90 days notice prior to doing so and generally describe to Lessor the manner in
which removal of the Casino Vessel will be accomplished. Lessee will pay all
costs of repairing damage to the Premises by such removal. The costs of such
repair and restoration will be paid by Lessee. However, Lessee shall be
entitled to deduct fifty percent (50%) of the amount of such costs up to
$125,000 from the $250,000 termination fee referred to in the preceding
paragraph.
Notwithstanding anything to the contrary herein, Lessee may not remove the
Casino Vessel without first placing into escrow an amount of money sufficient to
repair any physical damage to the Premises caused by such removal including
restoring the levee, any areas excavated to remove the Casino Vessel, and any
break in the riverbank.
Upon the termination of the Lease for any reason, Lessee shall have the
absolute obligation to remove hazardous materials from the Premises which were
deposited on the Land by parties other than Owner subsequent to the Commencement
Date. Hazardous materials shall be deemed to mean any toxic or hazardous
substance defined in 42 U.S.C. (S)(S) 9601(14); any petroleum product,
including, without limitation, crude oil or any fraction thereof, natural gas
liquid, liquefied natural gas or synthetic gas, asbestos and other pollutants,
and any chemical subject to reporting under the Emergency Planning and Community
Right to Know Act of 1986, 42 U.S.C.A. (S)(S) 1101, et seq.
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XVIII. ESCROW OF PERCENTAGE RENT
For purposes of this Article, the terms "Commission" or "MGC" mean the
Mississippi Gaming Commission.
If, at any time, Lessor or any of the persons constituting Lessor is or are
not entitled to lawfully receive a percentage of gaming revenues as rent, but
such Lessor has an application for finding of suitability or renewal thereof (or
for any other findings required by the Mississippi Gaming Commission), then all
percentage rent due at and/or for such time shall be paid into a third-party
escrow account under agreements complying with this paragraph, and satisfactory
to and duly approved by the Mississippi Gaming Commission (the "Commission") or
its Director or as otherwise required by applicable Law. It shall be Lessor's
responsibility to obtain and maintain the approvals described above at and for
all times that percentage rent is payable.
The terms of the escrow agreement and of all related arrangements must be
strictly in conformity with the requirements of the Commission and its Director.
The express terms of the escrow, and of the Commission's approval thereof, must
be such that Lessor shall have absolute responsibility for the escrow or for
escrow funds once paid into the escrow as directed and approved by the
Commission. Without limitation on the foregoing, the requisite agreements must
expressly provide that Lessee shall have absolutely no obligation with respect
to (a) investment or risk of loss of the escrow funds; or (b) improper or
illegal disbursement of the funds (to an unqualified person or otherwise). Any
agreements by Lessor in connection with the escrow must be in form and substance
reasonably acceptable to Lessee.
In the event of any reasonable good faith uncertainty by Lessee at any time
as to the legality of continued payments into the escrow, Lessee may suspend
further payment into the escrow until Lessee obtains an express affirmative
ruling from the Commission (and Lessee will promptly seek such ruling) but
Lessee will instead deposit such payments into an interest bearing account at a
national bank, and such deposits and interest thereon may only be disbursed to a
Lessor (or any of them) at such time as approved by the Commission.
Further, payments into the escrow shall be subject to immediate suspension
at any time that the Commission or its Director rescinds or suspends approval of
the escrow arrangement or otherwise disapproves it. Further, in no event shall
Lessee or any of Lessee's affiliates be obligated to take any actions that
would, in the opinion of its gaming counsel, result in a material violation of
the Mississippi Gaming Control Act or any other applicable Law. Lessee shall
not be deemed in default in
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the payment of percentage rent so long as payment is precluded or suspended by
virtue of the actions of the MGC. If payments are suspended, then within ten
(10) days after discontinuance of the reason for the suspension, Lessee shall
pay the amount which was not paid by reason of the suspension.
In the event that the application for any findings required by the MGC of
any of the Lessors is withdrawn or denied, then that individual shall not be
entitled to any percentage rent payments. In such event that individual's share
of such monies, shall be paid to a transferee of such individual who is approved
by the MGC or, if no such transferee exists, then such monies shall be paid to
the remaining Lessors (i.e., the amount of rent to be paid by Lessee shall not
be reduced on account of such an event). The affected individual shall continue
to receive the minimum rent for the balance of the Term and any renewal terms
throughout the existence of this Lease and shall not, at any time, be entitled
to payment pursuant to a percentage of revenue. Withdrawal of an application or
a finding of unsuitability (denial of application) as to one Lessor shall not
affect payment to the other Lessor unless such individual also withdraws his
application or is found unsuitable (denial of application).
The parties further agree and understand that Lessee currently holds a
license with the Mississippi Gaming Commission and is currently pursuing a
license in connection with the Premises which are the subject of this Lease.
Lessor hereby agrees to use their best efforts to cooperate in the licensing
process and to take whatever steps are necessary to assist in the licensing
process, including the execution of whatever documents are appropriate and the
attendance at Gaming Commission meetings in Jackson, Mississippi or elsewhere if
necessary (at Lessee's expense).
Lessor agrees not to engage in any activities or take any actions or form
any associations which would threaten or otherwise be detrimental to the
Lessee's gaming license or license application. In the event that Lessor is
advised that either of the individual lessors has in any way threatened or
jeopardized the license or license application of Lessee, Lessor, and each of
them, agrees to take whatever steps are reasonably necessary to rectify the
situation.
XIX. NOTICES TO LEASEHOLD MORTGAGEES
A. Lessor shall, upon serving Lessee with any notice of breach or default
under the Lease, promptly serve a copy of such notice to every Leasehold
Mortgagee in writing, at the address(es) provided by any Leasehold Mortgagee to
Lessor from time to time. Lessor shall not terminate the Lease by reason of
Lessee's default without first serving Leasehold Mortgagee with
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written notice of default and allowing Leasehold Mortgagee that period to cure
same as specified herein. Leasehold Mortgagee shall have the right, but not the
obligation, to cure such default on behalf of Lessee. If such default on the
part of Lessee remains uncured for a period in excess of any applicable notice
and/or grace period set forth in the Lease, Lessor shall again notify Leasehold
Mortgagee in writing, in the manner provided above, after the expiration of such
notice and/or grace period, and Leasehold Mortgagee shall be entitled to a
further period of thirty (30) business days (ten (10) business days for monetary
defaults) after receipt of such notice within which to cure such default. If
such non-monetary default cannot be cured within such thirty (30) day period,
Leasehold Mortgagee shall have such additional period as may be necessarily
required within which to cure same, provided that Leasehold Mortgagee commences
to cure the same within such thirty (30) day period and diligently attempts to
prosecute such cure to completion. In the event Leasehold Mortgagee is unable to
cure any such default until Leasehold Mortgagee recovers possession of the
premises, such cure period shall be extended for such period as may be required
to foreclose or otherwise acquire possession of the Premises so long as
Leasehold Mortgagee commences foreclosure or other proceedings (including
without limitation judicial or non-judicial foreclosure, or a deed in lieu
thereof) to acquire possession of the Leasehold Premises promptly and thereafter
diligently prosecutes same to completion.
B. Should Leasehold Mortgagee, any party claiming through Leasehold
Mortgagee, or any party which is the successful purchaser of the Lessee's
Leasehold Premises at a foreclosure sale or through a purchase in-lieu-of
foreclosure succeed to the interest of Lessee under the Lease, Lessor shall
recognize such party as the Lessee and shall not disturb its use and enjoyment
of the Property, provided that such party cures any default by Lessee which may
be satisfied by the payment of money, and performs all of the obligations of
Lessee set forth in the Lease which is susceptible to being cured by such party.
C. In the event this Lease shall be terminated at any time during the term
hereof by reason of a surrender, cancellation or termination by Lessee, or if
Lessee shall have rejected or otherwise terminated this Lease pursuant to the
United States Bankruptcy Code (as hereinafter defined) or any other comparable
principle of debtors' rights, then Lessor agrees upon written request of such
Leasehold Mortgagee, its successors or assigns, within thirty (30) days after
knowledge of any such surrender, cancellation, termination or rejection to enter
into a new Lease with the Leasehold Mortgagee or with any nominee of Leasehold
Mortgagee upon all the same terms and conditions as shall then be contained in
this Lease, provided Leasehold Mortgagee pays all rents due through the date of
such new Lease and cures all other monetary defaults of Lessee on the date such
new Lease is
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executed, and cures all other defaults which are susceptible of being cured by
Leasehold Mortgagee within sixty (60) days after the date such new Lease is
executed. Any such new Lease shall have the same priority of title as the Lease.
Lessor shall execute and return to Leasehold Mortgagee any and all documents in
form and substance reasonably satisfactory to Leasehold Mortgagee, which secure
and evidence such priority in title, and Leasehold Mortgagee's Leasehold title
to the improvements on the Property, within twenty (20) days after request
therefor. From and after the effective date of such new Lease, Leasehold
Mortgagee or its nominee may, notwithstanding any provision to the contrary
contained elsewhere in the Lease, freely assign its interest under the Lease,
and in the Property, to any person or entity, without obtaining Lessor's consent
thereto. Leasehold Mortgagee will be relieved of all liability under the Lease
in the event such assignee expressly assumes the duty to perform all of Lessee's
obligation and Leasehold Mortgagee's obligations under the Lease in any such
assignment.
D. The Leasehold Mortgagee shall not be liable for any of Lessee's
obligations under the Lease, unless and until the Leasehold Mortgagee shall
acquire Lessee's interest in this Lease. If Lessor or Lessee acquires the
interest of the other in the demised premises, or any portion thereof, there
shall be no merger of the Leasehold estate into (i) the fee simple estate in the
Property, or (ii) any Leasehold estate superior to that of Lessee.
