SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of earliest event reported: July 24, 1997
PRESIDENT CASINOS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-20840 51-0341200
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(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
organization) Number)
802 North First Street, St. Louis, Missouri 63102
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(Address of principal executive offices) (Zip code)
(314) 622-3000
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(Registrant's telephone number, including area code)
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Item 2. Acquisition or Disposition of Assets.
On July 24, 1997, President Casinos, Inc., a Delaware corporation (the
"Company"), completed the acquisition for approximately $40.5 million of
certain real estate and improvements located on the Gulf Coast in Biloxi,
Mississippi (the "Biloxi Property") from J. Edward Connelly Associates, Inc.,
a Pennsylvania corporation ("JECA"), pursuant to the terms of a Redemption
Agreement dated as of July 22, 1997 (the "Redemption Agreement") by and among
JECA, Broadwater Hotel, Inc., a Mississippi corporation and the wholly-owned
subsidiary of the Company ("BHI"), and President Broadwater Hotel, L.L.C., a
Mississippi limited liability company formed by JECA and BHI for purposes of
the transaction (the "LLC"). JECA is controlled by John E. Connelly, the
Chairman of the Board of the Company and the beneficial owner of approximately
32% of the Company's outstanding common stock.
The Biloxi Property comprises approximately 260 acres and includes the
Broadwater Resort and Broadwater Tower hotels which have an aggregate of over
500 rooms, the 138-slip Broadwater Marina and the adjacent 18-hole Sun Golf
Course. The Biloxi Property is the site of the casino operations of The
President Riverboat Casino-Mississippi, Inc., a wholly-owned subsidiary of the
Company ("President Mississippi"), which previously leased the Biloxi Property
from JECA under a long-term lease arrangement. In connection with the
transaction, President Mississippi entered into an amended and restated lease
agreement with the LLC with respect to a portion of the Biloxi Property and
the Company has executed an unconditional guaranty of President Mississippi's
obligations under the amended and restated lease.
Prior to the closing of the transactions contemplated by the Redemption
Agreement, JECA, the successor by merger to BH Acquisition Corporation, a
Mississippi corporation, was the sole owner of the Biloxi Property. In
connection with the formation of the LLC, JECA transferred its interest in the
Biloxi Property to the LLC as a capital contribution in exchange for the sole
outstanding membership interest in the LLC. Pursuant to the Redemption
Agreement, BHI made a capital contribution of $5.0 million to the LLC in
exchange for the Class A Unit of the LLC as described in the Amended and
Restated Limited Liability Company Operating Agreement of the LLC (the
"Amended Operating Agreement"). Simultaneously with BHI's acquisition of the
Class A Unit, the LLC redeemed JECA's existing membership interest in the LLC
in exchange for the payment by the LLC to JECA of $30.5 million and the
issuance by the LLC to JECA of the Class B Unit of the LLC as described in the
Amended Operating Agreement.
The LLC is obligated to redeem the Class B Unit from JECA for a redemption
price of $10.0 million (the "Redemption Price") on the date on which the
Indebtedness (as hereinafter defined) is fully and finally discharged and the
mortgage securing the Indebtedness is released. In addition, the Class B Unit
entitles JECA to a Priority Return with respect to each Priority Return Period
equal to the product of the Priority Return Percentage, the Redemption Price
and the number of days in such Priority Return Period, divided by the number
of days in the calendar year of which such Priority Return Period is a part.
"Priority Return Percentage" means, with respect to a given Priority Return
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Period, a percentage per annum equal to the greater of (i) eight and three-
fourths percent (8.75%) or (ii) a percentage equal to four percent (4%) plus
LIBOR. "Priority Return Period" means (i) with respect to the first Priority
Return to be distributed by the LLC, the period commencing on July 24, 1997
and continuing through August 31, 1997, and (ii) with respect to the
calculation of each subsequent Priority Return distribution, the calendar
month or portion thereof with respect to which such Priority Return is to be
distributed. "LIBOR" means, with respect to a given Priority Return Period,
the rate per annum (rounded upwards, if not already in even one-sixteenths of
one percent, to the nearest one-sixteenth of one percent) published in the
Money Rates section of "The Wall Street Journal" for the date which is two (2)
LIBOR Business Days prior to the first day of such Priority Return Period, as
the London Interbank Offered Rate for U.S. dollar deposits having designated
maturity of one (1) month (or if such publication shall cease to be publicly
available or if the information contained in such publication, in JECA's
judgment, shall cease to accurately reflect such London Interbank Offered
Rate, then JECA may select any publicly available source of similar market
data that, in JECA's sole judgment, accurately reflects such London Interbank
Offered Rate). "LIBOR Business Day" means any day that is not a Saturday,
Sunday or a day on which banks in the City of London, England are required or
permitted to be closed for interbank or foreign exchange transactions.
In order to finance its redemption of JECA's existing membership interest in
the LLC, the LLC borrowed from Lehman Brothers Holders, Inc. (the "Lender")
the sum of $30.0 million, evidenced by a non-recourse promissory note from the
LLC to the Lender (the "Indebtedness"). In addition, the LLC shall pay to the
Lender a loan fee in the amount of $7.0 million (the "Loan Fee") which shall
be fully earned and nonrefundable when due; provided, however, that if the
Indebtedness shall be repaid in full on or before September 30, 1998, then the
Loan Fee shall be reduced to $5.5 million. Except as set forth in the
promissory note and related security documents, the LLC's obligations under
the Indebtedness are nonrecourse and secured by the Biloxi Property and
improvements and leases thereon. The Company has agreed to indemnify the
Lender from and against and to guarantee payment to the Lender of any items
for which the LLC is personally liable and for which Lehman has recourse
against the LLC under the terms of the promissory note or related security
documents. Additionally, President Mississippi has agreed to indemnify Lehman
with respect to certain hazardous wastes on, in, or under the Biloxi Property.
The Indebtedness bears interest at a rate per annum equal to the greater of
(i) eight and three-fourths percent (8.75%) or (ii) a rate equal to four
percent (4%) plus LIBOR. "LIBOR" means a rate effective for each "Interest
Period" equal to the rate per annum (rounded upwards, if not already in even
one-sixteenths of one percent, to the nearest one-sixteenth of one percent)
published in the Money Rates section of "The Wall Street Journal" for the date
which is two (2) "LIBOR Business Days" prior to the first day of such Interest
Period, as the London Interbank Offered Rate for U.S. dollar deposits having
designated maturity of one (1) month (or if such publication shall cease to be
publicly available or if the information contained in such publication, in the
Lender's judgment, shall cease to accurately reflect the London Interbank
Offered Rate, then the Lender may select any publicly available source of
similar market data that, in the Lender's sole judgment, accurately reflects
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such London Interbank Offered Rate). "LIBOR Business Day" means any day that
is not a Saturday, Sunday or a day on which banks in the City of London,
England are required or permitted to be closed for interbank or foreign
exchange transactions. "Interest Period" means (i) with respect to the
calculation of the first payment of interest due under the Indebtedness, the
period commencing on July 22, 1997 and continuing through July 31, 1997, and
(ii) with respect to the calculation of each subsequent payment of interest
due under the Indebtedness, the calendar month or portion thereof with respect
to which such interest is due and payable. The LLC is obligated under the
Indebtedness to make monthly payments of interest accruing under the
Indebtedness, and to repay the Indebtedness in full on July 22, 2000.
The foregoing description is qualified in its entirety by the complete text
of the Redemption Agreement and related documents included as exhibits to this
Current Report on Form 8-K.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired. Pursuant to Item 7(a)(4) of
Form 8-K, Registrant will file the required financial statements of the
acquired business and pro forma financial information as soon as is
practicable, but no later than 60 days after the date on which this
report is required to be filed.
(b) Pro forma financial information. See Item 7(a) above.
(c) Exhibits. See Exhibit Index.
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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.
Dated: August 7, 1997
PRESIDENT CASINOS, INC.
By: /s/ James A. Zweifel
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James A. Zweifel, Vice President
and Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
2.1 Promissory Note dated July 22, 1997, by and between President
Broadwater Hotel, L.L.C. and Lehman Brothers Holdings Inc.
2.2 Redemption Agreement dated July 22, 1997, by and among J. Edward
Connelly Associates, Inc. and President Broadwater Hotel, L.L.C.
and Broadwater Hotel, Inc.
2.3 Indemnity Agreement dated July 22, 1997, by President Broadwater
Hotel, L.L.C., President Casinos, Inc. and The President Riverboat
Casino-Mississippi, Inc., jointly and severally, in favor of Lehman
Brothers Holdings Inc.
2.4 Indemnity and Guaranty Agreement dated July 22, 1997, by President
Casinos, Inc. and The President Casino Riverboat Casino-
Mississippi, Inc. in favor of Lehman Brothers Holdings Inc.
2.5 Unconditional Guaranty of Lease Obligations dated July 22, 1997, by
President Casinos, Inc.
2.6 Amended and Restated Limited Liability Company Operating Agreement,
dated as of July 22, 1997, by and between J. Edward Connelly
Associates, Inc. and Broadwater Hotel, Inc.
99.1 Excerpts from Updated Summary Appraisal-Broadwater Beach Hotel
dated as of April 1, 1997, by Hospitality Valuation Services, a
division of Hotel Consulting Services, Inc.
99.2 Press Release dated July 24, 1997.
EXHIBIT 2.1
PROMISSORY NOTE
$30,000,000.00 As of July 22, 1997
Biloxi, Mississippi
FOR VALUE RECEIVED, the undersigned, PRESIDENT BROADWATER HOTEL, L.L.C., a
Mississippi limited liability company, whose mailing address is 2110 Beach
Boulevard, Biloxi, Mississippi 39531 ("Borrower"), jointly and severally, if
more than one, promises to pay to the order of LEHMAN BROTHERS HOLDINGS INC.,
a Delaware corporation ("Lender"), without grace except as expressly provided
herein, at Lender's principal place of business at 3 World Financial Center,
12th Floor, 200 Vesey Street, New York, New York 10285-1200, or at such other
place as Lender may designate to Borrower in writing from time to time, the
principal sum of THIRTY MILLION and NO/100 DOLLARS ($30,000,000.00), together
with interest on so much thereof as is from time to time outstanding and
unpaid, from the date of the advance of the principal evidenced hereby, at the
"Applicable Interest Rate" (as such term is defined in Section 1.01(b),
below), in lawful money of the United States of America, which shall at the
time of payment be legal tender in payment of all debts and dues, public and
private.
ARTICLE I - TERMS AND CONDITIONS
1.01 Accrual and Calculation of Interest.
(a) Interest shall accrue on the outstanding principal balance of
this Promissory Note (this "Note") at the "Applicable Interest Rate" (as
defined in Section 1.01(b), below) in effect from time to time. Interest
shall be computed hereunder based on a 360-day year, and shall accrue for each
and every day (365 days per year, 366 days per leap year) on which any
indebtedness remains outstanding hereunder. In computing the number of days
during which interest accrues, the day on which funds are initially advanced
shall be included regardless of the time of day such advance is made, and the
day on which funds are repaid shall be included unless repayment is credited
prior to close of business. Payments in federal funds immediately available
in the place designated for payment received by Lender prior to 2:00 p.m.
local time at said place of payment shall be credited prior to close of
business, while other payments may, at the option of Lender, not be credited
until immediately available to Lender in federal funds in the place designated
for payment prior to 2:00 p.m. local time at said place of payment on a day on
which Lender is open for business.
(b) As used herein, the "Applicable Interest Rate" in effect at any
time during any "Interest Period" (as defined in Section 1.01(d), below)
hereunder shall mean an interest rate per annum equal to the greater of (A)
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eight and three-fourths percent (8.75%) or (B) a rate equal to four percent
(4.0%) plus "LIBOR" (as defined in Section 1.01(c), below) with respect to
such Interest Period.
(c) As used herein, the term "LIBOR" shall mean a rate effective for
each "Interest Period" (as defined in Section 1.01(d), below), equal to the
rate per annum (rounded upwards, if not already in even one-sixteenths of one
percent, to the nearest one-sixteenth of one percent) published in the Money
Rates section of the Wall Street Journal for the date which is two (2) "LIBOR
Business Days" (as is defined in Section 1.01(e), below) prior to the first
day of such Interest Period, as the London Interbank Offered Rate for U.S.
dollar deposits having a designated maturity of one (1) month (or if such
publication shall cease to be publicly available or if the information
contained in such publication, in Lender's judgment, shall cease to accurately
reflect such London Interbank Offered Rate, then Lender may select any
publicly available source of similar market data that, in Lender's sole
judgment, accurately reflects such London Interbank Offered Rate). Upon
notice from Lender to Borrower, LIBOR shall be adjusted for reserves in a
manner determined by Lender in good faith and consistent with the adjustment
methods generally applied by Lender, to be sufficient to compensate Lender for
the effect of such reserves on the net return to Lender from the interest and
other payments under this Note. In determining such adjustments, Lender may
use any reasonable averaging and attribution methods generally applied by
Lender.
(d) As used herein, the term "Interest Period" shall mean (i) with
respect to the calculation of the first payment of interest due under this
Note, the period commencing on the date hereof and continuing through July 31,
1997, and (ii) with respect to the calculation of each subsequent payment of
interest due under this Note, the calendar month or portion thereof with
respect to which such interest is due and payable.
(e) As used herein, the term "LIBOR Business Day" shall mean any day
that is not a Saturday, a Sunday or a day on which banks in the City of
London, England are required or permitted to be closed for interbank or
foreign exchange transactions.
1.02 Payments of Principal and Interest.
(a) Borrower shall make monthly payments of interest accruing under
this Note, as follows: On the first day of the second calendar month
following the date of this Note, and on the first day of each calendar month
thereafter through and including the "Maturity Date" (as defined in Section
1.02(b), below), Borrower shall pay to Lender all interest accrued under this
Note at the Applicable Interest Rate during the immediately preceding calendar
month, except that the first payment of interest shall include all interest
accrued from and after the date of this Note.
(b) As used herein, the term "Maturity Date" shall mean July 22,
2000.
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(c) On the Maturity Date, the entire outstanding principal balance of
this Note, together with all accrued and unpaid interest thereon, shall be due
and payable in full.
(d) All payments due under this Note shall be payable without setoff,
counterclaim or any other deduction whatsoever.
1.03 Prepayment.
(a) The principal indebtedness evidenced by this Note may be prepaid
in whole but not in part (except as otherwise specifically provided in Section
1.03(b), below), provided (i) written notice of such prepayment is received by
Lender not less than thirty (30) days prior to the date of such prepayment,
(ii) such prepayment is accompanied by all interest accrued but unpaid
hereunder (or, in the case of a permitted partial prepayment, that portion of
such accrued interest which is attributable to the principal sum prepaid) and
all other sums due hereunder or under the other "Loan Documents" (as defined
in Section 1.04, below), (iii) if such prepayment is made other than on the
first day of a calendar month, such prepayment is also accompanied by the
prepayment premium required pursuant to Section 1.03(c) hereinbelow, and (iv)
unless such prepayment is a permitted or mandatory partial prepayment, such
prepayment is also accompanied by the final installment of the loan fee
required under Section 1.08 hereinbelow.
(b) Partial prepayments of this Note shall not be permitted, except
(i) partial prepayments resulting from Lender applying insurance or
condemnation proceeds to reduce the outstanding principal balance of this Note
as provided in the "Security Instrument" (as defined hereinbelow), or (ii) the
partial prepayment resulting from the application of disbursements made in
accordance with the "Lockbox Agreement" (as defined hereinbelow).