E. The Lease shall not be modified, terminated, canceled or surrendered
and Lessor shall not accept a termination, cancellation or surrender thereof by
Lessee without the prior written approval of Leasehold Mortgagee.
F. In the event that Lessee fails to exercise any options it may have to
extend the term within the period provided in the Lease (or elects not to
exercise such renewal option(s)), Lessor shall provide Leasehold Mortgagee with
notice of Lessee's failure or election and thereafter Leasehold Mortgagee shall
have the right to exercise such renewal option as agent for lessee within thirty
(30) days of receipt of Lessor's notice, and Lessee acknowledges that such
exercise shall be binding on it.
G. Lessor agrees, for the benefit of any Leasehold Mortgagee, that so long
as a Leasehold Mortgage shall encumber the Premises the right of election
arising under Section 365 (h) (1) of the Bankruptcy Code (the "Bankruptcy
Code"), 11 U.S.C. (S) 365 (h) (1) may be exercised by Leasehold Mortgagee and
not by Lessee. Any exercise or attempted exercise of such right of election by
Lessee shall be void.
H. Any option of the Lessee to be made under any provision of the Lease
relating to insurance proceeds, taking awards, or
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proceeds in lieu thereof or settlement thereof, casualty or taking shall not be
made until Leasehold Mortgagee shall have been provided with prior written
notice and shall have approved such election and, at Leasehold Mortgagee's
option, Leasehold Mortgagee may make such election.
I. Any mortgage or deed of trust hereafter placed on Lessor's interest in
the demised premises shall be and remain inferior and subordinate to this Lease
and to any Leasehold mortgage p laced on the demised premises, and Lessor shall
furnish evidence of such priority and record same upon request of Lessee or
Leasehold Mortgagee.
XX. MISCELLANEOUS
A. CONFIDENTIALITY: Lessor shall preserve the confidentiality of all
information obtained by Lessor relating to Lessee's Gross Gaming Revenue,
except: (i) in any litigation or arbitration proceedings between the parties;
(ii) in response to any lawful subpoena received by Lessor; or (iii) for
delivery to professional persons, e.g. attorneys, accountants, financial
advisers, employed by Lessor to assist with the management of Lessor's business
affairs. Lessor agrees that it will promptly deliver to Lessee a copy of any
subpoena received by Lessor seeking information concerning Lessee's Gross Gaming
Revenue.
B. NOTICE: Notices from either party to the other shall be given by
registered or certified mail, as follows:
To the Lessors by sending such notice(s) to:
1. Robertson M. Leatherman, Jr.
80 Monroe Avenue, Suite 700
Memphis, TN 38103;
2. Joseph Orgill
35 Union Avenue
Memphis, TN 38103 and to
3. James P. Orr
6232 Caribou Court
Cincinnati, OH 45243
To the Lessee at:
Casino America, Inc.
ATTN: John M. Gallaway
711 Washington Route
Biloxi, MS 39530-3848 and to
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Casino America, Inc.
ATTN: Allan B. Solomon
Suite 310
2200 Corporate Blvd., N.W.
Boca Raton, FL 33431
Either party, by written notice to the other, may designate a different person
and/or address than the one above given.
C. ENTIRE AGREEMENT; AMENDMENTS: This Lease and its exhibits
contain the entire agreement between the parties and no promise, representation,
warranty, covenant, agreement or understanding not specifically set forth in
this Lease shall be binding upon, or inure to the benefit of, either party.
This Lease may not be amended, altered, modified or supplemented in any manner
except by an instrument in writing duly executed by the parties.
D. GOVERNING LAW; INTERPRETATION: This Lease shall be construed and
enforced in accordance with the laws of the State of Mississippi. The fact that
this Lease shall have been prepared by the attorney for either the Lessor or
Lessee shall not be used to construe or interpret this Lease for or against
either party; the parties intend that the provisions of this Lease shall be
given their fair meaning and no court shall construe this Lease more stringently
against one party than against the other.
E. AUTHORITY; BINDING EFFECT: If Lessor or Lessee shall be a
corporation, trust or general or limited partnership, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on behalf of such entity.
Subject to the provisions of paragraphs VIII and XX Q. hereof, this Lease shall
be binding upon, and shall inure to the benefit of, the parties and their
respective heirs, executors, administrators, personal and legal representative,
successors, and permitted assigns.
F. NO WAIVER: The failure of Lessor or Lessee to insist upon strict
performance of any of the terms, conditions, covenants and obligations contained
in this Lease shall not be deemed a waiver of any rights or remedies for any
subsequent breach or default in the terms, conditions, covenants and obligations
herein contained.
G. RECORDING: If Lessor or Lessee requests, the parties shall
execute and acknowledge a short form of Lease for recording purposes, which
short form of Lease shall be recorded at the expense of the party requesting the
same, which party shall pay any documentary transfer tax or other special tax or
assessment associated with, or triggered by, such recording.
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H. SIGNS: Lessee shall have exclusive sign rights for the Premises,
and shall have the right to erect and display signs on the Premises subject only
to compliance with applicable laws, ordinances and requirements of governmental
authorities with competent jurisdiction.
I. SECTION HEADINGS: The Section headings hereof are intended for
convenience and reference purposes only and shall not be used to construe or
interpret this Lease.
J. SEVERABILITY: If any provision of this Lease shall be determined
by any court to be invalid, illegal or unenforceable to any extent, then the
remainder of this Lease shall not be affected, and this Lease shall be construed
as if the invalid, illegal or unenforceable provision had never been contained
in this Lease.
K. TRANSMITTAL: Submission of this Lease for examination, even
though executed by Lessor or Lessee, shall not bind the other party in any
manner, and no Lease or other obligation on the part of either party shall arise
until this Lease shall be executed and delivered by the parties, each to other.
L. ADDITIONAL ACTIONS AND DOCUMENTS: Lessor and Lessee hereby agree
to exercise their best efforts to obtain, execute, deliver and file, or cause to
be obtained, executed, delivered and filed, as the case may be, such additional
documents, instruments and consents as may be necessary or as reasonably may be
requested by either party, and to take such further action as may be necessary,
or as reasonably may be requested by either party, at the sole cost and expense
of the requesting party, in order fully to effectuate the terms and conditions
of this Lease.
M. COUNTERPARTS: This Lease may be executed in three (3) or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same.
N. NO PARTNERSHIP OR JOINT VENTURE: Nothing contained herein, nor
the acts of the parties hereto, shall be construed to create a partnership or
joint venture between Lessor and Lessee.
O. LIEN WAIVERS AND NO CONSENT TO LIENS:
(i) Lien Waivers
Prior to allowing any construction to be commenced on the Premises,
Lessee shall obtain from the contractor (as defined by the Mississippi Code
Annotated) who may file a lien for work
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performed or materials supplied, for the performance of any labor or the
furnishing of any materials or equipment for any improvement, alteration or
repair of, or to the Premises, or any part of the Premises, a waiver of lien
from such person or entity which provided that such person or entity waives any
lien against Lessor and/or the Fee Estate that may otherwise arise from
performing services on the Premises and agrees to hold Lessor harmless for any
claims made by such person or entity, or their successors or assigns, against
Lessor and/or the Fee Estate.
Moreover, any such contractor, who enters into a contract with Lessee
and commences work without granting such lien waiver to Lessor and/or the Fee
Estate shall be deemed trespasser(s) and shall be liable for damages to Lessor
to the fullest extent allowed by law (including punitive damages) including in
any event an amount not less than the the value of the services, work or
material performed on or supplied to the Premises and shall be liable to Lessor
for all of Lessors' attorneys' fees incurred in connection with removal of or
defending against any liens filed against Lessor and/or the Fee Estate.
(ii) No consent to liens
Lessee shall not suffer or permit any liens to be filed. If a lien is
filed, then Lessee shall, within thirty (30) days after receiving notice of such
filing (but in any case within fifteen (15) days after receipt of notice of
commencement of foreclosure proceedings), commence and then prosecute
appropriate action to cause such lien to be paid, discharged or bonded. Nothing
in this Lease shall be construed to restrict Lessee's right to contest the
validity of any lien and to pursue Lessee's position to a final judicial
determination. The mere existence of a lien shall not be construed as a default
under this Lease provided that Lessee bonds such lien off pursuant to
Mississippi law within 30 days of its filing.
Notice is hereby given that Lessor shall not be liable for any labor
or materials furnished or to be furnished to Lessee upon credit, and that no
mechanic's or other lien for any such labor or materials shall attach to or
affect Lessor's fee simple estate. Nothing in this Lease shall be deemed or
construed in any way to constitute Lessor's consent or request, written, express
or implied, by inference or otherwise, to Lessee or to any contractor,
subcontractor, laborer, equipment or material supplier for the performance of
any labor or the furnishing of any materials or equipment for any improvement,
alteration or repair of, or to the Premises, or any part of the Premises, nor as
giving Lessee any right, power or authority to contract for, or permit the
rendering of, any services, or the furnishing of any materials that would give
rise to the filing of any liens
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against Lessor's fee simple estate. Lessee shall indemnify Lessor against any
work performed on the Premises for or by Lessee.
Q. RELEASE OF LESSOR: After a sale, assignment, conveyance, or
other transfer of Lessor's interest in the Premises and its interests in this
Lease (each and every such event being a "Transfer"), each and every assignor
and each and every prior assignee of Lessor's interest in this Lease shall
thereupon be automatically released from all liability for the performance and
observance of covenants and conditions herein contained on Lessor's part to be
performed or observed which shall accrue from and after such Transfer, provided,
however that each respective assignee shall have assumed the obligations of
Lessor hereafter accruing under this Lease. Lessee shall, upon request of
Lessor or any prior assignee or transferee so reLeased, execute, acknowledge and
deliver (without expense to Lessor or the requesting party) a certificate
confirming such reLease. Failure of such transferee to either ask for such
certificate or the failure of Lessee to deliver such certificate shall not,
however, impair the effectiveness of the automatic reLeases set forth herein.
R. MINIMUM CASH INVESTED
During the term of this Lease (including any renewals thereof), IOC-Tunica
will at all times maintain Cash Invested of $4,000,000. To the extent IOC-
Tunica fails to maintain such Cash Invested, then Casino America, Inc.
guarantees the obligations of IOC-Tunica under this Lease, during the period of
time that such Cash Invested is below $4,000,000.
S. CASINO AMERICA, INC. GUARANTEE
Casino America, Inc. guarantees the Base Rent due under this Lease until
such time as the Casino Vessel opens under IOC-Tunica's ownership.
T. RULE AGAINST PERPETUITIES If the rule against perpetuities or any rule
of law with respect to restrictions on the alienation of property or any other
rule of law shall limit the time when any event contemplated by this Lease may
occur, the happening of such event shall not be impaired within any period
permitted by such rule. Such period with respect to the rule against
perpetuities shall expire upon the expiration of twenty (20) years after the
death of the last survivor of the following persons:
The following children of Lessors:
Robertson M. Leatherman, III
Camille Breland, Jr.
Sara Leatherman
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James P. Orr, III
Irene Leatherman Orr
Ellen McCandless
Eliza Wellford
Fred Smith
Annie Buttarazzi
The intent of this provision is to allow to the maximum extent permissible
by an applicable rule of law the occurrence of any event contemplated by this
Lease.
U. Time Periods. Whenever this Lease requires either party to
perform any action within a specified period, or requires that a particular
event occur within a specified period, if the last day of such period is not a
Business Day, then the period shall be deemed extended through the close of
business on the first Business Day following such period as initially specified.
This paragraph shall in no event delay or defer the effective date of any Rent
adjustment or the commencement of any period with respect to which interest on a
payment shall accrue.
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IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed
by each of their respective authorized representatives as of the day and year
first above written.
LESSOR: /s/ Robertson M. Leatherman, Jr.
------------------------------------------
Robertson M. Leatherman, Jr.
/s/ Camille L. Breland
------------------------------------------
Camille L. Breland
------------------------------------------
Leslie F. Leatherman
------------------------------------------
James Potter Orr
------------------------------------------
Edward C. Orr
------------------------------------------
Kate O. McCandless
------------------------------------------
Adele O. Wellford
------------------------------------------
Irene O. Smith
------------------------------------------
Anne O. Keeney
------------------------------------------
Kate O. Buttarazzi
LESSEE: IOC-TUNICA, INC.
By:
--------------------------------
Its: President
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EXHIBIT 10.2
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered into as
of the 7th day of October, 1998, by and between Tunica Partners, LP ("Seller"),
a Mississippi limited partnership, and Isle of Capri Casino-Tunica, Inc.
("Buyer"), a Mississippi corporation. Isle of Capri Casinos, Inc. ("Isle of
Capri"), a Delaware corporation, joins this Agreement for the purposes of
Section III.F.6 and Section V.B hereof.
Seller desires to sell to Buyer, and Buyer desires to purchase from Seller,
the Tunica Facility (as defined below) according to the terms and conditions of
this Agreement.
Therefore, in consideration of the premises and of the mutual agreements,
representations, warranties and covenants contained herein, Seller and Buyer
agree as follows:
1. DEFINITIONS. When used in this Agreement, the following terms, in addition
to the other capitalized terms which are specifically defined in other sections
of this Agreement, have the following respective meanings:
A. "Cash Purchase Price" means Seven Million Four Hundred Thousand
Dollars ($7,400,000).
B. "Closing" means the closing of the transactions contemplated by this
Agreement, which shall occur at 10:00 a.m. local time, on the Closing
Date at the offices of Brunini, Grantham, Grower & Hewes, PLLC, 1400
Trustmark Building, Jackson, Mississippi 39201 or at such other place
and time as Seller and Buyer may mutually agree upon.
C. "Closing Date" means December 7, 1998, or such other date as may
hereafter be mutually agreed to by the Buyer and Seller.
D. "Deed of Trust" means the leasehold deed of trust from Buyer in favor
of Seller securing the Promissory Note and covering the property
covered by the Leatherman Lease in the form of Schedule 1.D hereof.
E. "Deferred Purchase Price" means Two Million Dollars ($2,000,000).
F. "Deposit" means One Hundred Thousand Dollars ($100,000).
G. "Financing Statements" means UCC-1 Financing Statements to be filed in
all jurisdictions appropriate to perfect the security interest in the
collateral described in the Security Agreement.
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H. "The Guaranty" means the unconditional guaranty of Isle of Capri of
the Promissory Note in the form of Schedule 1.H hereof.
I. "Leatherman Easement" means a perpetual easement granted to Seller by
the owners of the property covered by the Leatherman Lease covering
those parts of the Water Supply System located on such property for
which there are presently no easements.
J. "Leatherman Lease" means the ground lease between R. M. Leatherman,
Jr., et al and Harrah's Tunica Corporation dated November 22, 1993.
K. "Orr Agreement to Grant Easements" means the agreement by James Potter
Orr, et al., to grant easements to Buyer for the location of utilities
traversing the Orr property to the Leatherman property and access
easement across the road as presently lain out and constructed on the
Orr property.
L. "Orr Easement" means a perpetual easement granted to Seller by the
owners of the property covered by the Orr Lease covering those parts
of the Water Supply System located on such property for which there
are presently no easements.
M. "Orr License Agreement" means an agreement by James Potter Orr, et
al., to allow Buyer to continue use of a percolation field until such
time as the Buyer has connected the purchased facility to public
utilities.
N. "Orr Lease" means the ground lease between James Potter Orr, et al.,
and Harrah's Tunica Corporation dated November 22, 1993.
O. "Permitted Liens" means current year ad valorem taxes not yet due and
payable, the terms of ground leases covering the real property on
which the Tunica Facility is located, and any other encumbrances which
do not secure monetary obligations and which do not have a material
adverse effect on the value of the Tunica Facility or its use for
gaming purposes.
P. "Promissory Note" means the promissory note in the form of Schedule
1.P hereof to be executed and delivered by Buyer to Seller at the
Closing pursuant to Section II.B hereof.
Q. "Purchase Price" means Nine Million Five Hundred Thousand Dollars
($9,500,000), which is the sum of the Deposit, the Cash Purchase
Price, and the Deferred Purchase Price.
R. "Security Agreement" means the Security Agreement in the form of
Schedule 1.R hereof to be executed by Buyer in favor of Seller.
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S. "Successor Rights" means (i) a ground lease to Buyer from the owners
of the property covered by the Leatherman Lease, (ii) the Orr
Agreement to Grant Easements, and (iii) the Orr License Agreement.
T. "Tunica Facility" consists of the facility known as Harrah's Tunica I
including, without limitation, the casino barge, all gaming equipment
and other furnishings, fixtures and equipment presently located at the
facility, all of Harrah's leasehold improvements, and all
architectural, design and engineering documents related to the
facility and the proposed expansion thereof presently in the
possession of Seller.
U. "Water Supply System" means the Water Well and all related land,
easements, equipment, pipes connecting Harrah's Mardi Gras Facility,
and all other appurtenances thereto.
V. "Water Well" means the well owned by Seller or an affiliate located
off the Tunica Facility premises which currently provides potable
water to both the Tunica Facility and to the Harrah's Mardi Gras
Facility.
II. BASIC TRANSACTION.
A. Sale and Purchase of Assets. At the Closing, Seller will sell and
convey to Buyer, and Buyer will purchase and accept from Seller, the
Tunica Facility. Buyer has agreed to purchase, and Seller has agreed
to sell, only the Tunica Facility. No other assets of Seller,
including but not limited to cash, bank accounts, other cash
equivalents, securities, real estate, or interests in real estate
shall be purchased by Buyer or sold by Seller.
B. Purchase Price. At the Closing, Buyer will pay to Seller the Purchase
Price. Payment of the Purchase Price shall be made as follows: (1)
the Deposit shall be retained by Seller; (2) the Cash Purchase Price
shall be paid by wire transfer of immediately available funds to an
account designated by Seller at least three (3) business days prior to
the Closing Date; and (3) the Deferred Purchase Price shall be paid by
delivery of and pursuant to the Promissory Note.
C. Allocation of Purchase Price. The Purchase Price shall be allocated
among the assets comprising the Tunica Facility as set forth on
Schedule 2.C of this Agreement. Seller and Buyer agree that each will
complete and file its tax returns in a manner consistent with the
allocations set forth in this Agreement for the taxable period in
which the Closing occurs.
D. No Assumption of Liabilities. Except as expressly set forth herein,
Buyer has not agreed to assume, and Buyer shall not assume, any
obligations or liabilities of Seller of any kind whatsoever.
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E. Transactions at Closing. At the Closing, Seller shall sell, transfer,
convey, assign and deliver the Tunica Facility to Buyer, free and
clear of any liens and encumbrances other than Permitted Liens, and
shall deliver to Buyer such documents, instruments and certificates as
are required by this Agreement to be delivered by Seller. At the
Closing, Buyer shall deliver to Seller the Purchase Price and such
documents, instruments and certificates as are required by this
Agreement to be delivered by Buyer. The conveyance documents for the
Purchased Assets shall be in form and substance commonly used in the
State of Mississippi and reasonably acceptable to Buyer, Seller, and
their counsel.