(c) In the event that Borrower shall prepay any portion of the
principal evidenced by this Note other than on the first day of a calendar
month, then Borrower shall pay, in addition to all other amounts required to
be paid under Sections 1.03(a) and 1.03(b) hereinabove, a prepayment premium
equal to the amount of interest which would have accrued on the principal
amount so prepaid during the remainder of the calendar month following the
last day for which interest accrued on said amount so prepaid. The prepayment
fees provided for herein shall be due, to the extent permitted by applicable
law, under any and all circumstances where all or any portion of this Note is
paid prior to the Maturity Date and other than on the first day of a calendar
month, whether such prepayment is voluntary or involuntary, even if such
prepayment results from Lender's exercise of its rights upon Borrower's
default and acceleration of the maturity date of this Note (irrespective of
whether foreclosure proceedings have been commenced), and shall be in addition
to any other sums due hereunder or under any of the other "Loan Documents" (as
defined in Section 1.04, below). No tender of a prepayment of this Note with
respect to which a prepayment fee is due shall be effective unless such
prepayment is accompanied by the prepayment fee.
1.04 Security. The indebtedness evidenced by this Note and the obligations
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created hereby are secured by, among other things (i) that certain Deed of
Trust, Security Agreement and Fixture Filing relating to Broadwater Beach
Hotel and Resort, the Sun Golf Course and related properties (the "Security
Instrument"); and (ii) that certain Security Agreement and Lockbox Agreement
of even date herewith among Borrower, Lender and Lender's servicer (the
"Lockbox Agreement"). The Security Instrument and the Lockbox Agreement,
together with this Note and all other documents to or of which Lender is a
party or beneficiary now or hereafter evidencing, securing, guarantying,
modifying or otherwise relating to the indebtedness evidenced hereby, are
herein referred to collectively as the "Loan Documents." All of the terms and
provisions of the Loan Documents are incorporated herein by reference. Some
of the Loan Documents are to be filed for record on or about the date hereof
in the appropriate public records.
1.05 Late Charge. If any sum payable under this Note (other than the final
payment of the principal balance due on the Maturity Date) is not paid prior
to the tenth (10th) day following the date such sum is due, then Borrower
shall pay to Lender on demand an amount equal to four percent (4.0%) of such
past due sum to defray the expenses incurred by Lender in handling and
processing such delinquent payment and to compensate Lender for the loss of
use of such delinquent payment, and such amount shall be secured by the
Security Instrument and the other Loan Documents.
1.06 Default; Default Interest Rate. It is hereby expressly agreed that
should any payment of principal or interest required under this Note not be
made within ten (10) days of the date such payment is due (it being understood
and agreed, however, that no grace period is provided for the payment of
principal and interest due on the Maturity Date), or should any other default
occur under any of the Loan Documents which is not cured within any applicable
grace or cure period, then a default shall exist hereunder, and in such event
the indebtedness evidenced hereby, including all sums advanced or accrued
hereunder or under any other Loan Document, and all unpaid interest accrued
thereon, shall, at the option of Lender and without notice to Borrower, at
once become due and payable and may be collected forthwith, whether or not
there has been a prior demand for payment and regardless of the stipulated
date of maturity. So long as any default exists hereunder, regardless of
whether or not there has been an acceleration of the indebtedness evidenced
hereby, and at all times after maturity of the indebtedness evidenced hereby
(whether by acceleration or otherwise), interest shall accrue on the
outstanding principal balance of this Note at a rate per annum (the "Default
Interest Rate") equal to four percent (4.0%) plus the Applicable Interest Rate
which would be in effect hereunder absent such default or maturity, or if such
increased rate of interest may not be collected under applicable law, then at
the maximum rate of interest, if any, which may be collected from Borrower
under applicable law, and such default interest shall be immediately due and
payable. Borrower acknowledges that it would be extremely difficult or
impracticable to determine Lender's actual damages resulting from any late
payment or default, and such late charges and default interest are reasonable
estimates of those damages and do not constitute a penalty. The remedies of
Lender in this Note or in the Loan Documents, or at law or in equity, shall be
cumulative and concurrent, and may be pursued singly, successively or together
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in Lender's discretion. In the event this Note, or any part hereof, is
collected by or through an attorney-at-law, Borrower agrees to pay all costs
of collection including, but not limited to, reasonable attorneys' fees and
expenses.
1.07 Limitations on Recourse.
(a) Notwithstanding anything in the Loan Documents to the contrary,
but subject to the qualifications hereinbelow set forth, Lender agrees that
(i) Borrower shall be liable upon the indebtedness evidenced hereby and for
the other obligations arising under the Loan Documents to the full extent (but
only to the extent) of the security therefor, the same being all properties
(whether real or personal), rights, estates and interests now or at any time
hereafter securing the payment of this Note and/or the other obligations of
Borrower under the Loan Documents (collectively, the "Security Property"),
(ii) if default occurs in the timely and proper payment of all or any part of
such indebtedness evidenced hereby or in the timely and proper performance of
the other obligations of Borrower under the Loan Documents, then, except as
may be expressly set forth in any indemnity or guaranty securing this Note, or
in any of the other Loan Documents (A) any judicial proceedings brought by
Lender against Borrower or any indemnitor or guarantor of the indebtedness
evidenced by this Note, shall be limited to the preservation, enforcement and
foreclosure, or any thereof, of the liens, security titles, estates,
assignments, rights and security interests now or at any time hereafter
securing the payment of this Note and/or the other obligations of Borrower
under the Loan Documents, and (B) no attachment, execution or other writ of
process shall be sought, issued or levied upon any assets, properties or funds
of Borrower or such indemnitor or guarantor other than the Security Property
except with respect to the liability described below in this Section and in
such indemnities and guaranties, and (iii) except as may be expressly set
forth in any indemnity or guaranty securing this Note, or in any of the other
Loan Documents, in the event of a foreclosure of such liens, security titles,
estates, assignments, rights or security interests securing the payment of
this Note and/or the other obligations of Borrower under the Loan Documents,
no judgment for any deficiency upon the indebtedness evidenced hereby shall be
sought or obtained by Lender against Borrower or any indemnitor or guarantor,
except with respect to the liability described below in this Section 1.07
and/or to the extent necessary to enforce Lender's rights with respect to the
Security Property.
(b) Notwithstanding the provisions of Section 1.07(a), above,
Borrower and "Guarantors" (as defined in this Section 1.07(b), below) shall be
fully and personally liable and subject to legal action for, and shall
indemnify Lender for and with respect to, (i) proceeds paid under any
insurance policies (or paid as a result of any other claim or cause of action
against any person or entity) by reason of damage, loss or destruction to all
or any portion of the Security Property, to the full extent of such proceeds
not previously delivered to Lender, but which, under the terms of the Loan
Documents, should have been delivered to Lender; (ii) proceeds or awards
resulting from the condemnation or other taking in lieu of condemnation of all
or any portion of the Security Property, to the full extent of such proceeds
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or awards not previously delivered to Lender, but which, under the terms of
the Loan Documents, should have been delivered to Lender; (iii) all tenant
security deposits or other refundable deposits paid to or held by Borrower or
any other person or entity in connection with leases of all or any portion of
the Security Property which are not applied in accordance with the terms of
the applicable lease or other agreement, or which are not delivered to Lender
upon a foreclosure of the Security Property or action in lieu thereof, unless
such deposits have previously been delivered to Lender's servicer pursuant to
the Lockbox Agreement; (iv) rent and other payments received from tenants
under leases of all or any portion of the Security Property paid more than one
month in advance, except to the extent such rent and other payments have been
deposited in the "Lockbox Account" established pursuant to the Lockbox
Agreement; (v) rents, issues, profits, revenues and proceeds of accounts or
general intangibles of all or any portion of the Security Property received or
applicable to a period after any notice of default from Lender under the Loan
Documents, except to the extent such rents, issues, profits or revenues have
been deposited in the "Lockbox Account" established pursuant to the Lockbox
Agreement; (vi) waste committed on the Security Property, damage to the
Security Property as a result of the intentional misconduct or negligence of
Borrower or any of its principals, officers or general partners, or any agent
or employee of such persons, or any removal or disposal of the Security
Property in violation of the terms of the Loan Documents; (vii) any valid
taxes, assessments, mechanic's liens, materialmen's liens or other liens not
paid to the appropriate payee which could create liens on any portion of the
Security Property which would be superior to the lien or security title of the
Security Instrument or the other Loan Documents, to the full extent of the
amount claimed by any such lien claimant; (viii) all obligations and
indemnities of Borrower under the Loan Documents relating to hazardous or
toxic substances or compliance with environmental laws and regulations to the
full extent of any losses or damages (including those resulting from
diminution in value of any Security Property) incurred by Lender as a result
of the existence of such hazardous or toxic substances or failure to comply
with environmental laws or regulations; (ix) failure of the Security Property
to be in compliance with the requirements of the Americans with Disabilities
Act of 1990, the Fair Housing Amendments Act of 1988, all state and local laws
and ordinances related to handicapped access and all rules, regulations, and
orders issued pursuant thereto including, without limitation, the Americans
with Disabilities Act Accessibility Guidelines for Buildings and Facilities;
(x) failure to operate and maintain the Security Property in accordance with
other laws, ordinances and regulations relating thereto; (xi) all obligations
of Borrower under the Loan Documents to indemnify, hold harmless or defend
Lender against any claims, actions or demands against Lender relating to the
loan evidenced hereby, the Loan Documents or the Property other than those
finally determined to have resulted solely from the gross negligence or
willful misconduct of Lender; (xii) fraud or material misrepresentation by
Borrower or any member or general partner in Borrower, or by any principals,
officers or general partners of Borrower or any member or general partner in
Borrower, or by any guarantor, any indemnitor or any agent, employee or other
person authorized or apparently authorized to make statements or
representations on behalf of Borrower or any member or general partner in
Borrower, or on behalf of any principal, officer or general partner of
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Borrower or of any member or general partner in Borrower, or on behalf of any
guarantor or any indemnitor, to the full extent of any losses, damages and
expenses incurred by Lender on account thereof; (xiii) the amount of any loss
or damage to the Security Property resulting from flood or earthquake, to the
extent such loss or damage is not covered by flood or earthquake insurance,
respectively (whether such lack of coverage results from coverage limits,
deductibles, coinsurance provisions, or otherwise); (xiv) the amount of any
loss, damage or liability incurred by Lender as a result of Borrower's hazard
insurance coverage on the Security Property being less than full replacement
cost coverage; (xv) any loss of the Security Property due to forfeiture
thereof or of any portion thereof or interest therein as a result of any
criminal or quasi-criminal activity by Borrower (or any person so related to
Borrower or the Security Property that the Security Property or any portion
thereof or any interest therein might be forfeited on account of the activity
of such person), to the full extent of the diminution in the net realizable
value to Lender of the Security Property; (xvi) costs and expenses (including,
without limitation, attorney's fees) incurred by Lender in the enforcement of
Lender's rights and remedies under this Note or any of the other Loan
Documents, or at law or in equity with respect to the loan evidenced and
secured by the Loan Documents; and (xvii) the amount of any loss, damage or
liability incurred by Lender as a result of any default under, transfer or
assignment of, or cancellation, rejection, surrender, amendment or
modification of that certain Ground Lease Agreement, dated May 24, 1995, by
and between the Mississippi Division of the United Sons of Confederate
Veterans (the "Confederate Veterans") and BH Acquisition Corporation, as
assigned to Borrower (the "Lease"), or as a result of Borrower's failure to
obtain a Consent, Estoppel and Non-Disturbance and Modification Agreement
substantially in the form previously provided by Lender to Borrower, or
otherwise in form and substance satisfactory to Lender, including, without
limitation, any losses, costs or expenses incurred in connection with
construction of substitute fairways, tee boxes and greens and any other
improvements presently located on the property affected by the Lease,
including the costs of obtaining any necessary governmental consents or
approvals, permits or rezonings for such purpose. Nothing contained in this
Section 1.07 shall (A) be deemed to be a release or impairment of the
indebtedness evidenced by this Note or the other obligations of Borrower under
the Loan Documents or the lien of the Loan Documents upon the Security
Property, or (B) preclude Lender from foreclosing the Loan Documents in case
of any default or from enforcing any of the other rights of Lender except as
stated in this section, or (C) limit or impair in any way whatsoever the
Indemnity and Guaranty Agreement of even date herewith executed and delivered
by President Casinos, Inc. and President Riverboat Casino-Mississippi, Inc.
(collectively, "Guarantors" and individually, a "Guarantor") in connection
with the indebtedness evidenced by this Note or release, relieve, reduce,
waive or impair in any way whatsoever, any obligation of any party to such
Indemnity and Guaranty Agreement.
(c) Notwithstanding the provisions of Section 1.07(a), above, the
agreement of Lender not to pursue recourse liability as set forth in such
Section 1.07(a) SHALL BECOME NULL AND VOID and shall be of no further force or
effect and this Note shall become fully recourse to Borrower in the event: (i)
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of a voluntary bankruptcy filing by Borrower, any member or general partner in
Borrower, any Guarantor, or President Riverboat Casino-Mississippi, Inc.
("President Mississippi") or any person or entity succeeding to the rights of
President Mississippi under that certain Restated Lease Agreement dated
November, 1992, and effective as of July 15, 1992, as amended, between BH
Acquisition Corporation and President Mississippi (President Mississippi and
any such person or entity succeeding to such rights under the Restated Lease
Agreement being hereinafter referred to as "Sublessee"), or an involuntary
filing against Borrower, any member or general partner in Borrower, any
Guarantor or Sublessee not dismissed within ninety (90) days (except if such
involuntary action is brought by Lender); (ii) of failure to permit on-site
inspections of the Security Property in accordance with the terms of the
Security Instrument or failure to deliver financial information as required
under the Loan Documents, subject to any notice and right to cure provisions
set forth therein; (iii) any financial information concerning Borrower, any
member or general partner in Borrower, any Guarantor or Sublessee submitted to
Lender by any of them is fraudulent in any respect, contains any fraudulent
information or misrepresents in any material respect the financial condition
of Borrower, any member or general partner in Borrower, any Guarantor or
Sublessee; (iv) of Borrower's failure to obtain Lender's prior written consent
to any subordinate financing secured by the Security Property as required
under Section 1.13 of the Security Instrument; (v) of Borrower's failure to
obtain Lender's prior written consent to any transfer of the Security Property
or of any direct or indirect ownership interest in Borrower to the extent such
consent is required under the Loan Documents; or (vi) Borrower contests the
validity or enforceability of the Loan Documents and/or asserts defenses for
the sole purpose of delaying, hindering or impairing Lender's rights or
remedies under the Loan Documents or at law or in equity.
1.08 Loan Fee. Borrower shall pay to Lender a loan fee in the amount of
$7,000,000.00 (the "Loan Fee Amount") which shall be fully earned and
nonrefundable when due; provided, however, that if the indebtedness evidenced
by this Note and the other Loan Documents shall be repaid in full on or before
September 30, 1998, then the Loan Fee Amount shall be reduced to
$5,500,000.00. Said Loan Fee Amount shall be due and payable at the earliest
of (a) the time of repayment in full of the indebtedness evidenced by this
Note and the other Loan Documents, (b) the Maturity Date, or (c) the date of
maturity of the indebtedness evidenced hereby by acceleration (as contemplated
by Section 1.06 hereof or by any other provision of the Loan Documents
requiring payment in full of such indebtedness). Interest on the Loan Fee
Amount shall begin to accrue hereunder in accordance with Section 1.01 of this
Note as of (but not before) the date on which the Loan Fee Amount becomes
payable pursuant to the Security Instrument.