III. OTHER COVENANTS AND AGREEMENTS.
A. Cancellation of Leases; Easements; Successor Rights.
1. Seller and Buyer have concluded negotiations with the owners of
the property covered by the Leatherman Lease and the Orr Lease
(a) providing for the cancellation of the Leatherman Lease and
the Orr Lease at the Closing, (b) providing for the grant of the
Leatherman Easement and the Orr Easement at the Closing, and (c)
providing for the grant of the Successor Rights at the Closing.
Such documents are satisfactory in form and substance to Seller
and Buyer and have been deposited with Armstrong Allen Prewitt
Gentry Johnston and Holmes, PLLC ("Escrow Agent") to hold pending
and to deliver at the Closing pursuant to an escrow agreement, a
copy of which is attached hereto as Schedule 3.A.1. Seller and
Buyer are both parties to and beneficiaries of the escrow
agreement and are satisfied with the terms thereof.
2. Buyer and Seller will use their best efforts to obtain, prior to
Closing, an opinion of an attorney licensed in the State of
Mississippi, or other evidence satisfactory to Buyer and Seller
in their sole discretion, that the parties executing the
cancellations of the Leatherman Lease and the Orr Lease, the
parties executing the Leatherman Easement and the Orr Easement,
and the parties executing the Successor Rights, have good and
valid title to the real property that is the subject of such
documents free and clear of liens, encumbrances and assignments
of leases that would prohibit such parties from granting the
rights provided for in such documents.
B. Water Supply System. After the Closing, Seller will allow Buyer to
utilize the Water Supply System as the water supply for the Tunica
Facility at no charge, subject to the following conditions:
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1. Unless earlier terminated pursuant to the terms hereof, Seller's
obligation to provide water to Buyer shall terminate on the first
anniversary of the Closing Date.
2. In the event Seller in its sole and absolute judgment determines
that the Water Well is no longer adequate to serve both the
Tunica Facility and Harrah's Mardi Gras Facility, Seller shall
have the right to terminate its obligation to provide water to
Buyer effective upon written notice to Buyer.
3. In the event Seller in its sole and absolute judgment determines
that water quality problems have developed with respect to the
Water Well, Seller shall promptly notify Buyer of such
determination. In the event that, as a result of such water
quality problems, Seller ceases using the Water Supply System as
the water supply for Harrah's Mardi Gras Facility, Seller shall
also have the right to cease providing water to Buyer.
4. In the event the Mississippi Public Service Commission or other
governmental authority orders Seller to cease supplying water to
Buyer because of lack of regulatory authority, Seller shall have
the right effective upon receipt of such order to cease providing
water to Buyer.
5. In the event that the Mississippi Public Service Commission or
any other governmental authority raises an issue or makes a claim
that the delivery of water by Seller to Buyer will or might
require certification as a public utility, Seller shall have the
right, upon sixty (60) days prior written notice to Buyer, to
terminate Seller's obligation to provide water to Buyer.
6. Buyer assumes the risk of all losses and liabilities resulting
from any failures or inadequacy of the Water Well or Water Supply
System, including, but not limited to, adequacy of water supply,
pump failure, pipe breakage, or other mechanical failure,
regardless of whether any such failure or inadequacy is solely or
partly the fault of Seller.
7. Buyer hereby releases and agrees to hold Seller harmless from,
and covenants not to sue Seller with respect to, any and all
claims, causes of action, losses, liabilities, and expenses
suffered or incurred by Buyer resulting from or arising in any
way out of the provision by Seller to Buyer of water pursuant to,
and the undertakings assumed by Seller in, this Section III.B.
Buyer agrees to indemnify and hold Seller harmless from, against
and in respect of, and shall on demand reimburse Seller for, any
and all claims, causes of action, losses, liabilities, damages
and expenses suffered or incurred by Seller resulting from or
arising in any way out of the provision by Seller to Buyer
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of water pursuant to, and the undertakings assumed by Seller in,
this Section III.B.
C. Condition of Facility. Seller will use its commercially reasonable
efforts to maintain the assets comprising the Tunica Facility in their
condition as of August 10, 1998, normal wear and depreciation
excepted, and subject to modifications made by Buyer pursuant to
Section III.F hereof.
D. Probity Clearance. Buyer will provide to Seller all documents related
to the formation and organization of Buyer promptly upon execution
hereof, and in any event not later than thirty (30) days prior to the
Closing Date. Buyer shall make no change prior to the Closing in
Buyer's officers and directors identified on Schedule 5.A.5 hereof,
and Buyer shall not issue any equity securities or rights to acquire
equity securities to any party other than Isle of Capri prior to the
Closing. Buyer will cause Isle of Capri to notify Seller promptly in
the event any person not identified on Schedule 5.A.5 becomes a five
percent (5%) or greater shareholder of Isle of Capri.
E. Inspection. Seller has furnished to Buyer the "Information Documents"
as defined in a document dated August 10, 1998, entitled "Summary of
Terms - Tunica I Facility," executed by Buyer and Seller. Buyer
acknowledges (1) that it has been allowed unrestricted access to the
Tunica Facility in order to (a) inspect and inventory the assets to be
purchased, (b) satisfy itself that the facility is in compliance with
all regulations of the Mississippi Gaming Commission, (c) satisfy
itself that the facility is in compliance with all other government
regulations, (d) determine the availability and adequacy for its needs
of water, sewer, electricity, natural gas and other utility services
and (e) make such other determinations regarding the facility and the
assets as Buyer has determined to be necessary and appropriate, (2)
that Buyer is satisfied with its inspection, and (3) that Buyer agrees
to accept the Tunica Facility in its current condition, subject to
(i) normal wear and depreciation pending the Closing and (ii)
modifications made by Buyer pursuant to Section III.F hereof.
F. Facility Modifications. Seller hereby grants Buyer the right,
effective on the date hereof, to enter the Tunica Facility for the
purpose of making such modifications as Buyer may desire in order to
utilize the Tunica Facility for gaming purposes after the Closing.
Such right of entry shall be subject to the following covenants and
conditions:
1. Such right of entry and all activities conducted pursuant thereto
shall be at Buyer's sole risk and expense.
2. Buyer shall indemnify and hold harmless Seller, Seller's
officers, directors, employees, agents, and others acting on its
behalf (the "Seller Indemnitees") from and against all claims,
causes of action, liability, damages, losses, and
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expenses (including reasonable attorneys' fees) arising out of or
in any way connected with the activities conducted by Buyer
pursuant to this Section III.F, regardless of whether such claim
is based in whole or in part on the negligence or other wrongful
conduct of the Seller Indemnitees.
3. Buyer will maintain all types of insurance customarily maintained
by parties engaged in the activities contemplated by this Section
III.F, including but not limited to comprehensive liability with
limits of not less than Ten Million Dollars ($10,000,000),
builder's risk in the amount of the replacement value of the
Tunica Facility, and worker's compensation. Buyer will use
appropriate contractual provisions to assure that its contractors
and subcontractors maintain appropriate and comparable insurance.
Buyer will provide Seller, prior to commencing activities
pursuant to this Section III.F, certificates evidencing that all
such insurance is in full force and effect, and naming Seller as
additional insured.
4. Buyer shall promptly pay all costs and expenses related to the
activities conducted by Buyer pursuant to this Section III.F, and
Buyer will not allow its contractors, subcontractors,
materialmen, or suppliers to file or assert a lien or claim
against the Tunica Facility. In the event any party does assert
a lien or claim against the Tunica Facility arising out of
Buyer's activities pursuant to this Section III.F, Buyer will
promptly take whatever action is necessary to cause such lien or
claim to be released or withdrawn.
5. In the event the Closing does not occur by the stated Closing
Date and Buyer and Seller have not formally agreed in writing to
extend the Closing Date to a subsequent date certain, Buyer will,
at the request of Seller, restore the Tunica Facility to its
condition immediately prior to the commencement of Buyer's
activities pursuant to this Section III.F, which restoration
shall be completed not later than sixty (60) days after Seller's
request to restore. Notwithstanding the foregoing sentence,
Buyer shall have no obligation to restore the Tunica Facility if
(a) a change in the condition of the assets comprising the Tunica
Facility occurs between the date hereof and the Closing which (i)
is not caused by Buyer's activities pursuant to this Section
III.F, (ii) which has a material adverse effect on the
utilization of such assets for gaming purposes, and (iii) which
is not cured by Seller prior to the Closing Date, or (b) Seller
is unable to deliver good and valid title to the Tunica Facility
free of all liens other than Permitted Liens. Buyer shall give
Seller prompt notice of any change in condition of the assets
comprising the Tunica Facility which Buyer contends will relieve
it of its obligation to restore pursuant to the preceding
sentence.
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6. Isle of Capri hereby agrees that it will be jointly and severally
responsible and liable for Buyer's obligations set forth in this
Section III.F.
G. Earnest Money Deposit. Buyer has delivered to Seller the Deposit. In
the event the Closing occurs, the Deposit will be retained by Seller
and applied against the Purchase Price. In the event the Closing does
not occur as a result of Buyer's breach of this Agreement, or Buyer in
its sole discretion elects not to close, Seller shall retain the
Deposit which, together with Seller's rights under Section III.F,
shall be Seller's exclusive remedy with respect to such breach or
failure to close. In the event the Closing does not occur for reasons
other than breach of this Agreement by Buyer or Buyer's failure to
close, the Deposit shall be refunded to Buyer. Interest earned on the
Deposit after the date hereof will follow the principal amount of the
Deposit.
H. Exclusivity. From the date hereof until the earlier of the Closing
Date or until this Agreement is terminated or abandoned as provided in
Article VIII hereof, Seller shall not directly or indirectly solicit
or initiate discussion concerning, or enter into negotiations with, or
furnish any information that is not publicly available to, any third
party relating to the purchase of the Tunica Facility.
Notwithstanding the foregoing, Seller shall have the right to engage
in discussions with the landlords of the Leatherman Lease and the Orr
Lease and may receive communications from others in response to
inquiries which occurred prior to August 10, 1998.
I. Legal Impediments. In the event any third party prior to closing
commences a legal action against Buyer or Seller challenging or in any
way seeking to prevent the closing of the transaction contemplated by
this Agreement, and if such action is not resolved within 180 days
from its filing date, Seller shall have the right to terminate this
Agreement and return the Deposit to Buyer, without further liability
by either party except pursuant to Section III.F. The Closing will be
delayed during such 180 day period or until the action is sooner
resolved in a manner satisfactory to Seller.
J. Prorations. Current year ad valorem taxes, rent, contract
obligations, and other occupancy costs related to the Tunica Facility
will be prorated as of the Closing Date. In the event actual year ad
valorem taxes differ from the amount which was the basis of the
proration, Seller shall account to Buyer or Buyer shall account to
Seller, as appropriate.
K. Security. The Promissory Note will be secured by (1) the Deed of
Trust, the Security Agreement, and the Financing Statements or (2) the
Guaranty, which will be executed and delivered by the parties thereto
at the closing. Buyer shall notify Seller within twenty-one (21) days
prior to Closing of its election of security instrument.
L. No Transfer. Pending the closing, Seller shall not sell or convey, or
agree to sell or convey, to any third party, any assets which comprise
the Tunica Facility.
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M. Insurance. Seller shall have the obligation of maintaining casualty
insurance covering the Tunica Facility pending the closing. In the
event that the Tunica Facility is materially damaged by fire,
windstorm, or other casualty that is in no way related to the
activities conducted by Buyer pursuant to Section III.F hereof, Buyer
shall have the right to (1) terminate this Agreement, in which event
Seller shall retain insurance proceeds with respect to such casualty,
or (2) close notwithstanding such casualty, in which event Seller
shall assign such insurance proceeds to Buyer.
N. Best Efforts to Close. Both Seller and Buyer shall take all actions
within their reasonable capabilities to render accurate on and as of
the Closing Date their respective representations and warranties
contained in this Agreement. Seller and Buyer shall use their best
efforts to perform all of their covenants contained herein and to
satisfy all of the conditions to the consummation of the transaction
contemplated hereby, provided, that Seller and Buyer shall not be
required to waive any of their respective rights hereunder. In the
event that either Seller or Buyer learns that any representations or
warranties contained herein may not be true in all material respects,
or learns that any covenants contained herein may not be able to be
performed or that any of the conditions to Closing may not be able to
be met, such party shall immediately notify the other of such
development.
IV. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer as follows:
A. Corporate Organization; Good Standing. Seller is a limited
partnership, duly organized, validly existing, and in good standing
under the laws of the State of Mississippi and has the power to enter
into this Agreement and to carry out the transactions contemplated
hereby.
B. Authority and Binding Effect. The execution, delivery and performance
of this Agreement and all documents contemplated hereby by Seller have
been duly authorized by all requisite actions of Seller. This
Agreement and all documents and instruments contemplated hereby to be
executed by Seller constitute and will constitute the legal, valid and
binding obligations of Seller, enforceable against Seller in
accordance with their respective terms.
C. No Violation. Neither the execution and delivery of this Agreement
nor the consummation by the Seller of the transactions contemplated
hereby will (1) cause any default in or breach of any provision of the
charter documents of the Seller or any indenture, lease or other
material contract to which the Seller is bound, and none of such
actions will result in acceleration, or any similar right of any
party, under any material agreement to which Seller is a party, or (2)
result in the creation of any encumbrances upon the Tunica Facility.
Neither the execution nor delivery of this
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Agreement nor the consummation by Seller of the transactions
contemplated hereby will constitute a violation of any judgment,
decree, order, regulation or rule of any court or governmental
authority or any statute or law. No consent, approval or authorization
of any third party is required in connection with the execution,
delivery and performance of this Agreement by the Seller.
D. Title to Property; Encumbrances. Seller has good and valid fee simple
title to the Tunica Facility, subject to no liens or other
restrictions except as disclosed on Schedule 4.D. All such liens and
restrictions other than Permitted Liens will be satisfied by Seller at
or before the Closing, to the end that Seller will convey to Buyer
good and valid fee simple title to the Purchased Assets free of any
lien or other encumbrance whatsoever, other than Permitted Liens.
E. Condition of Assets. The assets comprising the Tunica Facility have
no material defects known to the officers of Seller or to the general
manager of Harrah's Mardi Gras facility which would have a material
adverse effect on the utilization of the Tunica Facility for gaming
purposes. Otherwise, the Tunica Facility will be conveyed by Seller
to Buyer in its "as is, where is" condition.
F. Litigation. Seller is not engaged in or a party to any legal action
or other proceeding, whether or not before any court or administrative
agency, with respect to the Tunica Facility.
G. Brokers and Finders Fees. Neither Seller nor anyone acting on its
behalf has done anything to cause or incur any liability to any party
for any brokers or finders fees or the like in connection with this
Agreement or the transactions contemplated hereby for which Buyer
would have any liability.
H. Cancellations. Attached hereto as Schedule 4.H are true and accurate
copies of cancellations of the Leatherman Lease and the Orr Lease.
I. Limitation. Except as expressly provided herein, Seller makes no
representation or warranty of any kind whatsoever relating to the
Tunica Facility, either express or implied, including, without
limitation, any implied warranty of merchantability, quality,
condition or fitness for any particular purpose, or any representation
or warranty relating to any defects, hidden, latent or otherwise, all
such warranties being expressly waived by Buyer.
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22. REPRESENTATIONS AND WARRANTIES OF BUYER AND ISLE OF CAPRI.
A. Buyer. Buyer represents and warrants to Seller as follows:
1. Corporate Organization; Good Standing. Buyer is a corporation
duly organized, validly existing, and in good standing under the
laws of the State of Mississippi, and has the power to enter into
this Agreement and to carry out the transactions contemplated
hereby.
2. Authority and Binding Effect. The execution, delivery and
performance of this Agreement and the other documents
contemplated hereby to be executed by Buyer have been duly
authorized by all necessary corporate action on the part of
Buyer. This Agreement and the other documents to be executed by
Buyer pursuant hereto constitute and will constitute the legal,
valid and binding obligation of Buyer, enforceable against Buyer
in accordance with their respective terms.
3. No Violation. Neither the execution and delivery of this
Agreement nor the consummation by Buyer of the transactions
contemplated hereby will (1) cause any default in or breach of
any provision of the Articles of Incorporation or Bylaws of
Buyer, or any indenture, lease or other material contract to
which Buyer is bound, and none of such actions will result in
acceleration, or any similar right of any party, under any loan
or other agreement to which Buyer is a party, or (2) result in
the creation of any encumbrances upon any of the properties or
assets of Buyer. Neither the execution nor delivery of this
Agreement nor the consummation by Buyer of the transactions
contemplated hereby will constitute a violation of any judgment,
decree, order, regulation or rule of any court or governmental
authority or any statute or law. No consent, approval or
authorization of any third party is required in connection with
the execution, delivery and performance of this Agreement by
Buyer.
4. Brokers and Finder Fees. Neither Buyer nor anyone acting on its
behalf has done anything to cause or incur any liability to any
party for any brokers or finders fees or the like in connection
with this Agreement or the transactions contemplated hereby for
which Seller would have any liability.
5. Probity Matters. Buyer is a wholly-owned subsidiary of Isle of
Capri. Attached hereto as Schedule 5.A.5 is a list of officers,
directors and five percent (5%) or greater shareholders of Isle
of Capri. Isle of Capri is registered with the Mississippi
Gaming Commission as a publicly traded holding company, and two
of its wholly-owned subsidiaries are currently licensed by the
Gaming Commission. The officers and directors of Buyer are
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those persons identified on Schedule 5.A.5 with two asterisks
next to their names.
6. Successor Rights. Attached hereto as Schedule 5.A.6 are true and
accurate copies of the Successor Rights.
B. Isle of Capri. Isle of Capri represents and warrants to Seller as
follows:
1. Corporate Organization; Good Standing. Isle of Capri is a
corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, and has the
power to enter into this Agreement and to carry out the
transactions contemplated hereby. Isle of Capri is duly
qualified to do business and is in good standing in the State of
Mississippi.
2. Authority and Binding Effect. The execution, delivery and
performance of this Agreement and the other documents
contemplated hereby to be executed by Isle of Capri have been
duly authorized by all necessary corporate action on the part of
Isle of Capri. This Agreement and the other documents to be
executed by Isle of Capri pursuant hereto constitute and will
constitute the legal, valid and binding obligation of Isle of
Capri, enforceable against Isle of Capri in accordance with their
respective terms.
3. No Violation. Neither the execution and delivery of this
Agreement nor the consummation by Isle of Capri of the
transactions contemplated hereby will (1) cause any default in or
breach of any provision of the Articles of Incorporation or
Bylaws of Isle of Capri, or any indenture, lease or other
material contract to which Isle of Capri is bound, and none of
such actions will result in acceleration, or any similar right of
any party, under any loan or other agreement to which Isle of
Capri is a party, or (2) result in the creation of any
encumbrances upon any of the properties or assets of Isle of
Capri. Neither the execution nor delivery of this Agreement nor
the consummation by Isle of Capri of the transactions
contemplated hereby will constitute a violation of any judgment,
decree, order, regulation or rule of any court or governmental
authority or any statute or law. No consent, approval or
authorization of any third party is required in connection with
the execution, delivery and performance of this Agreement by Isle
of Capri.