ARTICLE II - GENERAL CONDITIONS
2.01 No Waiver; Amendment. No failure to accelerate the debt evidenced
hereby by reason of default hereunder, acceptance of a partial or past due
payment, or indulgences granted from time to time shall be construed (i) as a
novation of this Note or as a reinstatement of the indebtedness evidenced
hereby or as a waiver of such right of acceleration or of the right of Lender
8
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thereafter to insist upon strict compliance with the terms of this Note, or
(ii) to prevent the exercise of such right of acceleration or any other right
granted hereunder or by any applicable laws; and Borrower hereby expressly
waives the benefit of any statute or rule of law or equity now provided, or
which may hereafter be provided, which would produce a result contrary to or
in conflict with the foregoing. No extension of the time for the payment of
this Note or any installment due hereunder, made by agreement with any person
now or hereafter liable for the payment of this Note shall operate to release,
discharge, modify, change or affect the original liability of Borrower under
this Note, either in whole or in part unless Lender agrees otherwise in
writing. This Note may not be changed orally, but only by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
2.02 Waivers. Presentment for payment, notice of intention to accelerate,
notice of acceleration, demand, protest and notice of demand, protest and
nonpayment and all other notices are hereby waived by Borrower. Borrower
hereby further waives and renounces, to the fullest extent permitted by law,
all rights to the benefits of any statute of limitations and any moratorium,
reinstatement, marshaling, forbearance, valuation, stay, extension,
redemption, appraisement, exemption and homestead now or hereafter provided by
the Constitution and laws of the United States of America and of each state
thereof, both as to itself and in and to all of its property, real and
personal, against the enforcement and collection of the obligations evidenced
by this Note or the other Loan Documents.
2.03 Limit of Validity. The provisions of this Note and of all agreements
between Borrower and Lender, whether now existing or hereafter arising and
whether written or oral, are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of demand or acceleration
of the maturity of this Note or otherwise, shall the amount paid, or agreed to
be paid ("Interest") to Lender for the use, forbearance or retention of the
money loaned under this Note exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, performance or
fulfillment of any provision hereof or of any agreement between Borrower and
Lender shall, at the time performance or fulfillment of such provision shall
be due, exceed the limit for Interest prescribed by law or otherwise transcend
the limit of validity prescribed by applicable law, then ipso facto the
obligation to be performed or fulfilled shall be reduced to such limit and if,
from any circumstance whatsoever, Lender shall ever receive anything of value
deemed Interest by applicable law in excess of the maximum lawful amount, an
amount equal to any excessive Interest shall be applied to the reduction of
the principal balance owing under this Note in the inverse order of its
maturity (whether or not then due) or at the option of Lender be paid over to
Borrower, and not to the payment of Interest. All Interest (including any
amounts or payments deemed to be Interest) paid or agreed to be paid to Lender
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period until payment in full of the
principal balance of this Note so that the Interest thereof for such full
period will not exceed the maximum amount permitted by applicable law. This
Section 2.03 will control all agreements between Borrower and Lender.
9
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2.04 Use of Funds. Borrower hereby warrants, represents and covenants that
all funds disbursed hereunder shall be used for business or commercial
purposes and that no funds disbursed hereunder shall be used for personal,
family or household purposes.
2.05 Unconditional Payment. Borrower is and shall be obligated to pay
principal, interest and any and all other amounts which become payable
hereunder or under the other Loan Documents absolutely and unconditionally and
without any abatement, postponement, diminution or deduction and without any
reduction for counterclaim or setoff. In the event that at any time any
payment received by Lender hereunder shall be deemed by a court of competent
jurisdiction to have been a voidable preference or fraudulent conveyance under
any bankruptcy, insolvency or other debtor relief law, then the obligation to
make such payment shall survive any cancellation or satisfaction of this Note
or return thereof to Borrower and shall not be discharged or satisfied with
any prior payment thereof or cancellation of this Note, but shall remain a
valid and binding obligation enforceable in accordance with the terms and
provisions hereof, and such payment shall be immediately due and payable upon
demand.
2.06 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL,
(A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE WHERE THE SECURITY PROPERTY
IS LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR
RELATING TO THIS NOTE, (B) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY
BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
COUNTY WHERE THE PROPERTY IS LOCATED, (C) SUBMITS TO THE JURISDICTION OF SUCH
COURTS AND, (D) TO THE FULLEST EXTENT PERMITTED BY LAW, AGREES THAT BORROWER
WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY FORUM OTHER THAN SUCH
COURTS IN NEW YORK COUNTY, NEW YORK (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT
OF LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM).
BORROWER FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR
OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR
CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO BORROWER AT THE ADDRESS FOR NOTICES
DESCRIBED ON THE FIRST PAGE HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE
SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING
HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY
OTHER MANNER PERMITTED BY LAW).
(b) BORROWER AND LENDER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF
COMPETENT COUNSEL, WAIVE, RELINQUISH AND FOREVER FORGO THE RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY
RELATING TO THIS NOTE OR ANY CONDUCT, ACT OR OMISSION OF LENDER OR BORROWER,
OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR
ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, IN EACH OF
THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
2.07 Miscellaneous. This Note shall be interpreted, construed and enforced
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according to the laws of the State of Mississippi without giving effect to its
principles of choice of law or conflicts of law. The terms and provisions
hereof shall be binding upon and inure to the benefit of Borrower and Lender
and their respective heirs, executors, legal representatives, successors,
successors-in-title and assigns, whether by voluntary action of the parties or
by operation of law. As used herein, the terms "Borrower" and "Lender" shall
be deemed to include their respective heirs, executors, legal representatives,
successors, successors-in-title and assigns, whether by voluntary action of
the parties or by operation of law. If Borrower consists of more than one
person or entity, each shall be jointly and severally liable to perform the
obligations of Borrower under this Note. All personal pronouns used herein,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural and vice versa. Titles
of articles and sections are for convenience only and in no way define, limit,
amplify or describe the scope or intent of any provisions hereof. Time is of
the essence with respect to all provisions of this Note. This Note and the
other Loan Documents contain the entire agreements between the parties hereto
relating to the subject matter hereof and thereof, and any and all prior
written agreements and any and all prior and contemporaneous oral agreements
relative hereto and thereto which are not contained herein or therein are
terminated.
IN WITNESS WHEREOF, Borrower has executed this Note under seal as of the
date first above written.
PRESIDENT BROADWATER HOTEL, L.L.C.,
a Mississippi limited liability
company
By: Broadwater Hotel, Inc., a
Mississippi corporation, as manager
By: /s/John S. Aylsworth
---------------------------
Name: John S. Aylsworth
---------------------------
Executive Vice President
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EXHIBIT 2.2
REDEMPTION
AGREEMENT
by and among
J. Edward Connelly Associates, Inc.
"Seller,"
and
President Broadwater Hotel, L.L.C.
"LLC"
and
Broadwater Hotel, Inc.
"BHI"
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TABLE OF CONTENTS
Page No.
1. IDENTIFICATION OF THE PARTIES AND SUMMARY OF THE TRANSACTION......... 1
2. DESCRIPTION OF THE LLC'S ASSETS...................................... 1
(a) Real Property.................................................. 1
(b) Improvements................................................... 2
(c) Lease Interests................................................ 2
(d) Rights and Privileges.......................................... 2
(e) Lessee Interests............................................... 2
(f) Tangible Personal Property..................................... 3
(g) Intangibles.................................................... 3
3. REDEMPTION OF THE LLC INTEREST AND ISSUANCE OF CLASS A UNIT.......... 4
(a) Redemption of the LLC Interest................................. 4
(ii) Purchase Price................................................. 4
(iii) Escrow Deposit................................................. 5
(iv) Payment........................................................ 5
(v) Escrow Agent................................................... 5
(vi) Seller Interest................................................ 6
(b) Issuance of the Class A Unit................................... 8
(ii) Contribution................................................... 8
4. INVESTIGATIONS....................................................... 8
(a) Investigations................................................. 8
(b) Access to Information and the Property......................... 8
(c) Seller's Deliveries of Documents and Information............... 9
(d) Title and Survey Matters....................................... 12
5. REPRESENTATIONS AND WARRANTIES OF SELLER............................. 12
(a) Correct and Complete Copies.................................... 13
(b) Rent Roll...................................................... 13
(c) Lessee Leases True and Correct................................. 14
(d) No Leasing Commissions......................................... 14
(e) Assumed Contracts True and Correct............................. 14
(f) No Land Related Proceedings.................................... 14
(g) Adequate Utilities............................................. 15
(h) Permits........................................................ 15
(i) Good Standing; Binding Documents............................... 15
(j) No Construction Contracts...................................... 15
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Page No.
(k) Hazardous Materials............................................ 15
(l) Insurance Matters.............................................. 16
(m) Legal Proceedings.............................................. 16
(n) Not a Foreign Person........................................... 17
(o) No Merger...................................................... 17
(p) Capitalization................................................. 17
(q) Property Held in As Is Condition............................... 17
(r) Title to the LLC Interest, Class A Unit........................ 17
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE LLC AND BHI......... 17
(a) Good Standing; Binding Documents............................... 17
(b) Continued Employment........................................... 18
(c) Notification of Change......................................... 18
7. CONDITIONS PRECEDENT TO CLOSING...................................... 18
(a) LLC's and BHI's Conditions Precedent........................... 18
(b) Seller's Conditions Precedent.................................. 21
8. COVENANTS OF SELLER.................................................. 22
9. SELLER'S CLOSING DOCUMENTS........................................... 25
10. LLC'S AND BHI'S CLOSING DOCUMENTS.................................... 26
11. CONFIDENTIALITY...................................................... 27
12. PRORATIONS AND ADJUSTMENTS........................................... 28
(a) Rentals Generally.............................................. 28
(b) Prepaid Rents, Security Deposits and Promotional Funds......... 28
(c) Operating Expenses............................................. 28
(d) Property Taxes................................................. 29
(e) Capital Expenditures and Accounts Payable...................... 29
(f) Debt Service Payments, Payroll Expenses and Insurance Premiums
and Costs Not to be Prorated................................... 29
(g) Other Items.................................................... 29
(h) Procedures and Adjustments..................................... 29
(i) Post-Closing Reconciliation.................................... 30
(j) Safe Deposit Boxes............................................. 30
(k) Accrued Employee Benefits...................................... 30
13. CLOSING.............................................................. 30
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Page No.
14. CLOSING COSTS........................................................ 31
15. LOSS BY FIRE, OTHER CASUALTY OR CONDEMNATION......................... 31
(a) Destruction or Damage.......................................... 31
(b) Condemnation................................................... 31
(c) Notice......................................................... 32
16. CERTAIN DEFAULTS..................................................... 32
(a) Specific Performance by Seller................................. 32
(b) Liquidated Damages on BHI Default.............................. 32
(c) No Waiver...................................................... 33
17. INDEMNIFICATIONS..................................................... 33
(a) Indemnification by Seller...................................... 33
(b) Indemnification by the LLC and BHI............................. 34
18. NO BROKER............................................................ 34
19. MISCELLANEOUS........................................................ 35
(a) Entire Agreement............................................... 35
(b) Counterparts................................................... 35
(c) Time of the Essence............................................ 35
(d) Notices........................................................ 35
(e) No Other Representations....................................... 36
(f) Saving Clause.................................................. 36
(g) Standard of Interpretation..................................... 36
(h) Governing Law.................................................. 37
(i) Attorneys' Fees................................................ 37
(j) Binding Agreement; Assignment.................................. 37
(k) Exhibits....................................................... 37
(l) No Recording................................................... 38
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Redemption Agreement
1. IDENTIFICATION OF THE PARTIES AND SUMMARY OF THE TRANSACTION.
THIS REDEMPTION AGREEMENT (this "Agreement) is made this 22nd day of
July, 1997, by and among J. Edward Connelly Associates, Inc., a Pennsylvania
corporation ("Seller"), President Broadwater Hotel, L.L.C., a Mississippi
limited liability company (the "LLC"), and Broadwater Hotel, Inc., a
Mississippi corporation ("BHI").
Summary of the Transaction
(a) The LLC has issued to Seller, and Seller is the sole record and
beneficial owner of, the entire issued and outstanding ownership interest in
the LLC (the "LLC Interest").
(b) In exchange for the issuance of the LLC Interest, Seller has agreed
to make a capital contribution to the LLC in the form of the assets described
in Section 2 of this Agreement.
(c) BHI desires to purchase, and the LLC desires to issue to BHI, the
Class A Unit (the "Class A Unit") as described in the Amended and Restated
Limited Liability Company Operating Agreement of the LLC attached hereto as
Exhibit M (the "Amended Operating Agreement") in exchange for the making of a
capital contribution by BHI to the LLC in the amount described in paragraph 3
of this Agreement.
(d) The LLC desires to redeem, and Seller desires that the LLC redeem,
the LLC Interest in exchange for the payment by the LLC to Seller of the
purchase price described in Section 3 of this Agreement and the issuance to
Seller of the Class B Unit (the "Class B Unit") as described in the Amended
Operating Agreement.
(e) Seller, BHI and the LLC desire that the transactions contemplated by
Section 1 of this Agreement occur on the Closing Date (as hereinafter defined)
in the order set forth above.
2. DESCRIPTION OF THE LLC'S ASSETS.
Seller represents and warrants to each of the LLC and BHI that Seller is
the sole record and beneficial owner of, and immediately following the
consummation of the transactions contemplated by this Agreement, the LLC will
be the sole record and beneficial owner of, the following property:
(a) Real Property. That certain real property located in the City of
Biloxi, Second Judicial District of Harrison County, State of Mississippi,
comprised of the following (collectively, the "Land"): (i) that certain real
property containing the
<PAGE>
Broadwater Beach Hotel and described in Exhibit A-1; (ii) that certain real
property containing the Broadwater Sun Golf Course and described in Exhibit A-
2; (iii) that certain real property known as the Beauvoir Parcel and described
in Exhibit A-3; (iv) that certain real property containing the Broadwater
Beach Marina and described in Exhibit A-4; (v) that certain real property
containing the Broadwater Tower and described in Exhibit A-5; (vi) that
certain real property situated south of the north right-of-way of U.S. Highway
90 and described in Exhibit A-6; (vii) that certain easement over the northern
portion of Southern Memorial Park and described in Exhibit A-7; and (viii)
that certain easement over the southern portion of Southern Memorial Park and
described in Exhibit A-8.
(b) Improvements. All buildings, structures, fixtures and other
improvements located on the Land (the "Improvements"), including the
Improvements commonly known as the "Broadwater Beach Hotel and Resort",
"Broadwater Tower", "Broadwater Beach Hotel and Resort Marina", and "Sun Golf
Course";
(c) Lease Interests. All of Seller's interest as lessor in all leases
covering the Land and Improvements, including that certain Restated Lease
Agreement between BH Acquisition Corporation and President Riverboat Casino-
Mississippi, Inc. effective July 15, 1992 (said lease, together with any and
all amendments, modifications, extensions, or supplements is hereinafter
referred to as the "Marina Lease") which leases, together with any and all
amendments, modifications, extensions or supplements thereto, are hereinafter
referred to collectively as the "Seller Lessor Leases" and are identified in
the Rent Roll (hereinafter defined) attached hereto as Schedule 5(b);
provided, however, Seller Lessor Leases shall not include (but the Property
shall include) leases to boat slip holders, which leases are terminable on no
more than thirty (30) days' notice, and are currently in effect on a month to
month basis;
(d) Rights and Privileges. All rights, privileges, easements and
appurtenances to the Land or the Improvements, including all mineral and
riparian and littoral water rights and all easements, rights-of-way and other
appurtenances (including any and all easements over, and any option to
purchase, the cemetery land adjacent to the Land and any of Seller's right,
title and interest in and to any crossing agreement over the railroad tracks
separating the Sun Golf Course from the Broadwater Beach Hotel and Resort)
used or connected with the beneficial use or enjoyment of the Land and the
Improvements (collectively, the "Appurtenances");
(e) Lessee Interests. All of Seller's interest as lessee under the
Public Tideland Lease dated September 6, 1992, by and between BH Acquisition
Corporation and the State of Mississippi (said lease, together with any and
all
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<PAGE>
amendments, modifications, extensions or supplements thereto, is hereinafter
referred to collectively as the "Public Tideland Lease"), all of BH
Acquisition Corporation's interest as lessee under the Fastlands Lease dated
December 31, 1996, by and between BH Acquisition Corporation and the State of
Mississippi (said lease, together with any and all amendments, modifications,
extensions or supplements thereto, is hereinafter referred to collectively as
the "Fastlands Lease"), and all of Seller's interest as lessee under that
certain lease dated May 24, 1995, by and between BH Acquisition Corporation
and the Mississippi Division of the United Sons of Confederate Veterans, a
Mississippi corporation (said lease, together with any and all amendments,
modifications, extensions or supplements thereto, is hereinafter referred to
collectively as the "Beauvoir Lease"), and all of Seller's interest as a party
to any and all billboard or signage leases, licenses, occupancy agreements, or
other agreements relating to advertising rights, no matter where located (said
lease, licenses and agreements, together with any and all amendments,
modifications, extensions or supplements thereto, are hereinafter referred to
collectively as the "Advertising Leases and Agreements") (the Public Tideland
Lease, the Fastlands Lease, the Beauvoir Lease, and the Advertising Leases and
Agreements are hereinafter referred to collectively as the "Seller Lessee
Leases" and are identified on Exhibit B attached hereto; and the Land, the
Improvements, the Appurtenances, Seller's interest under the Seller Lessor
Leases, and Seller's interest as lessee under the Seller Lessee Leases are
sometimes collectively hereinafter referred to as the "Real Property");
(f) Tangible Personal Property. All tangible personal property,
equipment, furniture and supplies (collectively, the "Tangible Personal
Property") owned by Seller and used in the operation of the Real Property,
including all inventories of liquor, food, linen, china, glassware, silverware
and other operating equipment, equipment and other leases of personally,
billboards, work in process, computer equipment, software, computer data,
furniture, sales and customer records (including customer and guest lists and
credit histories), including the personal property inventoried on Schedule
4(c)(vii);
(g) Intangibles. All intangible property owned by Seller and used or
useful in connection with the foregoing, including all of Seller's goodwill
and all right, title and interest in and to any and all trademarks, trade
names (including the right of Seller to use the names "Broadwater Beach Hotel
and Resort", "Broadwater Tower", "Broadwater Beach Hotel and Resort Marina",
and "Sun Golf Course"; Seller agrees to change the name "Broadwater Inn" in
connection with its operation of that property not less than thirty (30) days
after Closing), contract rights, guarantees, licenses, approvals,
certificates, permits and warranties, including all of Seller's right, title
and interest in and to any Army Corps of Engineers, U.S. Coast Guard and
Mississippi Department of Maritime Resources permits and approvals and other
federal, state and local approvals and permits, to the extent transferable,
and telephone exchanges, relating to the Property, including the items
specifically described in Schedule 4(c)(viii) attached hereto (the "Intangible
Personal Property"). (The Real Property, the Improvements, the Tangible
Personal Property, and the Intangible Personal Property are sometimes
collectively hereinafter referred to as the "Property").
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Notwithstanding anything to the contrary contained in this Agreement the
Property of Seller to be transferred to the LLC does not and shall not include
the following: (i) that certain real property commonly known as the
"Broadwater Inn", including all appurtenances, improvements, and tangible and
intangible assets used solely in connection with Seller's ownership and
operation thereof; (ii) all cash on hand or in any bank or other accounts
(other than any Tenant security deposits required to be paid over or credited
to the LLC hereunder), and all accounts receivable of Seller, but solely to
the extent the same accrued during the period prior to or on the Closing Date;
(iii) any tax credits or attributes, including any tax refunds accruing to the
owner of the Property for the period prior to and including the Closing Date;
(iv) any insurance prepayments or refunds due and payable to Seller; (v) the
corporate minute book, stock records or other records pertaining to the
corporate existence of Seller; or (vi) any assets or property of Seller not
located in the State of Mississippi or not utilized in connection with the
ownership and operation of the real properties and improvements known as the
Broadwater Beach Hotel and Resort, Broadwater Tower, Broadwater Beach Hotel
and Resort Marina, and the Sun Golf Course. Seller shall have the right to
use the telephone switch for the Broadwater Beach Hotel and Resort and
Broadwater Tower for up to thirty (30) days following the Closing (provided
that Seller shall cause the LLC to be reimbursed for the use of such switch).
3. REDEMPTION OF THE LLC INTEREST AND ISSUANCE OF CLASS A UNIT.
(a) Redemption of the LLC Interest.
(i) Redemption. In consideration of the mutual undertakings of the
parties set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound, the LLC hereby agrees to redeem from Seller on the Closing Date
(subject to the terms and conditions hereinafter set forth) all of Seller's
right, title and interest in and to the LLC Interest.
(ii) Purchase Price. The purchase price for the LLC Interest is
Forty Million Five Hundred Thousand and no/100 Dollars ($40,500,000.00) (the
"Purchase Price"), subject to the terms and conditions set forth in this
Agreement. At Closing, the LLC shall deliver to Seller the sum of Thirty
Million Five Hundred Thousand and no/100 Dollars ($30,500,000.00) (plus or
minus the prorations and adjustments referenced in this Agreement) in cash or
certified funds; provided, that (A) $250,000 of said amount may be withheld by
the LLC's lender until Seller delivers a non-disturbance agreement from lessor
of the Beauvoir Lease, and (B) $400,000 of said amount may be withheld by the
LLC for the repairs, modifications or improvements to the hotel and restaurant
portions of the Property identified by the City of Biloxi officials during the
inspection of the Property on April 23, 1997 and any subsequent follow-up
inspections on or prior to the Closing Date for the purpose of the LLC
obtaining new permits for the Property. The LLC shall promptly deliver to
Seller any amount withheld less any sums expended to perform such repairs,
modifications and improvements if all work contemplated has been completed and
excess funds remain. The LLC shall use its best efforts (which shall not be
deemed to include the payment of money) to
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help Seller to obtain such non-disturbance agreement. Seller shall use
$2,000,000 of said amount to pay off those two certain promissory notes dated
February 15, 1996 made by Seller to PRC Management, Inc., each in the
principal amount of $1,000,000 (the "PRC Notes"). The balance of the Purchase
Price (being the sum of Ten Million and no/100 Dollars ($10,000,000.00) shall
be in the form of a member interest in the LLC in accordance with the terms of
Section 3(a)(vi) of this Agreement (the "Seller Interest"). In addition to the
cash portion of the Purchase Price as described above, the LLC shall assume,
pay and discharge when due Seller's obligations occurring after the Closing
with respect to the contracts relating to the Property that are listed on
Schedule 5(e) (the "Assumed Contracts").
(iii) Escrow Deposit. Concurrently with the signing hereof, BHI has,
unless waived by Seller, deposited in escrow (the "Escrow Deposit") with First
American Title Insurance Company ("Title Company"), Seven Hundred Fifty
Thousand and no/100 Dollars ($750,000.00) as BHI's earnest money deposit
hereunder by cashier's check or wire transfer of immediately available funds.
The Escrow Deposit will be held by Title Company in short-term and liquid
interest bearing Obligations of the United States Government or in an interest
bearing savings account or money market account with a financial institution
approved by the parties. If the redemption of the LLC Interest is consummated
as contemplated hereunder, the Escrow Deposit and accrued interest will be
paid to Seller and credited to the LLC on account of the Purchase Price. If
the redemption of the LLC Interest is not consummated because of (i) the
failure of any of the LLC and BHI's Conditions Precedent or any of the
Seller's Conditions Precedent (as defined in Section below), which failure is
not caused by the LLC's breach of this Agreement, (ii) the LLC's election
under Section hereof, the Escrow Deposit and accrued interest will be
immediately refunded to BHI upon BHI's written request to Title Company. If
the purchase and sale of the LLC Interest is not consummated for any other
reason (except for breach of this Agreement by Seller), the Escrow Deposit and
accrued interest shall be paid to and retained by Seller. Seller, BHI and the
LLC agree to execute such customary escrow agreement, consistent with this
paragraph, as may be reasonably required by Title Company in order to accept
the Escrow Deposit.
(iv) Payment. The balance of the Purchase Price (subject to the
prorations and adjustments hereinafter set forth) will be paid to Seller by
cashier's check or, at the LLC's election, wire transfer of immediately
available funds on the Closing Date.
(v) Escrow Agent. Seller and the LLC acknowledge that Title
Company is acting solely as escrow holder at their request and for their
convenience, that Title Company shall not be deemed to be the agent of either
of the other parties hereto and that Title Company shall not be liable to
either of the other parties hereto for any action or omission on its part
unless taken or suffered in bad faith or in willful disregard of the
provisions of this Agreement or unless the same constitutes gross negligence
on the part of Title Company. Title Company may act upon any instrument
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or other writing and upon signatures believed by it to be genuine without any
duty of independent verification. Title Company shall not be required or
obligated to determine any questions of law or fact. All fees and charges of
Title Company for acting as such under this Agreement shall be payable fifty
percent (50%) by Seller and 50 percent (50%) by the LLC. In addition, each of
Seller and the LLC shall indemnify and hold harmless Title Company from and
against all costs, claims and expenses, including reasonable attorneys fees
and litigation costs, incurred by Title Company in connection with the
performance of its duties hereunder (including, without limitations in an
interpleader action or other litigation relating to the disposition of the
Escrow Deposit), except with respect to acts or omissions taken or suffered by
Title Company in bad faith or willful disregard of the provisions of this
Agreement or which constitute gross negligence on the part of Title Company.
(vi) Seller Interest. The Seller Interest shall be identified in
and evidenced by the Articles of Organization and/or any other agreements
setting forth the creation or operation of the LLC, which Articles of
Organization (and other documents) shall contain the following terms and
conditions:
(1) an irrevocable right of Seller, its successors and
assigns, to receive a guaranteed payment in the amount of Ten Million Dollars
($10,000,000.00) plus monthly interest payments as hereinafter described
(collectively, the "Guaranteed Payment"), which Guaranteed Payments shall be
preferential to the right of any other member (or the affiliate of any member
of the LLC) to receive any payments or distributions from the LLC. The
Seller's Guaranteed Payment shall be distributed to Seller by no later than
three (3) years from the Closing Date, and beginning on the first day of the
next month following the Closing Date and continuing on the first day of each
month thereafter until the third anniversary date of the Closing Date, the
Guaranteed Payment shall include a monthly payment made to Seller (as a member
of the LLC following the Closing) equal to an amount computed by multiplying
$10,000,000.00 by (A) a rate per annum equal to 400 basis points over thirty
(30) day LIBOR (but such rate per annum shall in no event ever be less than a
rate of 8.75% per annum), and (B) a fraction equal to the number of days in
the applicable month or partial month divided by the number of days in the
calendar year of which that month is a part. The Seller's receipt at any time
of the Guaranteed Payment shall effect a complete liquidation of the Seller's
interest in the LLC.
(2) in the event that the Property, or any part thereof or
any interest therein is sold, conveyed, disposed of, alienated, hypothecated,
leased (except leases in the ordinary course of business), assigned, pledged,
mortgaged, further encumbered or otherwise transferred or the LLC shall be
divested of its title to the Property or any interest therein, in any manner
or way, whether voluntary or involuntary, then the LLC shall immediately
distribute any net proceeds of such transaction remaining after the full
payment by the LLC of all amounts due and owing to Lehman Brothers Holdings,
Inc., its successors or assigns, to Seller as payment towards the Guaranteed
Payment;
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(3) for the period commencing on the Closing Date and
continuing through the third anniversary of the Closing Date, no member or
affiliate of a member of the LLC (other than Seller, its successors or
assigns) may receive a management fee, consulting fee, or other fee or payment
from the LLC (except payments for salaries and wages related to employees of
The President Riverboat Casino-Mississippi, Inc. who are involved in managing
the Property) unless the LLC has timely paid to Seller (A) the monthly payment
requirement of the Guaranteed Payment due and owing to Seller as set forth in
Section 3(a)(vi)(1) hereinabove, and (B) the remaining net proceeds of any
transaction as described in Section 3(a)(vi)(2) hereinabove. For the period
commencing on the third anniversary of the Closing Date, no member or any
affiliate of a member of the LLC (other than Seller, its successors or
assigns) may receive a management fee, consulting fee, or other fee or payment
from the LLC (except payments for salaries and wages related to employees of
The President Riverboat Casino-Mississippi, Inc. who are involved in managing
the Property) unless the LLC has timely paid to Seller the entire Guaranteed
Payment; and
The articles of organization and/or any other agreements setting
forth the creation or operation of the LLC shall also contain a provision
stating that the terms and conditions as set forth in Sections 3(a)(vi)(1),
(2) and (3) above may not be modified or amended without the prior written
consent of Seller.
Seller, BHI and the LLC agree that the Class B Unit as described in
the Amended Operating Agreement satisfies all of the requirements of this
Section 3(a)(vi) with respect to the Seller Interest. Seller agrees to accept
the Class B Unit on the Closing Date in satisfaction of the LLC's obligation
to deliver the Seller Interest.
The LLC shall not enter into any contract or agreement with any
member, principal or affiliate of the LLC except upon terms and conditions
that are intrinsically fair and substantially similar to those that would be
available on an arm's length basis with third parties other than an affiliate.
The LLC specifically agrees that the room rate charged (in any hotel on the
Property) to customers of the casino operated, leased, managed, or directly or
indirectly owned by the LLC's affiliate, The President Riverboat Casino-
Mississippi, Inc., its successors or assigns, on a portion of the Property
shall not be lower than $35.00 per night.
(b) Issuance of the Class A Unit.
(i) Issuance. In consideration of the mutual undertakings of the
parties set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound, the LLC hereby agrees to issue the Class A Unit to BHI on the
Closing Date (subject to the terms and conditions hereinafter set forth).
(ii) Contribution. In exchange for the Class A Unit, BHI shall make
a capital contribution to the LLC in the amount of Five Million Dollars
($5,000,000.00)
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(the "Capital Contribution"), to be delivered to the LLC on the Closing Date
in immediately available funds.
4. INVESTIGATIONS.
(a) Investigations. BHI acknowledges that it has inspected the Property
and that the Property is being acquired by the LLC in its "as is" condition
and will not be modified or improved by the Seller prior to Closing, subject
to Seller's representations and as herein contained. Nevertheless, BHI wishes
to have continued access to the Property from the date hereof through the
Closing Date. BHI shall be permitted to conduct further investigations of the
Property in accordance with this Section . Such investigation may include: a
physical inspection of the Property, including soil, geological and other
tests, engineering evaluations of the mechanical, electrical, HVAC and other
systems in the Improvements and review of the Plans (as hereinafter defined);
review of all governmental matters affecting the Property, including zoning,
environmental and building permit and occupancy matters; review and
verification of all financial and other information provided by Seller
relating to the operation of the Property, review of the condition of title to
the Property; review of the Seller Lessor Leases and Seller Lessee Leases; and
review of such other matters pertaining to an investment in the Property as
BHI deems advisable. Seller shall provide BHI with all information reasonably
requested pursuant to BHI's investigations within a reasonable period of time
(taking into account the nature and scope of the request) following BHI's
request.