4. Brokers and Finder Fees. Neither Isle of Capri nor anyone acting
on its behalf has done anything to cause or incur any liability
to any party for any brokers or finders fees or the like in
connection with this Agreement or the transactions contemplated
hereby for which Seller would have any liability.
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5. Probity Matters. Buyer is a wholly-owned subsidiary of Isle of
Capri. Attached hereto as Schedule 5.A.5 is a list of officers,
directors and five percent (5%) or greater shareholders of Isle
of Capri. Isle of Capri is registered with the Mississippi
Gaming Commission as a publicly traded holding company, and two
of its wholly-owned subsidiaries are currently licensed by the
Gaming Commission. The officers and directors of Buyer are those
persons identified on Schedule 5.A.5 with two asterisks next to
their names.
VI. CONDITIONS TO BUYER'S OBLIGATIONS. The obligations of Buyer to consummate
the transactions contemplated by this Agreement and to pay the Purchase
Price are subject to the satisfaction, on or prior to the Closing Date, of
the following conditions, any and all of which may be waived by Buyer:
A. Representations True; Obligations to Perform. (1) The
representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects at and as
of the time of the Closing, except for representations and warranties
specifically relating to a time or times other than the time of the
Closing (which shall be true and correct at such other time or times)
and except for changes permitted by this Agreement, with the same
force and effect as if made at and as of the time of Closing; (2)
Seller shall have performed and complied in all material respects with
all agreements and covenants required by this Agreement to be
performed by Seller at or prior to the Closing; and (3) Seller shall
have delivered to Buyer a certificate, signed by the General Partner
of Seller, and dated the Closing Date, to all of such effects.
B. No Material Adverse Change. There shall not have occurred any change
since the date of this Agreement in the condition of the Tunica
Facility (other than changes attributable to or resulting from Buyer's
activities pursuant to Section III.F hereof) that would have a
material adverse effect on the utilization of such facility for gaming
purposes.
C. No Liens. Seller shall have obtained releases of any liens or
encumbrances affecting the Tunica Facility other than Permitted Liens.
D. Opinion of Counsel. Buyer shall have received a satisfactory opinion
from counsel to Seller, which may be Seller's staff counsel, dated the
date of the Closing, addressing the matters set forth in Sections IV.A
and IV.B hereof.
E. Title Opinion . There shall have been delivered to Buyer the opinion
or other evidence contemplated by Section III.A.2 which shall be in
form and substance satisfactory to Buyer.
Page 13
<PAGE>
F. Successor Rights. Buyer shall have received from the Escrow Agent
originals of the Successor Rights duly executed and acknowledged by
all parties thereto other than Buyer.
G. Gaming Commission Approval. Seller shall have received all necessary
approvals from the Mississippi Gaming Commission to convey the Tunica
Facility.
VII. CONDITIONS TO THE SELLER'S OBLIGATIONS. The obligations of the Seller to
consummate the transactions contemplated by this Agreement and to sell the
Tunica Facility to Buyer are subject to satisfaction, on or prior to the
Closing Date, of the following conditions, any and all of which may be
waived by Seller:
A. Representations and Warranties True; Obligations to Perform. (1) The
representations and warranties of Buyer and Isle of Capri contained in
this Agreement shall be true and correct at and as of the time of
Closing, except for representations and warranties specifically
relating to a time or times other than the time of Closing (which
shall be true and correct at such other time or times) and except for
changes permitted by this Agreement, with the same force and effect as
if made at and as of the time of the Closing; (2) Buyer shall have
performed or complied with all agreements and covenants required by
this Agreement to be performed by Buyer at or prior to the Closing;
and (3) Buyer and Isle of Capri shall have delivered to the Seller a
certificate, signed by their respective Presidents and dated the day
of Closing, to all of such effects.
B. Purchase Price. Buyer shall have paid the Purchase Price in
accordance with Section II.B hereof.
C. Opinion of Counsel for Buyer. Seller shall have received a
satisfactory opinion of counsel to Buyer, which may be Buyer's staff
counsel, dated the Closing Date, addressing the matters set forth in
Sections V.A.1, V.A.2, and V.A.5 hereof.
D. Opinion of Counsel for Isle of Capri. Seller shall have received a
satisfactory opinion of counsel to Isle of Capri, which may be Isle of
Capri's staff counsel, dated the Closing Date, addressing the matters
set forth in Sections V.B.1, B.V.2, and V.B.5 hereof.
E. Cancellations. Seller shall have received from the Escrow Agent
originals of the cancellations of the Leatherman Lease and the Orr
Lease duly executed and acknowledged by all parties thereto other
than Seller.
F. Easements. Seller shall have received from the Escrow Agent originals
of the Leatherman Easement and the Orr Easement duly executed and
acknowledged by all parties thereto other than Seller.
Page 14
<PAGE>
G. Security. Buyer shall have delivered to Seller duly executed
originals of either (1) the Guaranty or (2) the Deed of Trust, the
Security Agreement, and the Financing Statements.
H. Litigation. No legal action initiated by a third person shall be
pending challenging or in any way seeking to prevent the consummation
of the transactions contemplated by this Agreement.
I. Probity Clearances. There shall have been no negative results as
determined by Seller in its sole judgment and discretion from any
probity checks for suitability under applicable licensing laws made by
Seller on any persons identified as having an interest in or involved
in any way with Buyer.
J. Title Opinion. There shall have been delivered to Seller the opinion
or other evidence contemplated by Section III.A.2 which shall be in
form and substance satisfactory to Seller.
VIII. TERMINATION AND ABANDONMENT; ETC.
A. Termination and Abandonment. This Agreement may be terminated and
abandoned at any time prior to the Closing Date: (1) by mutual
agreement of the parties hereto; (2) by Buyer, if the conditions set
forth in Section VI shall have not been complied with or performed and
such noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated) by Seller
on or before the Closing Date; or (3) by Seller, if the conditions set
forth in Section VII shall not have been complied with or performed
and such noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated) by Buyer
on or before the Closing Date.
B. Rights and Obligations upon Termination. If this Agreement is
terminated pursuant to this Article VIII, this Agreement shall
forthwith cease to have effect by and among the parties, and all
further obligations of the parties shall terminate without further
liability, except that the obligations of the parties with respect to
the Deposit and under Section III.F hereto shall survive such
termination.
C. Specific Performance. Buyer shall have the right, in addition to the
right to terminate pursuant to Section VIII.A(2), to the remedy of
specific performance in the event of breach by Seller of this
Agreement. In connection therewith, Seller agrees that any remedy at
law for any breach of the provisions contained in this Agreement by
Seller shall be inadequate. The remedies of termination, as provided
in Section VIII.A(2), and the alternative remedy of specific
performance as provided in this Section VIII.C, shall be the sole
remedies available to Buyer in the event of breach of this Agreement
by Seller prior to Closing.
Page 15
<PAGE>
IX. POST-CLOSING INDEMNIFICATION.
A. Indemnification by Seller. In the event the Closing occurs, Seller
hereby agrees to indemnify and hold Buyer harmless from, against and
in respect of, and shall on demand reimburse Buyer for any and all
losses, liabilities and damages suffered or incurred by Buyer
resulting from any untrue representation, breach of warranty or
nonfulfillment of any covenant or agreement by Seller contained herein
or in any certificate, document or instrument delivered to Buyer
pursuant hereto or in connection herewith.
B. Limitation on Indemnity.
1. Basket. Seller shall not have the obligation to indemnify Buyer
under this Article IX for breach of any representation of
warranty, unless and until the aggregate amount of all such
claims against Seller for breaches of representations or
warranties equals or exceeds One Hundred Thousand Dollars
($100,000), and then only to the extent that such claims exceed
One Hundred Thousand Dollars ($100,000).
2. Cap. Seller shall have no obligation to indemnify Buyer pursuant
to this Article in an aggregate amount in excess of the Purchase
Price.
X. MISCELLANEOUS.
A. Entire Agreement. This Agreement (including the exhibits and
schedules) contains all the terms and conditions agreed upon by the
parties with respect to the subject matter hereof, and no other
representations, promises, agreements or understandings, written or
oral, made prior hereto or contemporaneously herewith, regarding the
subject matter of this Agreement, shall be of any force or effect.
B. Modifications and Waivers. No change, modification or waiver of any
provision of this Agreement shall be valid or binding unless it is in
writing, dated subsequent to the date hereof, and signed by the party
intended to be bound. No waiver of any breach, term or condition of
this Agreement by either party shall constitute a subsequent waiver of
the same or any other breach, term or condition.
C. Counterparts. This Agreement shall be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
Page 16
<PAGE>
D. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Mississippi applicable to
agreements made and to be performed entirely within such state.
E. Headings. The headings used in this Agreement are for convenience
only, shall not be deemed to constitute a part hereof, and shall not
be deemed to limit, characterize or in any way affect the provisions
of this paragraph.
F. Exhibits. The exhibits and schedules are part of this Agreement as if
fully set forth herein.
G. Severability. If any provision of this Agreement is invalid, those
portions of this Agreement that are not invalid shall nevertheless be
enforced, unless such enforcement would materially alter the relative
rights and obligations of the parties.
H. Notices. All notices, requests, demands or other communications
required or permitted by this Agreement shall be in writing, and
delivery shall be deemed to be sufficient if delivered personally or
by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to Buyer:
Isle of Capri Casino-Tunica, Inc.
c/o Isle of Capri Casinos, Inc.
711 Washington Loop
Biloxi, Mississippi 39530
Attention: John M. Gallaway
and
Isle of Capri Casinos-Tunica, Inc.
c/o Isle of Capri Casinos, Inc.