(b) Access to Information and the Property. At any reasonable time
prior to the Closing Date and with prior notification to Seller, BHI, its
agents and representatives shall be entitled: (i) to enter onto the Property
to perform inspections and tests of the Property, including all leased areas
(subject to the rights of the Tenants (as hereinafter defined) and structural
and mechanical systems within the Improvements, (ii) to examine and copy (but
not audit) any and all books and records, if any, maintained by Seller or its
agents relating to receipts and expenditures pertaining to the Property since
the opening of BH Acquisition Corporation's business at the Property, and
(iii) to interview the Tenants. Seller shall provide BHI with all information
in Seller's possession or control that is reasonably requested by BHI within a
reasonable period of time after BHI's request (taking into account the nature
and scope of the request). BHI agrees to indemnify, defend (with counsel
reasonably acceptable to Seller) and hold harmless Seller from and against all
claims, demands, liabilities and damages arising or resulting from BHI's
investigations of the Property, provided, however, that BHI shall not be
liable to Seller for any claims, demands, liabilities or damages arising or
resulting from facts or conditions at the Property that existed prior to BHI's
investigations commenced or that were discovered by BHI during the course of
its investigations. BHI also agrees: (A) to promptly restore the Property to
its condition prior to the making of any tests and inspections, (B) to conduct
its investigations in a manner which will not disrupt Seller's business
operations at the Property, (C) not to perform any drilling or other invasive
testing at the Property
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without obtaining the prior written consent of Seller, which consent shall not
be unreasonably withheld or delayed and (D) to coordinate its investigations
with Seller, and to use BHI's reasonable efforts to provide Seller with
advance notice of any on-site investigation in order to afford Seller an
opportunity to have a representative present during such on-site
investigation. The obligations set forth in the two preceding sentences shall
survive the termination of this Agreement. BHI and its agents and contractors
shall provide Seller with evidence of liability insurance coverage (to be
reasonable in scope and amount) with respect to all site testing and other on-
site investigations to be performed on the Property prior to the Closing Date
(and all such insurance coverage shall name Seller as an additional insured).
BHI shall deliver to Seller, promptly after BHI's receipt of the same, a copy
of any and all environmental reports, preliminary title reports and
commitments, ALTA surveys, soils reports, and engineering and structural
reports respecting the Land and/or Improvements obtained by BHI from BHI's
contractor or contractors in the course of BHI's investigation of the
Property, as well as any and all test results obtained by BHI in connection
therewith. BHI's obligations in the preceding sentence shall survive the
termination of this Agreement.
(c) Seller's Deliveries of Documents and Information. No later than ten
(10) days following the execution hereof by all parties, unless Seller has
already delivered or furnished the same, Seller shall deliver to BHI the
following documents and information, in each case to the extent the same are
in the possession or control of Seller or any affiliate, agent or related
party of Seller (and for this purpose, President Casinos, Inc. shall not be an
agent, affiliate or related party of Seller):
(i) Copies of any and all title policies (together with
endorsements), title commitments, title reports, certificates of title, and
any documentation relating to liens, encumbrances, deeds of trust, mortgages,
judgments, rights-of-way or easements, covenants, conditions or restrictions,
other exceptions or matters of record relating to or affecting the Property
together with proper title record legal description for the Real Property.
(ii) A copy of any and all purchase agreements, deeds and other
conveyances pursuant to which Seller obtained ownership of the Property,
together with all amendments, modifications, and schedules and exhibits
attached thereto.
(iii) A copy of any and all Seller Lessor Leases and any other
agreements which are in effect thereto with the Tenants of the Property, and
all reciprocal easement agreements and similar agreements which are in effect
with respect to the Tenants and any other interested party, all as amended or
otherwise modified.
(iv) A copy of all Seller Lessee Leases, as amended or otherwise
modified.
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(v) Copies of all certificate(s) of occupancy, zoning variances,
licenses, permits, authorizations and approvals relating to the Property from
governmental authorities having jurisdiction over the Property, including any
Army Corps of Engineers, Mississippi Department of Maritime Resources, and
U.S. Coast Guard permits and approvals (the "Governmental Approvals"),
together with copies of any other material notices and agreements in Seller's
possession relating thereto.
(vi) Copies of any and all environmental permits, notices, demands,
action letters, reports, assessments, audits, directives from any federal,
state or local agency, documentation of remedial procedures, or other
documentation relating to environmental matters relating to or affecting the
Property or any adjoining properties including, but not limited to, the
identification, to the best of Seller's knowledge, of which portion of the
Property has ever been or is now being used for the generation, manufacture,
storage, treatment disposal release or threatened release of any hazardous
substance, as that term is defined by CERCLA and Mississippi state law
descriptions, to the best of Seller's knowledge, of all waste disposal sites
on the Property; identification, to the best of Seller's knowledge, of the
locations of underground tanks and lines on the Property, whether in use or
abandoned, with a history of any spillage or leakage; a description, to the
best of Seller's knowledge, of waste storage, treatment and disposal practices
of wastes generated by the Property; a summary of all environmental testing
done at the Property together with written reports concerning such testing or
environmental matters affecting the Property (including all available Phase I,
Phase II, and soils reports relating to the Property) and any written
estimates about future expenditures for environmental programs relating
thereto; identification, to the best of Seller's knowledge, of all records
regarding compliance history with environmental permits including air, water,
underground storage, maritime, waste and sewer permits under federal, state,
and local rules and regulations; identification, to the best of Seller's
knowledge, of known events of noncompliance with permits and other
environmental regulation, and disclosure, to the best of Seller's knowledge,
of any anticipated changes in permit compliance levels; and any other reports
on the environmental condition of the Property.
(vii) A complete and full inventory of the Tangible Personal Property
(including furniture, fixtures and equipment; but excluding consumables),
containing descriptions of principal items or classes of equipment, and all
liens and encumbrances applicable to each item, attached hereto as Schedule
4(c)(vii).
(viii) A complete list and brief description of the Intangible
Personal Property, including any trademarks, service marks, trade names,
fictitious business names, brands, copyrights and other similar proprietary
rights issued, to, licensed by, owned by, or used by Seller or affiliates of
Seller in the ownership and operation of the Property, and all licenses,
leases, and transfers of trademarks, trade names, copyrights, and other
proprietary rights to which Seller is a party (whether granting the right or
receiving it), attached hereto as Schedule 4(c)(viii); also, any and all
customer lists, contact lists, and sales records (including guest history).
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(ix) Copies of any and all insurance policies, insurance, insurance
claim documentation and related documentation relating to the Property or
relating to the operation thereof (the "Existing Insurance Policies"),
including, but not limited to, general liability insurance, fire and extended
coverage insurance, business interruption insurance, earthquake insurance,
hurricane and flood insurance and worker's compensation insurance.
(x) A copy of the bill or bills issued for the most recent year for
which bills have been issued for all real estate taxes (including assessed
value) and personal property taxes and a copy of any and all notices
pertaining to real estate taxes or assessment applicable to the Property (the
"Tax Bills"). Seller shall promptly deliver to BHI a copy of any such bills
or notices received by Seller after the date hereof even if received after the
Closing. A complete schedule setting forth when personal and property tax
payments were made and the date on which such payments are due and payable
each year, and a schedule describing any ongoing tax disputes, together with
copies of all revenue agents' reports and correspondence with respect to any
pending federal, state, provincial or similar tax proceedings for any open
years.
(xi) Copies of all UCC filings and security agreements pertaining to
the Property.
(xii) Copies of all documents, permits, licenses, searches and
reports under maritime law issued to Seller and relating to the Property or
operation thereof.
(xiii) A listing of any and all threatened legal actions or pending
lawsuits, whether on appeal or not, against Seller or affecting the Property
(to the best of Seller's knowledge), with evidence of insurance coverage
relating to the same and copies of all non-privileged documents relating
thereto.
(xiv) Copies of original "as built" plans and specifications of the
Improvements and any other plans and specifications relating to the Property
(collectively, the "Plans").
(xv) A copy of all outstanding management, operating, maintenance,
repair, service, pest control and supply contracts (including janitorial,
elevator, scavenger and landscaping agreements), equipment rental agreements,
all contracts for repair or capital replacement to be performed at the
Property, and any other contracts relating to or affecting the Property (other
than Seller Lessor Leases and Seller Lessee Leases), all as amended
(collectively, the "Contracts"), which form a part of the Assumed Contracts.
(xvi) A copy of all guarantees and warranties relating to the
Property.
(xvii) A complete copy of all surveys, reports or recommendations
prepared by or for Seller, or in Seller's possession or control, which relate
to the
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Property's compliance with Title III of the Americans With Disabilities Act
and the regulations promulgated thereunder.
(xviii) Any other documents and information reasonably requested by BHI
relating to the Property.
(xix) To the extent available, a schedule of the adjusted tax bases
for Federal income tax purposes, of the Property, broken into reasonable and
customary components.
(d) Title and Survey Matters.
(i) BHI shall be responsible for obtaining from Title Company a
preliminary title report or commitment on the Real Property (the "PTR")
prepared by Title Company, together with any other title documents required by
BHI.
(ii) BHI shall be responsible for obtaining a survey of the Real
Property (the "Survey").
(iii) The title exceptions listed on Schedule 4(d) hereto shall
constitute "Permitted Encumbrances" hereunder. Notwithstanding the foregoing,
the following shall not constitute Permitted Encumbrances and instead shall
constitute "Disapproved Matters" hereunder: (A) any and all mortgages, deeds
of trust, and other monetary encumbrances, (B) any and all UCC security
interests and financing statements (other than with respect to an Assumed
Contract), and (C) any and all judgments, judgment liens and lis pendens.
Seller hereby agrees that all Disapproved Matters shall be removed of record
and deleted from the LLC's title insurance policy that it is to receive on the
Closing Date, at Seller's sole cost and expense, prior to or concurrently with
the Closing. In addition, Seller shall be obligated to remove or cure, or
cause to be cured, prior to or at Closing, any title or survey matters
affecting the Property which are caused or created by Seller after the date
hereof unless such matters are otherwise approved by BHI in its sole and
absolute discretion.
5. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to BHI that the following matters are true
and correct as of the date of the mutual execution and delivery of this
Agreement:
(a) Correct and Complete Copies. To the best of Seller's knowledge, the
Plans, certificates of occupancy, certificate of completion warranties,
operating statements, actual income and expense reports, and all other
contracts or documents required to be delivered to the LLC or BHI pursuant to
this Agreement are, or will be once delivered, true, correct and complete
copies. To the best of Seller's knowledge, Seller has (or, within the time
described in Section 4(C), will have) delivered to BHI or the LLC all
documents, reports and other materials described in Section 4(c) above.
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To the best of Seller's knowledge, the Governmental Approvals are in full
force and effect.
(b) Rent Roll. The rent roll attached hereto as Schedule 5(b) (the
"Rent Roll") is true, correct and complete and, as of the Closing, the updated
Rent Roll delivered at the Closing will be true, correct and complete. Such
Rent Roll describes all of the Seller Lessor Leases, and will describe all of
the Seller Lessor Leases at Closing. The Rent Roll sets forth in respect of
each Tenant space: the number identifying such space, the name of the Tenant
that to the best of Seller's knowledge is occupying such space, the number of
square foot comprising such space, the current base monthly rental payable
under the Seller Lessor Lease for such space and other charges payable by such
Tenant (including charges for real estate taxes, operating expenses and
similar items), the amount of the security deposit required under such Seller
Lessor Lease, the amount of the security deposit received from such Tenant,
less amounts previously applied or resumed to such Tenant, whether such Tenant
is entitled to any assigned storage spaces or any assigned parking spaces, the
commencement and expiration dates of the term of such Seller Lessor Lease,
whether such Tenant is entitled to any option to renew or lease additional
space, incentives, concessions, abatements, allowances, whether any rents or
other charges are in arrears or prepared and the period to which such
arrearages or prepayments relate and the date of such Seller Lessor Lease and
all amendments thereof. The copies of the Seller Lessor Leases and other
agreements with the tenants, licensees or other occupants under the Seller
Lessor Leases (the "Tenants") delivered to BHI are true, correct and complete
copies, and there are no other leases or occupancy agreements affecting the
Property. Seller further represents and warrants as follows with respect to
each of the Seller Lessor Leases: (i) the Seller Lessor Lease is valid and in
full force and effect, and enforceable in accordance with its terms, (ii) the
Seller Lessor Lease constitutes the entire agreement with such Tenant relating
to the Property, and has not been amended, modified or supplemented (in
writing or otherwise), except for such amendments, modifications and
supplements delivered to BHI, (iii) to the best of Seller's knowledge, the
Tenant under such Seller Lessor Lease is in possession of all of the property
leased to it under the Seller Lessor Lease, (iv) the Tenant has no right of
first refusal or option to purchase all or any portion of the Property
pursuant to the Seller Lessor Lease, except as set forth on Schedule 5(b), (v)
to the best of Seller's knowledge, there has been no material default or event
which, with the giving of notice or the passage of time, or both, would
constitute a material default by Seller or by the Tenant, and the Tenant has
not asserted any defense to, or offset or claim against its rent or the
performance of its other obligations under the Seller Lessor Lease except as
expressly provided by the terms of such Seller Lessor Leases or as set forth
on Schedule 5(b), and (vi) Seller has the full right to assign said Seller
Lessor Lease to the LLC.
(c) Lessee Leases True and Correct. The copies of the Seller Lessee
Leases delivered to BHI are true, correct and complete copies. To the best of
Seller's knowledge, the Seller Lessee Leases are in full force and effect,
without material
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default by any party and without any claim made for the right of setoff,
except as expressly provided by the terms of such Seller Lessee Leases or as
disclosed to BHI in writing at the time of such delivery. The Seller Lessee
Leases constitute the entire agreements between Seller and the lessors under
such Seller Lessee Leases, have not been amended, modified or supplemented,
except for such amendments, modifications and supplements delivered to BHI,
and Seller has no other interest as lessee under any other lease used in
connection with the operation of the Property.
(d) No Leasing Commissions. Upon the Closing there will be no brokerage
or leasing fees or commissions or other compensation due or payable on an
absolute or contingent basis to any person, firm, corporation, or other
entity, with respect to or on account of any of the Seller Lessor Leases and
no such fees, commissions or other compensation shall, by reason of any
existing agreement, become due during the terms of any of the Seller Lessor
Leases or with respect to any renewal or extension thereof or the leasing of
additional space by any Tenant.
(e) Assumed Contracts True and Correct. True, complete and correct
copies of the Assumed Contracts listed on Schedule 5(e) will be delivered to
BHI prior to Closing. To the best of Seller's knowledge, the Assumed
Contracts are in full force and effect, without default by any party and
without any claims made for the right of setoff, except as expressly provided
by the terms of such Assumed Contracts or as disclosed to BHI in writing at
the time of such delivery. The Assumed Contracts constitute the entire
agreements with such contractors relating to the Property, have not been
amended, modified or supplemented, except for such amendments, modifications
and supplements delivered to BHI, and there are no other agreements with any
third parties (excluding, however, the Leases and Permitted Encumbrances)
which will give rise to a lien or any title exception against or affecting the
Property that will survive the Closing.
(f) No Land Related Proceedings. Except as set forth on Schedule 5(f),
to the best of Seller's knowledge (i) there are no condemnation,
environmental, zoning or other land-use regulation proceedings either
instituted or planned to be instituted, which would materially and
detrimentally affect the value of the Property, except for the City of Biloxi
notice of January 28, 1997, affecting a fifty foot (50') to one hundred sixty
square foot (160') right-of-way taking for a fall drainage system project at
Parcel D, McDonnell Avenue, copy attached hereto (as to which the LLC shall
have all rights to compensation), and (ii) there are no assessments affecting
the Property other than as set forth in the preliminary title report.