2200 Corporate Boulevard, N.W.
Boca Raton, Florida 33431
Attention: Allan Solomon
With a copy to:
Dana E. Kelly
Phelps Dunbar
Suite 500, 200 South Lamar Street
Jackson, Mississippi 39201
Page 17
<PAGE>
If to Seller:
Tunica Partners, LP
c/o Harrah's Operating Company, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Attn: Corporate Secretary
With a copy to:
Walter S. Weems
Brunini, Grantham, Grower & Hewes, PLLC
1400 Trustmark Building (39201)
Post Office Drawer 119
Jackson, Mississippi 39205-0119
Either party may change its address pursuant to notice given by such
party in accordance with the provisions of this section.
I. Further Assurances. Each party agrees, at any time and from time to
time, without further consideration, to take all such actions and
execute and deliver all such documents as may be necessary to
effectuate the purposes of this Agreement. Each party further agrees
to cooperate in connection with any Internal Revenue Service audit
relating to the transactions contemplated hereby.
J. Announcements. Neither party will make any public announcement or
issue any press release in respect of this Agreement or the
transactions contemplated hereby prior to or in connection with the
Closing without first giving the other party the opportunity to review
and approve the proposed communication, which approval shall not be
unreasonably withheld.
K. Expenses. Except as otherwise provided herein, Buyer and Seller shall
each pay the fees and expenses of its respective counsel, accountants
and other experts incident to the negotiation and preparation of this
Agreement and consummation of the transactions contemplated hereby.
L. Survival of Representations, Warranties and Covenants. Each of the
representations, warranties, obligations, covenants and agreements of
the parties included or provided for herein or in any schedule,
certificate or other document delivered pursuant to this Agreement
shall survive the consummation of the transactions contemplated by
this Agreement. The representations and warranties contained in this
Agreement or in any schedule, certificate or other document delivered
pursuant hereto shall expire on the first anniversary of the Closing.
Page 18
<PAGE>
M. Type of Damages. In the event of breach of this Agreement, neither
party shall be liable to the other for special, indirect, or
consequential damages (including lost profits or business
opportunities, and regardless of the foreseeability of any such
damages), or for exemplary or punitive damages.
N. Assignment. Neither Buyer nor Seller may assign this Agreement, in
whole or in part, without the prior written consent of the other,
which shall not be unreasonably withheld. This Agreement and all of
the provisions hereof shall be binding upon, and inure to the benefit
of, Buyer and its respective successors and permitted assigns and
Seller and its respective successors and permitted assigns. Isle of
Capri shall have no right to delegate or assign its duties under this
Agreement to any third party.
SELLER: BUYER:
TUNICA PARTNERS, LP ISLE OF CAPRI CASINO-TUNICA, INC.
By: Harrah's Tunica Corporation,
General Partner By: /s/ Jack Galaway
---------------------------------
By:/s/ Thomas M. Morgan ISLE OF CAPRI CASINOS, INC.
------------------------------
By: /s/ Jack Galaway
----------------------------------
Page 19
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
This Amendment No. 1 to Asset Purchase Agreement (the "Amendment") is made
and entered into as of the _____ day of December, 1998, by and between Tunica
Partners, LP ("Seller"), a Mississippi limited partnership, and Isle of Capri
Casino-Tunica, Inc. ("Buyer"), a Mississippi corporation. Isle of Capri
Casinos, Inc. ("Isle of Capri"), a Delaware corporation, joins this Amendment
for the purpose of consenting hereto, and Robert M. Leatherman, Jr. (the
"Agent"), individually and as attorney-in-fact for certain parties named in that
certain Escrow Agreement dated as of October 1, 1998 (the "Escrow Agreement"),
among Seller, Buyer, the Agent, and Armstrong Allen Prewitt Gentry Johnston and
Holmes, PLLC (the "Escrow Agent"), joins this Agreement for the purposes of
consenting hereto and Section 7 hereof.
Recitals
A. Seller and Buyer are parties to an Asset Purchase Agreement dated as
of October 7, 1998 (the "Agreement"), governing the sale of the Tunica
Facility.
B. The Closing Date set forth in the Agreement is December 7, 1998.
C. Buyer has requested an extension of the Closing Date, which Seller is
willing to grant pursuant to the terms of this Amendment.
Agreement
Therefore, in consideration of the premises and of the mutual agreements
contained herein, Seller and Buyer agree as follows:
1. Options to Extend. Buyer shall have three (3) options (individually
an "Option" and collectively the "Options") to extend the Closing Date
under the Agreement as follows:
A. From December 7, 1998, to January 7, 1999;
B. From January 7, 1999, to February 7, 1999;
<PAGE>
C. From February 7, 1999, to March 7, 1999.
Buyer may not exercise Option B unless Option A previously was
exercised, and Buyer may not exercise Option C unless Options A and B
previously were exercised.
2. Notice of Exercise of Option. Buyer exercises Option A by its
execution of this Amendment. Buyer shall exercise Option B or Option
C by giving written notice of exercise to Seller not later than five
(5) business days prior to the then-effective Closing Date.
3. Consideration for Extension. Buyer shall pay Seller,
contemporaneously with execution of this Amendment and delivery of
notice of each subsequent exercise of an Option, the sum of One
Hundred Thousand Dollars ($100,000) (for a total of Three Hundred
Thousand Dollars ($300,000) if Buyer exercises all three Options). Of
each such One Hundred Thousand Dollars ($100,000), Sixty-Seven
Thousand Dollars ($67,000) shall unconditionally belong to Seller, and
Thirty-Three Thousand Dollars ($33,000) shall be (i) applied toward
the Cash Purchase Price if the Closing occurs, and (ii) treated in the
same fashion as the Deposit if the Closing does not occur.
4. Definitions. All terms capitalized but not defined herein shall have
the meanings assigned to them in the Agreement.
5. Continued Effect. Except as amended hereby, the Agreement remains in
full force and effect as originally executed.
6. Counterpart Execution. This Amendment may be executed in multiple
counterparts, and each counterpart so executed shall have the same
force and effect as an original instrument.
<PAGE>
7. Notice to Escrow Agent. Seller, Buyer, and the Agent will, promptly
upon the exercise of any Option pursuant to this Amendment, give
notice thereof to the Escrow Agent.
This Amendment is made and executed as of the date first above written.
SELLER:
TUNICA PARTNERS, LP
By: Harrah's Tunica Corporation,
General Partner
By: /s/ Thomas M. Morgan
------------------------------
BUYER:
ISLE OF CAPRI CASINO-TUNICA, INC.
By: /s/ Jack Galaway
--------------------------------------
CONSENT TO AMENDMENT GRANTED:
ISLE OF CAPRI CASINOS, INC.
By: /s/ Jack Galaway
--------------------------------------
CONSENT TO AMENDMENT GRANTED, AND
SECTION 7 AGREED TO:
-------------------------------------------
ROBERT M. LEATHERMAN, JR., Individually and
as Agent and Attorney-in-Fact for persons
identified in Escrow Agreement
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT
This Amendment No. 2 to Asset Purchase Agreement ("Amendment No. 2") is
made and entered into as of the 24th day of February, 1999, by and between
Tunica Partners, LP ("Seller"), a Mississippi limited partnership, and Isle of
Capri Casino-Tunica, Inc. ("Buyer"), a Mississippi corporation. Isle of Capri
Casinos, Inc. ("Isle of Capri"), a Delaware corporation, joins this Amendment
for the purpose of consenting hereto.
Recitals
A. Seller and Buyer are parties to an Asset Purchase Agreement dated as
of October 7, 1998 (the "Agreement"), governing the sale of the Tunica
Facility.
B. The Agreement was amended by Amendment No. 1 to Asset Purchase
Agreement dated as of December 7, 1998 ("Amendment No. 1"), for the
purpose of providing Buyer options to extend the Closing Date from
December 7, 1998, to March 7, 1999.
C. Buyer has exercised each option to extend provided by Amendment No. 1,
the result being that the Closing Date has been extended to March 7,
1999. Buyer has paid the aggregate Three Hundred Thousand Dollar
($300,000) consideration for the extensions pursuant to Section 3 of
Amendment No. 1, of which Ninety-Nine Thousand Dollars ($99,000) is
treated as an additional deposit to be applied toward the Cash
Purchase Price if the Closing occurs.
D. Buyer and Seller have agreed to certain additional amendments to the
terms of the Agreement, all as set forth in this Amendment No. 2.
Agreement
Therefore, in consideration of the premises and of the mutual agreements
contained herein, Seller and Buyer agree as follows:
1. Section I.A of the Agreement is amended in its entirety to read as
follows:
"Cash Purchase Price" means One Million, Eight Hundred One
Thousand Dollars ($1,801,000).
2. Section I.C of the Agreement is amended in its entirety to read as
follows:
"Closing Date" means March 5, 1999, or such other date as may
hereafter be mutually agreed to by the Buyer and Seller.
<PAGE>
3. Sections I.D, I.G, and I.R of the Agreement are hereby deleted.
4. Section I.E of the Agreement is amended in its entirety to read as
follows:
"Deferred Purchase Price" means Seven Million, Five Hundred
Thousand Dollars ($7,500,000).
5. Section I.F of the Agreement is amended in its entirety to read as
follows:
"Deposit" means One Hundred Ninety-Nine Thousand Dollars
($199,000).
6. Section III.A.2 of the Agreement is amended in its entirety to read as
follows:
Attached hereto as Schedule 3.A.2 is (i) Title Report Update No.