(g) Adequate Utilities. To the best of Seller's knowledge, all water,
sewer, gas, electric, telephone, and drainage facilities and all other
utilities required by law for the present use and operation of the Property
are installed to the boundary lines of the Real Property pursuant to valid
easements or other rights, and are connected pursuant to valid permits, and
Seller has received no notice from Tenants that such facilities are inadequate
to service the Property.
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(h) Permits. To the best of Seller's knowledge, Seller possesses or has
obtained all material licenses, permits, certificates approvals, easements,
and rights-of-way, and proof of dedication, required from any and all
governmental authorities having jurisdiction over the Property or from private
parties for the present use and operation of the Property by Seller, to assure
the provision of legally required parking on the Property and to assure
vehicular and pedestrian ingress to and egress from the Property at all access
points currently being used.
(i) Good Standing; Binding Documents. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the state
of its incorporation, duly qualified to do business in Mississippi, is not
insolvent, and is the successor to all of the assets and liabilities of BH
Acquisition Corporation. The LLC is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State
of Mississippi and is not insolvent. Other than the trade names identified in
Section 2(g) of this Agreement, BH Acquisition Corporation has not used any
other corporate name for the past five (5) years. This Agreement has been,
and all the documents executed by Seller or the LLC which are to be delivered
to the LLC or BHI at the Closing will be, duly authorized, executed, and
delivered by Seller or the LLC, are, and in the case of the documents to be
delivered will be, legal, valid and binding obligations of Seller or the LLC
enforceable against Seller or the LLC accordance with their respective terms
(except to the extent that such endorsement may be limited by applicable
bankruptcy, insolvency, moratorium and other principles relating to or
limiting the right of contracting parties generally), will be sufficient to
convey title (if they purport to do so), and do not, and in the case of the
documents to be delivered will not, violate any provisions of any agreement to
which Seller or the LLC is a party or to which it is subject.
(j) No Construction Contracts. At the Closing, there will be no
outstanding contracts made by Seller for the construction or repair of any
Improvements to the Property which have not been fully paid for and Seller
shall cause to be discharged all mechanics' or materialmen's liens arising
from any labor or materials furnished to the Property prior to the Closing
Date.
(k) Hazardous Materials. Except as disclosed to BHI in the written
reports and audits furnished to, or contracted or performed for or by, BHI,
and without independent investigation by Seller, and subject to the third
sentence of this paragraph, Seller has no actual knowledge that Seller uses,
treats, stores or disposes of, whether temporarily or permanently, any
Hazardous Materials (as hereinafter defined) at, on or beneath the Property.
The foregoing representation is made only with respect to Seller's actions.
Except (i) as disclosed to BHI in the written reports and audits furnished to,
or contracted or performed for or by, BHI, and without independent
investigation by Seller, and (ii) for quantities used by Seller or Tenants in
the normal course of their businesses and that do not violate any
Environmental Law (as defined below), and to Seller's current actual
knowledge, there is no presence, use, treatment, storage, release or disposal
of any Hazardous Materials at, on or beneath
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the Property which has created or might create any liability of owners or
occupants of the Property, under any federal, state or local law or regulation
or which would require reporting to a governmental agency. For the purpose of
this Agreement, the term "Hazardous Materials" shall mean (i) any chemical
compound, material mixture or substance that is defined or listed in, or
otherwise classified pursuant to, any Environmental Law as a "hazardous
substance", "hazardous material", "hazardous waste", "extremely hazardous
waste", "acutely hazardous waste", "radioactive waste", "infectious waste",
"biohazardous waste", "toxic substance", "pollutant", "toxic pollutant",
"contaminant" as well as any formulation not mentioned herein intended to
define, list, or classify substances by reason of deleterious properties such
as ignitability, corrosivity, reactivity, carcinogenicity, toxicity,
reproductive toxicity, "EP toxicity", or "TCLP toxicity", (ii) petroleum,
natural gas, natural gas liquids, liquefied natural gas, synthetic gas usable
for fuel (or mixtures of natural gas and such synthetic gas) and ash produced
by a resource recovery facility utilizing a municipal solid waste stream, and
drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas, or
geothermal resources, (iii) asbestos in any form, (iv) urea formaldehyde foam
insulation, (v) transformers or other equipment which contain dielectric fluid
containing levels of polychlorinated biphenyls (PCBs) in excess of fifty (50)
parts per million, (vi) radon, and (vii) any other chemical, material or
substance that, because of its quantity, concentration, or physical or
chemical characteristics, exposure to which is limited or regulated for health
and safety reasons by any governmental authority, or exposure to which poses a
significant present or potential hazard to human health and safety or to the
environment if released into the workplace or the environment. The term
"Environmental Law" shall mean any and, all present federal, state and local
laws (whether under common law, statute, rule, regulation or otherwise),
permits, and other requirements of governmental authorities relating to the
environment or to any Hazardous Material (including CERCLA and the applicable
provisions of Mississippi laws and regulations).
(l) Insurance Matters. Seller has received no written notice from any
insurance carrier or any of the Tenants of any defects or inadequacies in the
Property, or in any portion thereof, which would materially and adversely
affect the insurability thereof or the cost of such insurance. Except as set
forth on Schedule 5(l), to the best of Seller's knowledge, there are no
pending insurance claims.
(m) Legal Proceedings. Except as set forth in Schedule 5(m), there are
no pending or, to the best of Seller's knowledge, threatened legal proceedings
or actions of any kind or character affecting the Property or Seller's
interest therein, or arising out of the ownership, management or operation of
the Property, this Agreement or the transactions contemplated hereby. Except
as delivered to BHI, there are no litigation documents relating to any of the
matters set forth in Schedule 5(m).
(n) Not a Foreign Person. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"),
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and Seller will furnish to the LLC, prior to the Closing, an affidavit in the
form attached hereto as Exhibit C.
(o) No Merger. None of the representations or warranties made in this
Agreement shall merge into any instrument or conveyance delivered at Closing,
and all such representations and warranties shall survive the Closing Date for
the period described below. Notwithstanding the foregoing, any cause of
action of BHI, any additional indemnified parties hereunder with respect to
BHI, or any of their respective successors or assigns against Seller by reason
of any breach by Seller of any of its representations and warranties made in
this Agreement shall continue until, but shall lapse as of, the date which is
two (2) years after the Closing Date.
(p) Capitalization. Seller is, and immediately prior to the Closing
Date, Seller will be, the sole record and beneficial owner of the LLC
Interest, and such ownership interest is duly and validly issued, fully paid
and nonassessable.
(q) Property Held in As Is Condition. Except as expressly provided in
this Agreement, the Property shall be conveyed to the LLC in AS IS, WHERE IS,
WITH ALL FAULTS condition and without warranties, express or implied,
including warranties of merchantability and fitness for a particular purpose
(except for the representations and warranties set forth in this Agreement).
(r) Title to the LLC Interest, Class A Unit. On the Closing Date,
Seller will own, beneficially and of record, the LLC Interest, free and clear
of any liens, encumbrances or claims whatsoever. Immediately following the
consummation of the transactions contemplated by this Agreement, BHI will be
the sole record and beneficial owner of the Class A Unit, free and clear of
any liens, encumbrances or claims whatsoever, and such Class A Unit, upon the
making of the Capital Contribution, will be validly issued, fully paid and
nonassessable.
Seller shall use all reasonable efforts to cause its representations and
warranties set forth in this Section to be true and correct on and as of the
Closing Date.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE LLC AND BHI.
The LLC and BHI represent, warrant and covenant to Seller as of the date
of the mutual execution and delivery of this Agreement, as follows:
(a) Good Standing; Binding Documents. BHI is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Mississippi, and is not insolvent. This Agreement has been, and all the
documents to be delivered by the LLC (or its assignee, as applicable) and BHI
to Seller at the Closing will be, duly authorized, executed and delivered by
the LLC (or such assignee) and BHI, are, and in the case of the documents to
be delivered will be, legal and binding obligations of the LLC (or such
assignee) and BHI enforceable in accordance with their respective terms
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(except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium and other principles relating to or
limiting rights of contracting parties generally), and do not, and in the case
of the documents to be delivered will not, violate any provisions of any
agreement to which the LLC (or such assignee) or BHI is a party or to which it
is subject. There are no pending, or to the LLC's or BHI's knowledge,
threatened legal proceedings or actions against the LLC or BHI that could
impair the LLC's or BHI's ability to perform its duties and obligations under
this Agreement or any agreement to be entered into or delivered by the LLC or
BHI in connection with this Agreement.
(b) Continued Employment. Immediately following the Closing Date, the
LLC or its nominee shall employ all but approximately thirty (30) of Seller's
employees. All costs of accrued employee benefits (sick leave, vacation
leave, health and life insurance benefits, 401(k) plans, etc., if any) for the
employees hired by the LLC shall be credited to the LLC at the time of Closing
toward payment of the Purchase Price and adjusted after Closing, if necessary,
in accordance with Section . Nothing herein contained shall prevent the LLC
from exercising its right to fire or transfer any employee after the Closing
Date. The LLC shall have no liability with respect to employees of Seller not
hired by LLC.
(c) Notification of Change. The LLC and BHI shall promptly notify
Seller of any event or circumstance which makes any representation or warranty
of the LLC or BHI to Seller under this Agreement materially untrue or
misleading or any covenant of the LLC or BHI under this Agreement incapable of
being performed.
The LLC and BHI shall use all reasonable efforts to cause its
representations and warranties set forth in this Section to be true and
correct on and as of the Closing Date.
7. CONDITIONS PRECEDENT TO CLOSING.
(a) LLC's and BHI's Conditions Precedent. The following shall be
conditions precedent to the LLC's and BHI's obligation to consummate the
transactions contemplated herein (the "LLC and BHI's Conditions Precedent"):
(i) The availability to the LLC at Closing, from a bank, savings
and loan, insurance company, investment bank or other institutional lender, of
a nonrecourse first mortgage loan, in an amount equal to not less than Thirty
Million and no/Dollars ($30,000,000.00), for a term of not less than three (3)
years, with an annual interest rate not to exceed 400 basis points over thirty
(30) day LIBOR, a rate floor of four and three quarters percent (4.75%) per
annum, and a loan fee/additional interest of Seven Million and no/Dollars
($7,000,000.00) to be paid at maturity or repayment (in the event that the
loan is repaid in its entirety within the first 18 months then such loan
fee/additional interest to be reduced to Five Million Five Hundred Thousand
and no/Dollars ($5,500,000.00)), with a credit administration and servicing
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fee not to exceed Fifteen Hundred and no/Dollars ($1,500.00) per month, and
with a lockbox arrangement to apply cash flow from the Property to prepayment
of the loan, to finance a portion of the Purchase Price of the Property. The
LLC shall use its best efforts to obtain the loan commitment and the funding
of the loan, and the LLC shall make timely application (within seven days of
the date hereof) to and thereafter timely provide all documents and
information as requested by prospective lenders. If such financing is not
available, the LLC may elect, in its sole discretion, to terminate this
Agreement by written notice given to Seller on or prior to the Closing Date,
in which event the Deposit and all interest earned thereon shall be returned
to the LLC and neither party shall have any further liability to the other.
(ii) Title Company shall be irrevocably committed to issue an ALTA
1970 Form B Owner's policy of title insurance insuring the LLC's interest in
the Real Property, dated the Closing Date, with a "Fairways" endorsement, a
non-imputation endorsement and the other endorsements set forth on Schedule
7(a)(ii), subject only to the Permitted Encumbrances (the "Title Policy");
provided, however, that if at Closing Title Company will not commit to issue
such Title Policy and the LLC and BHI shall not have waived in writing the LLC
and BHI's Condition Precedent set forth in this subsection (ii), Seller shall
be entitled to elect to extend the date for the Closing by up to a maximum of
ten (10) business days, by delivering written notice to BHI, to enable Seller
to obtain such commitment from another nationally recognized title insurance
company. In the event of any such extension by Seller, Seller shall bear all
costs and expenses incurred in connection with obtaining such alternative
commitment and alternative Title Policy to the extent the same exceed the
costs and expenses that the LLC would have incurred if Title Company had
issued such Title Policy.
(iii) Seller shall have executed and delivered to BHI a certificate
in the form attached at Exhibit D hereto ("Seller's Certificate") updating the
representations and warranties of Seller through Closing, and certifying that
Seller has complied in all material respects with its obligations under this
Agreement, which Seller's Certificate Seller covenants to deliver unless any
fact or circumstance has arisen since the date hereof and prior to the Closing
that would make any such representation, warranty or certification materially
untrue, in which case Seller shall deliver a Seller's Certificate describing
such fact or circumstance (a "Seller Defect Matter"). If the value of the
impact on the LLC or the Property of the Seller Defect Matter (the "Defect
Matter Value") is less than Two Million and no/Dollars ($2,000,000.00), then
Seller shall be entitled to elect to do one of the following by delivering
written notice to the LLC at or prior to Closing:
(1) cure such matter, so as to permit Seller to deliver a
Seller's Certificate free of any Seller Defect Matter, within fifteen (15)
days after Seller's election to proceed under this clause (1);
(2) give the LLC a credit against the Purchase Price at
Closing in an amount equal to the Defect Matter Value allocable to the Seller
Defect Matter,
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in which case such matter shall not be cured by Seller and Closing shall occur
as set forth in this Agreement, and Seller shall have no further obligation or
liability in connection with such Seller Defect Matter; or
(3) deposit an amount equal to the Defect Matter Value into
escrow pursuant to an escrow holdback agreement in form and substance
reasonably satisfactory to the LLC, BHI and Seller, in which case (A) Closing
shall occur as set forth in this Agreement, (B) Seller shall cure such Seller
Defect Matter within fifteen (15) days after Closing (provided, however, that
Seller shall continue to have an additional period in which to cure such
matter if it has commenced the cure of such matter during the initial fifteen
(15) day period and is diligently pursuing such cure); and (C) the LLC shall
provide Seller with access to the Property in order for Seller to effectuate
such cure. If Seller fails to cure such Seller Defect Matter, then the escrow
company shall disburse the amount held in escrow in the following order of
priority (i) to the LLC in an amount equal to the actual, documented and
verifiable costs incurred by the LLC to complete the cure of such matter, and
(ii) the remaining balance to the Seller, and Seller shall have no further
obligation or liability, in connection with such Seller Defect Matter. If
Seller fully cures such adverse matter or condition, then Seller shall have an
unconditional right to all amounts remaining in escrow thereafter and the LLC
shall promptly deliver a written direction to such escrow company to
immediately pay such amounts to Seller.
If the impact on the LLC or the Property of the Seller Defect Matter
is equal to or greater than Two Million and no/Dollars ($2,000,000.00), then
the LLC may elect, by delivering written notice to Seller and Title Company,
to either (i) waive such matter and consummate the transactions contemplated
hereby, in which event the LLC shall receive a credit against the Purchase
Price at Closing in an amount equal to the Defect Matter Value attributable to
such Seller Defect Matter, or (ii) terminate this Agreement and receive a
return of the Escrow Deposit and accrued interest.
Seller, BHI and the LLC shall attempt to agree upon, in good faith
and in the exercise of their respective reasonable business judgment, the
Defect Matter Value of each Seller Defect Matter, and if they are unable to
reach such agreement within fifteen (15) days after Seller's delivery of its
Seller Certificate, then either Seller or BHI shall be entitled to demand
binding arbitration of such matter, pursuant to the Rules of the American
Arbitration Association.
(iv) Seller shall have executed and delivered to BHI the Amended
Operating Agreement.
(v) No material breach or default by Seller shall have occurred
hereunder that has not been cured to BHI's reasonable satisfaction. BHI shall
provide Seller with written notice of any material breach or default by Seller
promptly upon BHI's discovering that such breach or default exists.
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(vi) No injunction or temporary restraining order which expressly
prohibits the transfer of the Property by Seller to the LLC or the issuance of
the Class A Unit to BHI shall have been issued by a court of competent
jurisdiction. Alternatively, if an injunction or temporary restraining order
expressly prohibiting the transfer of the Property by Seller to the LLC or the
issuance of the Class A Unit to BHI has been issued by a court of competent
jurisdiction, then a bond or other security as required by the court shall
have been posted or delivered by the party obtaining such injunction or
temporary restraining order. If such bond or other security has not been
posted or delivered by the party obtaining the injunction or temporary
restraining order, then the Closing shall occur in accordance with the terms
of this Agreement.
(vii) All other conditions precedent that this Agreement specifically
states must be satisfied as a condition to the LLC's and BHI's obligations
hereunder shall have either been satisfied or waived in writing by the LLC and
BHI.
Each of the LLC and BHI's Conditions Precedent may be waived in
whole or in part by BHI by written notice to Seller and at Closing, all of the
LLC and BHI's Conditions Precedent set forth herein shall either be satisfied
or so waived by BHI. Seller shall use all reasonable efforts to ensure that
the LLC and BHI's Conditions Precedent are satisfied prior to the Closing Date
contemplated hereunder, and except with respect to the LLC and BHI's Condition
Precedent set forth in Section above and as otherwise expressly provided in
this Agreement, Seller's sole obligation with respect to the satisfaction of
such LLC and BHI's Conditions Precedent shall be to use such reasonable
efforts.
(b) Seller's Conditions Precedent. The following shall be conditions
precedent to Seller's obligation to consummate the purchase and sale
transaction contemplated herein (the "Seller's Conditions Precedent"):
(i) The LLC shall have delivered the Purchase Price (subject
to the prorations and adjustments provided for in this Agreement), as required
hereunder.
(ii) BHI shall have executed and delivered to Seller a
certificate in the form attached at Exhibit E hereto ("Purchaser's
Certificate") updating the representations and warranties of BHI through
Closing, and certifying that BHI has complied in all material respects with
its obligations under this Agreement, which Purchaser's Certificate BHI
covenants to deliver unless any fact or circumstance has arisen since the date
hereof and prior to the Closing that would make any such representation
warranty or certification materially untrue, in which case BHI shall deliver a
Purchaser's Certificate describing such fact or circumstance.
(iii) No material breach or default by BHI shall have occurred
hereunder that has not been cured to Seller's reasonable satisfaction. Seller
shall provide BHI with written notice of any material breath or default by BHI
promptly upon Seller's discovering that such breach or default exists.
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(iv) BHI shall have executed and delivered to Seller the
Amended Operating Agreement.
(v) No injunction or temporary restraining order which
expressly prohibits the transfer of the Property by Seller to the LLC or the
issuance of the Class A Unit to BHI shall have been issued by a court of
competent jurisdiction. Alternatively, if an injunction or temporary
restraining order expressly prohibiting the transfer of the Property by Seller
to the LLC or the issuance of the Class A Unit to BHI has been issued by a
court of competent jurisdiction, then a bond or other security as required by
the court shall have been posted or delivered by the party obtaining such
injunction or temporary restraining order. If such bond or other security has
not been posted or delivered by the party obtaining the injunction or
temporary restraining order, then the Closing shall occur in accordance with
the terms of this Agreement.
(vi) All other conditions precedent that this Agreement
specifically states must be satisfied as a condition to Seller's obligations
hereunder shall have either been satisfied or waived in writing by Seller.
Each of Seller's Conditions Precedent may be waived in whole
or in part by Seller by written notice to BHI and at Closing, all Seller's
Conditions Precedent set forth herein shall either be satisfied or so waived.
BHI shall use all reasonable efforts to ensure that such Seller's Conditions
Precedent are satisfied prior to the Closing Date contemplated hereunder, and
except with respect to the Seller's Condition Precedent as set forth in
Section above, and as otherwise expressly provided in this Agreement, BHI's
sole obligation with respect to the satisfaction of such Seller's Conditions
Precedent shall be to use such reasonable efforts.
8. COVENANTS OF SELLER.
Seller hereby covenants to BHI, as follows:
(a) Prior to the Closing, Seller shall not execute any new Seller Lessor
Lease, nor terminate, renew, amend or modify any existing Seller Lessor Lease
without BHI's prior written consent, which consent shall not be unreasonably
withheld or delayed; provided, however, Seller shall be permitted to execute,
terminate, renew, amend and/or modify leases of boat slips in the marina
portion of the Property in the ordinary course of business without obtaining
BHI's consent provided all such leases are and remain terminable by the lessor
thereunder upon no more than thirty (30) days notice to the tenant thereunder.
BHI's consent to any such matter shall be deemed given by BHI if BHI fails to
respond to Seller's written request for such consent within ten (10) days
after BHI's receipt thereof. Notwithstanding the foregoing, Seller shall give
Gilbert's Spa a notice of termination of its Seller Lessor Lease prior to the
Closing. Prior to the Closing, Seller shall not, without BHI's prior written
consent, accept from any of the Tenants payment of rent or other charges more
than one month in advance. At the Closing, the security deposit provided for
under each of the Seller Lessor Leases
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shall be credited to the LLC and no Tenant or any other party shall have any
claim (other than for customary refund at the expiration of a Seller Lessor
Lease) to all or any part of any security deposit.
(b) Prior to the Closing, Seller shall not terminate, renew, amend or
modify any Seller Lessee Lease without BHI's prior written consent, which
consent shall not be unreasonably withheld or delayed. BHI's consent to any
such matter shall be deemed given by BHI if BHI fails to respond to Seller's
written request for such consent within ten (10) days after BHI's receipt
thereof.
(c) Prior to the Closing, Seller shall not, without the prior written
consent of BHI, which consent shall not be unreasonably withheld or delayed:
(i) enter into any new contract with respect to the Property which will
survive the Closing, nor (ii) renew, amend or modify any Assumed Contract
(provided Seller may amend or modify any Assumed Contract in the ordinary
course of business and such amendment or modification does not give rise to
any additional obligation that would be assumed by the LLC and that exceeds
Five Thousand and no/Dollars ($5,000.00), and provided all such Assumed
Contracts remain terminable by Seller and their successors upon no more than
thirty (30) days notice to the other party thereunder). BHI's consent to any
such matter shall be deemed given by BHI if BHI fails to respond to Seller's
written request for such consent within ten (10) days after BHI's receipt
thereof.
(d) The Existing Insurance Policies, or equivalent coverage, shall
remain continuously in force through the Closing Date.
(e) At all times prior to the Closing, Seller shall operate, and manage
the Property in a manner consistent with Seller's past practices, shall
maintain present services, shall maintain the Property in good repair and
working order, and shall perform in all material respects when due all of
Seller's obligations under the Seller Lessor Leases, the Seller Lessee Leases,
the Assumed Contracts, and the Governmental Approvals and the Permitted
Encumbrances and otherwise in accordance in all material respects with
applicable laws, ordinances, rules and regulations affecting the Property.
Seller shall, in the ordinary course of business of operating the Property,
maintain a level of inventory and supplies as required by Seller to operate
the Property in the manner as presently being operated by Seller. Seller
shall repair and replace (if necessary, as determined by Seller) any
furniture, fixtures or equipment that are damaged or become inoperable in the
ordinary course of business after the date hereof with respect to the hotel
and restaurant components of the Property. Except as otherwise provided
herein, the Property at the Closing will be in substantially the same
condition as it was on the date hereof, normal wear and tear excepted. None
of the Personal Property shall be removed from the Real Property, unless
replaced by Personal Property of equal or greater utility and value.
(f) Seller shall pay all bills and invoices for labor, goods, materials
and services of any kind relating to the Property, and employee salary,
worker's
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compensation and other accrued benefits, together with all applicable payroll
taxes, that became due and payable during the period on or prior to the
Closing.
(g) Seller agrees to pay any brokerage or leasing fee or similar
commission or other compensation with respect to the Seller Lessor Leases
which is or will become due and payable prior to the Closing.
(h) Except as provided in Section , (c) and (d), after the date hereof
and prior to the Closing, no part of the Property, or any interest therein,
will be alienated, liened, encumbered or otherwise transferred.
(i) Upon Seller's request, for a period of five (5) years after the
Closing, the LLC shall make all Seller's records with respect to the Property
available to Seller for inspection and copying (at Seller's expense) by
Seller's consultants.
(j) Seller shall notify BHI of any material change in any condition with
respect to the Property or of any event or circumstance which makes any
representation or warranty of Seller to BHI under this Agreement materially
untrue or misleading, or any covenant of Seller under this Agreement incapable
or less likely of being performed promptly after Seller becomes aware thereof.
(k) On the Closing Date, Seller shall deliver possession of the Property
to the LLC.
None of the covenants of Seller under this Agreement shall merge
into any instrument or conveyance at Closing, and all such covenants shall
survive the Closing Date.
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9. SELLER'S CLOSING DOCUMENTS.
On or before the Closing Date, Seller shall deliver or cause to be
delivered to the LLC (with copies to BHI) the following:
(a) A special warranty deed (the "Deed") in the form attached hereto as
Exhibit F executed by Seller, in recordable form, conveying to the LLC good
and clear record and marketable fee tide to the Real Property free and clear
of all claims, liens and encumbrances except the Permitted Encumbrances and
matters arising by or through the LLC.
(b) A bill of sale (the "Bill of Sale"), executed by Seller, assigning
and conveying to the LLC title to the Personal Property, free and clear of all
encumbrances (except the Assumed Contracts and any ad valorem taxes that are
not yet due and payable), in the form attached hereto as Exhibit G.
(c) An assignment and assumption agreement (the "Assignment"), executed
by Seller, assigning and conveying to the LLC all of Seller's right, title and
interest in and to the Assumed Contracts, in the form attached hereto as
Exhibit H.
(d) An assignment and assumption of lessor's interest in the Seller
Lessor Leases (the "Seller Lessor Lease Assignment"), executed by Seller, to
the LLC, in the form attached hereto as Exhibit I.
(e) An assignment and assumption of lessee's interest in the Seller
Lessee Leases (the "Seller Lessee Lease Assignment"), executed by Seller, in
recordable form, to the LLC, in the form attached hereto as Exhibit J.
(f) A legal opinion, reasonably acceptable to Title Company, the LLC and
BHI, with respect to Seller's authority to consummate the transactions
contemplated hereunder and execute and deliver the conveyances and other
agreements and instruments contemplated hereby.
(g) To the extent not previously delivered to the LLC, and to the extent
in the possession or control of Seller, originals of the Seller Lessor Leases,
Seller Lessee Leases, Assumed Contracts, certificate(s) of occupancy,
certificate of completion and other instruments evidencing the Governmental
Approvals.
(h) Any keys in the possession or control of Seller to all locks located
in the Property.
(i) Letters executed by Seller and its management agent, if any,
addressed to all Tenants, in the form of Exhibit K, notifying and directing
payment of all rent and other sums due from Tenants from and after the date of
the Closing to be made to the LLC or at its direction.
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(j) Executed estoppel certificates substantially in the form attached
hereto as Exhibit L, addressed to the LLC from each of the Tenants (other than
Tenants under any and all leases of boat slips in the marina portion of the
Property) under the Assumed Seller Lessor Leases, to the extent the same are
obtained by Seller.
(k) An executed Seller's Certificate, in the form attached hereto as
Exhibit D.
(l) A Rent Roll in the form attached hereto as Exhibit 5(b), prepared as
of the day of the Closing, certified by Seller to be true and correct through
the day of the Closing.
(m) An affidavit in the form attached hereto as Exhibit C, certifying
that Seller is not a "foreign person" within the meaning of Section 1445(f)(3)
of the Code, together with any similar form or affidavit required under
Mississippi state law.
(n) A gap affidavit, executed by Seller, in the form customarily used by
Title Company for similar transactions and reasonably acceptable to Seller.
(o) An owner's and contractor's affidavit and lien waiver in such form
as customarily required by Title Company for similar transactions and
reasonably acceptable to Seller.
(p) Pay-off letters and lien releases for all monetary encumbrances
(other than the Assumed Contracts) affecting the Property, in form acceptable
to Title Company.
(q) Documents, instruments or agreements called for hereunder which have
not previously been delivered.
(r) Consent to assignment by Lessors and contractors of all Seller
Lessee Leases and Assumed Contracts listed on Schedule 9(t).
(s) Schedule of Accrued Employee benefits as of the date of Closing, as
set forth in Paragraph , hereinafter.
(t) The Amended Operating Agreement executed by Seller.
(u) Any other documents, instruments or agreements reasonably necessary
to close the transaction as contemplated by this Agreement.
10. LLC'S AND BHI'S CLOSING DOCUMENTS.
(a) On or before the Closing, the LLC shall deliver or shall cause to be
delivered to Seller:
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(i) The Purchase Price by wire transfer of immediately available
funds or cashier's check.
(ii) An executed counterpart of the Bill of Sale.
(iii) An executed counterpart of the Assignment.
(iv) An executed counterpart of the Seller Lessor Lease Assignment.
(v) An executed counterpart of the Seller Lessee Lease Assignment.
(vi) An executed counterpart of an Assignment of Assumed Contracts.
(vii) A legal opinion, reasonably acceptable to Title Company and
Seller, with respect to the LLC's authority to consummate the transactions
contemplated hereunder and execute and deliver the agreements and instruments
that this Agreement contemplates the LLC will execute and deliver.
(viii) The Amended Operating Agreement.
(ix) The original PRC Notes marked "Paid," together with a
recordable satisfaction of the mortgage securing the same.
(x) Any other documents, instruments or agreements reasonably
necessary to close the transaction as contemplated by this Agreement.
(b) On or before the Closing, BHI shall deliver to Seller:
(i) The Amended Operating Agreement.
(ii) An executed Purchaser's Certificate (signed by BHI),
substantially in the form attached hereto as Exhibit E.
(iii) Any other documents, instruments or agreements reasonably
necessary to close the transaction as contemplated by this Agreement.
(c) On or before the Closing, BHI shall deliver to the LLC:
(i) The Capital Contribution by wire transfer of immediately
available funds or cashier's check.
(ii) The Amended Operating Agreement.
(iii) Any other documents, instruments or agreements reasonably
necessary to close the transaction as contemplated by this Agreement.
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<PAGE>
11. CONFIDENTIALITY. Prior to the Closing Date, BHI shall treat as
confidential and shall not disclose or use, and will direct its
representatives not to disclose or use, to the detriment of Seller, any
information with respect to the LLC Interest or the Property which was
obtained by BHI as a result of its investigations, or furnished by the Seller
or its representatives to BHI or its representatives at any time or in any
manner in connection with the purchase and sale transaction contemplated by
this Agreement (the "Transaction"). Upon termination of this Agreement, BHI
shall either (i) return to Seller all of the information which BHI received
from Seller during its investigation, or (ii) immediately destroy all of such
information. The confidentiality and non-disclosure obligations contained in
this Section shall not apply if, and to the extent, BHI can demonstrate that:
(a) the information was known to BHI (as established by written documents
existing before disclosure of such information by Seller) prior to the earlier
of its investigation or its receipt of such information from the Seller, (b)
the information is or becomes part of the public domain other than by BHI's
(or its representatives) direct or indirect act, (c) the information is
legally disclosed to BHI by a third-party without confidential or proprietary
restrictions, or (d) similar information is independently developed by BHI
without access to the Seller's information. In the event that BHI or its
representatives are at any time requested or required by any court or any
other duly authorized governmental entity (by oral questions, interrogatories,
requests for information or documents, subpoena, or similar process) to
disclose any of the information from its investigation or received from
Seller, BHI agrees to provide the Seller with prompt notice of such request(s)
so that Seller may seek an appropriate protective order and/or waive
compliance with the provisions of this Section .