10055-T dated September 14, 1998, and (ii) Title Report Update
No. 10054-T dated September 14, 1998 (such updates collectively,
the "Title Reports"), which relate to the real property that is
the subject of the Leatherman Lease, the Orr Lease, the
Leatherman Easement, the Orr Easement, and the Successor Rights.
Buyer will obtain, as of a date reasonably close to the Closing
Date, a subsequent update of the Title Reports and shall provide
a copy of such subsequent updates to Seller.
7. Section III.K of the Agreement is amended in its entirety to read as
follows:
Security. The Promissory Note will be secured by the Guaranty,
which will be executed and delivered by the parties thereto at
the Closing.
8. Section VI.E of the Agreement is amended in its entirety to read as
follows:
Title Reports. There shall have been no change since September
14, 1998, in ownership of the title to the property covered by
the Title Reports.
9. Section VII.G of the Agreement is amended in its entirety to read as
follows:
Security. Buyer shall have delivered to Seller duly executed
originals of the Guaranty.
Page 2
<PAGE>
10. Section VII.J of the Agreement is amended in its entirety to read as
follows:
Title Reports. There shall have been no change since September
14, 1998, in ownership of the title to the property covered by
the Title Reports.
11. The notice address of Dana E. Kelly set forth in Section X.H of the
Agreement is amended to read as follows:
Dana E. Kelly
Kelly & Gault, LLP
4266 I-55 North, Suite 104 (zip 39211)
Post Office Box 13926
Jackson, Mississippi 39236
12. Schedules 1.D and 1.R to the Agreement are deleted.
13. Schedule 1.P (revised) attached to this Amendment No. 2 is substituted
for Schedule 1.P attached to the Agreement.
14. All terms capitalized but not defined herein shall have the meanings
assigned to them in the Agreement.
15. Except as amended hereby, the Agreement, as previously amended by
Amendment No. 1, remains in full force and effect.
16. This Amendment may be executed in multiple counterparts, and each
counterpart so executed shall have the same force and effect as an
original instrument.
This Amendment is made and executed as of the date first above written.
SELLER:
TUNICA PARTNERS, LP
By: Harrah's Tunica Corporation, General Partner
By: /s/ Thomas M. Morgan
-----------------------------------------
BUYER:
ISLE OF CAPRI CASINO-TUNICA, INC.
By: /s/ Jack Galaway
----------------------------------------------
CONSENT TO AMENDMENT GRANTED:
ISLE OF CAPRI CASINOS, INC.
By: /s/ Jack Galaway
----------------------------------------------
Page 3
<PAGE>
EXHIBIT 10.5
PROMISSORY NOTE
$7,500,000.00 March 1, 1999
For value received, the undersigned promises to pay to the order of Tunica
Partners, LP, the principal sum of Seven Million Five Hundred Thousand and
No/100 Dollars ($7,500,000), together with interest thereon at the rate of
eleven percent (11%) per annum. Payments shall be made at Payee's principal
office, or at such other place designated in advance by Payee, in twenty-three
(23) consecutive monthly payments of One Hundred Twenty-Eight Thousand, Four
Hundred Eighteen Dollars and Twenty-Seven Cents ($128,418.27) each, the first of
which shall be due April 1, 1999, with subsequent payments to be due on the same
day of the following twenty-two (22) months, and a final twenty-fourth (24th)
payment which shall be due on March 1, 2001, in the amount of Six Million,
Thirty-Four Thousand, Seven Hundred Sixty-Four Dollars and Thirty-Four Cents
($6,034,764.34).
This note is given for the Deferred Purchase Price as defined in the Asset
Purchase Agreement of October 7, 1998, as amended, by and between Maker and
Payee.
Maker waives presentment for payment, demand, protest, and notice of
dishonor and nonpayment of this note. This note may be prepaid in whole or in
part without penalty. In the event (i) Maker defaults in the payment of any
amount due under this note and such default continues for a period of ten (10)
business days after Maker receives notice of default from Payee, or (ii) Maker
or Isle of Capri Casinos, Inc. ("Isle of Capri"), fails to remain qualified
under Mississippi gaming laws and regulations to own and operate a casino gaming
facility, or (iii) any gaming commission of any jurisdiction requires Payee to
disassociate itself from Maker or Isle of Capri, then Payee shall
<PAGE>
have the right, by written notice to Maker, to accelerate this note, in which
event all outstanding principal and interest shall become immediately due and
payable. In the event Maker, Isle of Capri or any other subsidiary of Isle of
Capri recapitalizes or refinances any existing debt, or in the event Maker, Isle
of Capri, or any other subsidiary of Isle of Capri incurs any additional debt
(other than debt to finance the acquisition of furniture, fixtures, and
equipment), then Maker shall make a prepayment of amounts due under this note in
the amount of the first net proceeds of any such recapitalization, refinancing,
or borrowing. Should this note be placed in the hands of an attorney for
collection or the services of an attorney become necessary in connection with
enforcing its provisions, the undersigned agrees to pay reasonable attorneys'
fees, together with all costs and expenses incident thereto.
ISLE OF CAPRI CASINO-TUNICA, INC.
By: /s/ Jack Galaway
------------------------------------
<PAGE>
02/04/1999 Page 1
- --------------------------------------------------------------------------------
TUNICA I FACILITY: ISLE OF CAPRI CASINO-TUNICA, INC.
- --------------------------------------------------------------------------------
Compound Period........... Monthly
Nominal Annual Rate....... 11.000 %
Effective Annual Rate..... 11.572 %
Periodic Rate............. 0.9167 %
Daily Rate................ 0.03014%
CASH FLOW DATA
- --------------------------------------------------------------------------------
Event Start Date Amount Number Period End Date
- --------------------------------------------------------------------------------
1 Loan 03/07/1999 7,500,000.00 1
2 Payment 04/07/1999 128,418.27 23 Monthly 02/07/2001
3 Payment 03/07/2001 6,034,764.34 1
AMORTIZATION SCHEDULE - Normal Amortization
Date Payment Interest Principal Balance
- --------------------------------------------------------------------------------
Loan 03/07/1999 7,500,000.00
1 04/07/1999 128,418.27 68,750.00 59,668.27 7,440,331.73
2 05/07/1999 128,418.27 68,203.04 60,215.23 7,380,116.50
3 06/07/1999 128,418.27 67,651.07 60,767.20 7,319,349.30
4 07/07/1999 128,418.27 67,094.04 61,324.23 7,258,025.07
5 08/07/1999 128,418.27 65,531.90 61,886.37 7,196,138.70
6 09/07/1999 128,418.27 65,964.60 62,453.67 7,133,685.03
7 10/07/1999 128,418.27 65,392.11 63,026.16 7,070,658,87
8 11/07/1999 128,418.27 64,814.37 63,603.90 7,007,054.97
9 12/07/1999 128,418.27 64,231.34 64,186.93 6,942,868.04
1999 Totals 1,155,764.43 598,632.47 557,131.96
10 01/07/2000 128,418.27 63,642.96 64,775.31 6,878,092.73
11 02/07/2000 128,418.27 63,049.18 65,369.09 6,812,723.64
12 03/07/2000 128,418.27 62,449.97 65,968.30 6,746,755.34
13 04/07/2000 128,418.27 61,845.26 66,573.01 6,680,182.33
14 05/07/2000 128,418.27 61,235.00 67,183.27 6,612,999.06
15 06/07/2000 128,418.27 60,619.16 67,799.11 6,545,199.95
16 07/07/2000 128,418.27 59,997.67 68,420.60 6,476,779.35
17 08/07/2000 128,418.27 59,370.48 69,047.79 6,407,731.56
18 09/07/2000 128,418.27 58,737.54 69,680.73 6,338,050.83
19 10/07/2000 128,418.27 58,098.80 70,319.47 6,267,731.36
20 11/07/2000 128,418.27 57,454.20 70,964.07 6,196,767.29
21 12/07/2000 128,418.27 56,803.70 71,614.57 6,125,152.72
2000 Totals 1,541,019.24 723,303.92 817,715.32
22 01/07/2001 128,418.27 56,147.23 72,271.04 6,052,881.68
23 02/07/2001 128,418.27 55,484.75 72,933.52 5,979,948.16
24 03/07/2001 6,034,764.34 54,816.18 5,979,948.16 0.00
2001 Totals 6,291,600.88 166,448.16 6,125,152.72
<PAGE>
02/04/1999 Page 2
- --------------------------------------------------------------------------------
TUNICA I FACILITY: ISLE OF CAPRI CASINO-TUNICA, INC.
- --------------------------------------------------------------------------------
Date Payment Interest Principal Balance
- --------------------------------------------------------------------------------
Grand Totals 8,988,384.55 1,488,384.55 7,500,000.00
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ISLE OF
CAPRI CASINOS, INC.'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND RELATED NOTES TO SAID
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-25-1999
<PERIOD-START> APR-27-1998
<PERIOD-END> JAN-24-1999
<CASH> 68,735
<SECURITIES> 0
<RECEIVABLES> 7,177
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 83,443
<PP&E> 490,983
<DEPRECIATION> 103,890
<TOTAL-ASSETS> 637,057
<CURRENT-LIABILITIES> 95,027
<BONDS> 429,924
0
0
<COMMON> 236
<OTHER-SE> 91,560
<TOTAL-LIABILITY-AND-EQUITY> 637,057
<SALES> 0
<TOTAL-REVENUES> 336,125
<CGS> 0
<TOTAL-COSTS> 140,524
<OTHER-EXPENSES> 152,090
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,701
<INCOME-PRETAX> 11,216
<INCOME-TAX> 5,551
<INCOME-CONTINUING> 5,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,665
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
<FN>
<F1> Includes Bonds payabale of $315 million, $75 million plus other long-term
debt.
</FN>
</TABLE>