12. PRORATIONS AND ADJUSTMENTS.
Except as otherwise specified herein, all receipts and disbursements of
the Property shall be prorated as of 11:59 p.m. (CDT) on the Closing Date.
Prior to the Closing, Seller shall submit to BHI for its approval a tentative
prorations schedule showing the categories and amounts of all prorations
proposed. The parties shall agree on a prorations schedule that is consistent
with the provisions of this Section prior to or at the Closing.
(a) Rentals Generally. As used in this Agreement, the term "rentals"
includes fixed monthly and other periodic rentals, additional rentals,
percentage rentals, escalation rentals, operating cost pass-throughs and other
sums and charges payable under the Leases. The LLC shall be entitled to all
rentals and revenues accrued after the Closing Date, and Seller shall be
entitled to all rentals and revenues accrued on or prior to the Closing Date.
(b) Prepaid Rents, Security Deposits and Promotional Funds. All prepaid
rentals and security deposits (including all accrued interest, if any, payable
on the foregoing) made under any and all Seller Lessor Leases that have not
been applied by
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<PAGE>
Seller against the obligations of the Tenants thereunder in accordance with
the terms and conditions of such Seller Lessor Leases shall be credited to the
LLC at Closing.
(c) Operating Expenses. All ordinary operating expenses relating to the
Property other than taxes referred to below ("Expenses"), including utility
expenses for gas, water, electricity, heat, fuel, sewer and other utilities
relating to the Property and payments under the Contracts shall be prorated as
of the Closing Date. The LLC shall be responsible for all such amounts
accruing after the Closing Date, with Seller only being responsible for such
amounts accrued through the Closing Date.
(d) Property Taxes. All real and personal property and ad valorem
taxes, if any, whether payable in installments or not, including all
supplemental taxes attributable to the period prior to and including the
Closing Date for the calendar year in which the Closing occurs, shall be
prorated through the Closing Date, based on the latest available tax rate and
assessed valuation. If the amount of any installment of real or personal
taxes is not known as of the Closing Date, then a proration shall be made by
the parties based on a reasonable estimate of such taxes applicable to the
Property and the parties shall adjust the proration when the actual amount
becomes known, upon the written request of either party made to the other.
All bonds or special assessments against the Property due before or on the
Closing Date shall be paid by Seller and all bonds or special assessments due
after the Closing Date, which relate to events occurring prior to or on the
Closing Date, shall be prorated as of the Closing Date so that each party
bears the portion thereof allocable to its period of ownership.
(e) Capital Expenditures and Accounts Payable. All capital and other
improvements (including labor and material) which have been performed or
contracted for, by or on behalf of Seller prior to or on the Closing Date, and
all sums due for accounts payable which have been incurred with respect to the
Property prior to or on the Closing Date shall be paid by Seller and shall be
subject to the indemnification provisions of Section . The LLC shall furnish
to Seller for payment any bills for such period received after the Closing
Date, and the LLC shall have no further obligation with respect thereto, and
Seller agrees to indemnify and hold the LLC harmless for any claims related
thereto.
(f) Debt Service Payments, Payroll Expenses and Insurance Premiums and
Costs Not to be Prorated. Seller shall be responsible for all debt service
payments, payroll expenses and insurance premiums and costs payable or
accruing prior to or on the Closing Date, and shall be entitled to refunds on
cancellation of existing insurance policies, and there will be no prorations
for such items.
(g) Other Items. Such other items that are customarily prorated in
transactions of this nature shall be ratably prorated.
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<PAGE>
(h) Procedures and Adjustments. For purposes of calculating prorations,
Seller shall be deemed to hold title to the Property, and, therefore, entitled
to the income therefrom and responsible for the expenses payable by the day
upon which the Closing Date occurs. All such prorations shall be made on the
basis of the actual number of days of the month which shall have elapsed as of
the day of the Closing Date, and based upon a three hundred sixty-five (365)
day year. The prorations shall be effective as of the close of business on
the Closing Date using the best available computations of such items.
(i) Post-Closing Reconciliation. The amount of any prorations shall be
subject to adjustment in cash after the Closing as and when complete and
accurate information becomes available. All items of income and expense for
the period prior to and including the Closing will be for the account of
Seller and all items of income and expense for the period after the Closing
will be for the account of the LLC. Accruals of items for the account of
Seller or the LLC shall be in accordance with generally accepted accounting
principles. In the event of dispute between the parties on closing
adjustments, the dispute shall be decided by binding arbitration by any of the
following public accounting firms as may be mutually agreeable to Seller and
BHI and which is not then providing services to either Seller or the LLC:
Price Waterhouse, Peat Marwick, Deloitte & Touche, Coopers & Lybrand, Arthur
Andersen or Ernst & Young. No such adjustments may be requested or demanded
more than sixty (60) days after Closing. The terms and provisions of this
Section shall survive the Closing.
(j) Safe Deposit Boxes. Seller shall deliver written notice to guests
who have safe deposit boxes at the Property advising such guests of the
transfer of the Property to the LLC and requesting that they verify the
contents of such safe deposit boxes to Seller on the day prior to Closing.
Seller, the LLC and BHI shall inventory and verify the contents of such safe
deposit boxes as part of the Closing. BHI shall have a designated individual
at the Property available to perform this function. After each safe deposit
box has been inventoried and verified by the respective guests to Seller, the
LLC and BHI, and in any case, upon transfer of control of the safe deposit
boxes to the LLC under this Agreement, the LLC shall thereafter be responsible
for maintaining the safe deposit boxes, and Seller shall have no further
responsibility regarding such safe deposit boxes. The LLC and BHI shall
indemnify, defend and hold Seller harmless from and against all claims,
damages and expenses (including attorney's fees) incurred by Seller as a
result of any claim with respect to the contents of any safe deposit box
arising after such transfer of control.
(k) Accrued Employee Benefits. All costs of accrued employee benefits
(sick leave, vacation leave, health, dental and life insurance benefits,
401(k) plans, etc., if any) shall be determined as of the date of Closing and
shall be credited to the LLC toward payment of the Purchase Price. If such
information is not available on the date of Closing it shall be subject to
adjustment in cash after the Closing in accordance with Section 12(h).
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<PAGE>
13. CLOSING.
Subject to the satisfaction of all terms and conditions set forth in this
Agreement, the closing of the sale and purchase herein contemplated (the
"Closing") shall occur on July 24, 1997, or such earlier date as the Seller,
the LLC and BHI may mutually agree upon as the date for Closing, at the
offices of Page, Mannino, Peresich, Dickinson & McDermott, LLC, in Biloxi,
Mississippi. As used in this Agreement the "Closing Date" means the date the
transactions contemplated herein close. All escrow deposits will be applied
to the Purchase Price or to Seller's liquidated damages under the terms and
conditions hereof.
14. CLOSING COSTS.
The LLC shall pay (a) all title costs, including premiums, surveys,
endorsements and any legal fees of Title Company; (b) the fees for recording
the Deed, Seller Lessor Lease Assignment and Seller Lessee Lease Assignment;
and (c) all escrow fees for the Closing and costs incurred in connection with
the establishment and maintenance of the Deposit Escrow and the Holdback
escrow. Each party shall bear the expense of its own counsel; provided,
however, that to the extent Generally Accepted Accounting Principles require
that costs of an investment must be shown as an "Investment" on the Balance
Sheet of President Casinos, Inc., all such costs shall be reflected as
expenses of the LLC.
15. LOSS BY FIRE, OTHER CASUALTY OR CONDEMNATION.
(a) Destruction or Damage. In the event that prior to the Closing Date,
the Property, or any part thereof, is destroyed or damaged, the LLC shall
accept the Property on the Closing Date in its then physical condition with no
reduction in the Purchase Price and the LLC shall be entitled to receive an
assignment of all of Seller's rights to any insurance proceeds payable by
reason of such damage or destruction, and Seller shall execute and deliver to
the LLC a written assignment thereof (together with all of Seller's right to
compromise, settle or adjust any claims to such proceeds) at or prior to the
Closing. Seller shall cooperate with the LLC and BHI and take all reasonable
actions requested by BHI in order to give effect to and carry out the intent
and terms of such assignment provided that in no event shall Seller be
required to incur any cost or expense in doing so (and, subject to the
foregoing, Seller shall be relieved of any further obligation with respect to
the collection of such proceeds). Seller shall not compromise, settle or
adjust any claims to such proceeds without BHI's prior written consent, and
any proceeds received by Seller prior to the Closing Date shall be deposited
into the Closing escrow and disbursed to the LLC hereunder.
(b) Condemnation. In the event that prior to the Closing Date, the
Property, or any part thereof, is taken or becomes condemned or becomes the
subject of a pending or threatened taking or condemnation by any governmental,
quasi-
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governmental or public authority, BHI shall have the right to proceed as set
forth in this Section .
(i) BHI shall have the right exercisable by giving notice to Seller
and Title Company within fifteen (15) days after BHI learns of the same, to
terminate this Agreement in the event that the condemnation or taking is, or
would be if consummated, a Material Taking Condition. As used herein, a
"Material Taking Condition" shall have occurred in the event that the Property
or any portion thereof is condemned or taken such that (A) access to or egress
from the Land or any portion thereof (as such access and egress exists on the
date of this Agreement) shall be materially impaired) or (B) BHI determines
reasonably and in good faith that its plans to develop and operate the
Property as a hotel, casino, marina and golf course destination resort will be
materially and adversely affected thereby. BHI shall include in any such
termination notice BHI's good faith explanation supporting BHI's determination
that a Material Taking Condition has occurred. In the event BHI delivers any
such termination notice, neither party shall have any further rights or
obligations hereunder except that the Escrow Deposit shall be immediately
refunded to BHI.
(ii) If BHI does not terminate the Agreement pursuant to the
foregoing provisions of this Section , then the LLC and BHI shall be required
to proceed to Closing, subject to the other terms and the LLC and BHI's
Conditions Precedent set forth in this Agreement, and the LLC shall accept the
Property on the Closing Date subject to such condemnation or taking with no
reduction in the Purchase Price, in which case the LLC shall be entitled to
receive an assignment of all of Seller's rights to any condemnation or taking
awards or proceeds payable by reason of such condemnation or taking awards, or
proceeds payable by reason of such condemnation or taking, and Seller shall
execute and deliver into the Closing Escrow or to the LLC a written assignment
thereof (together with all of Seller's rights to compromise, settle or adjust
any claims to such awards or proceeds) at or prior to the Closing. Upon
Seller's delivery of such assignment, Seller shall cooperate with BHI and take
all reasonable actions requested by BHI in order to give effect to and carry
out the intent and terms of such assignment, provided that in no event shall
Seller be required to incur any cost or expense in doing so (and, subject to
the foregoing, Seller shall be relieved of any further obligation with respect
to the collection of such awards and proceeds). If BHI proceeds under this
clause (ii), Seller shall not compromise, settle or adjust any claims to such
awards or proceeds without BHI's prior written consent and any awards or
proceeds received by Seller prior to the Closing Date shall be deposited in
the Closing Escrow and disbursed to BHI hereunder.
(c) Notice. Seller agrees to give BHI written notice of any
condemnation or taking, or threatened condemnation or taking, and any damage
or destruction of the Property, promptly after learning of the same. The
provisions of this Section shall survive the Closing.
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16. CERTAIN DEFAULTS.
(a) Specific Performance by Seller. IN THE EVENT THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT ARE NOT CONSUMMATED BY REASON OF A BREACH BY
SELLER OF THIS AGREEMENT, BHI AND THE LLC MAY, AS THEIR SOLE REMEDIES, EITHER
SEEK SPECIFIC PERFORMANCE OF SELLER'S OBLIGATIONS UNDER THIS AGREEMENT, OR
OBTAIN THE RETURN OF THE ESCROW DEPOSIT.
BHI'S INITIALS:/s/JSA SELLER'S INITIALS:/s/AB LLC'S INITIALS:/s/AB
------- ------- -------
(b) Liquidated Damages on BHI Default. IN THE EVENT THE REDEMPTION
CONTEMPLATED BY THIS AGREEMENT IS NOT CONSUMMATED BY REASON OF A BREACH BY BHI
OF THIS AGREEMENT, BHI SHALL CAUSE TITLE COMPANY TO PAY TO SELLER, WITHIN
FIFTEEN (15) DAYS AFTER SELLER'S WRITTEN REQUEST TO BHI, THE ESCROW DEPOSIT,
INCLUDING ALL ACCRUED INTEREST, AS FULL, AGREED AND LIQUIDATED DAMAGES FOR
SUCH BREACH, AND UPON THE PAYMENT OF SUCH AMOUNT TO SELLER THIS AGREEMENT
SHALL BECOME NULL AND VOID (EXCEPT FOR ANY PROVISIONS THAT THIS AGREEMENT
EXPRESSLY PROVIDES SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT) AND SELLER
AND BHI AND THE LLC SHALL THEREUPON BE RELEASED OF ALL FURTHER LIABILITY
HEREUNDER (EXCEPT WITH RESPECT TO ANY SUCH SURVIVING PROVISIONS). IT IS
HEREBY AGREED THAT SELLER'S ACTUAL DAMAGES IN THE EVENT OF SUCH BREACH BY BHI
WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO ASCERTAIN AND THAT THE AMOUNT
OF THE DEPOSIT REPRESENTS THE PARTIES' REASONABLE ESTIMATE OF SUCH DAMAGES.
SELLER SHALL NOT BE ENTITLED TO SEEK SPECIFIC PERFORMANCE OF THE LLC'S AND
BHI'S OBLIGATIONS UNDER THIS AGREEMENT.
BHI'S INITIALS:/s/JSA SELLER'S INITIALS:/s/AB LLC'S INITIALS:/s/AB
------- ------- -------
(c) No Waiver. No termination of this Agreement or the escrows
established hereunder by the LLC or Seller following any breach by the other
party shall be deemed to waive such breach or any remedy otherwise available
to the non-breaching party.
17. INDEMNIFICATIONS.
(a) Indemnification by Seller. Seller shall hold harmless, indemnify
and defend (with counsel reasonably acceptable to BHI and the LLC) BHI and the
LLC, any person or entity having a direct or indirect interest in BHI or the
LLC, any officer, director, employee, investment advisor, partner or
shareholder of or in BHI or the LLC or of or in any person or entity having a
direct or indirect ownership interest in BHI or the LLC, and the Property from
and against any and all obligations, liabilities, claims, liens, losses,
damages, costs and expenses (including reasonable attorneys' fees and costs)
(individually and collectively, a "Claim") which meet at least one of the
following criteria: (i) no matter how arising, are third party claims related
to the
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Property and arise or become payable before or on the Closing Date, or are
third party related to or arise from any act, conduct or omission of Seller or
its affiliates, occurring at any time or times before or on the Closing Date,
or (ii) result from any inaccuracy in or breach of any representation or
warranty of Seller of which BHI did not have actual knowledge prior to
Closing, or result from any breach or default by Seller under this Agreement;
provided, however, that Seller shall not be obligated to indemnify the LLC or
BHI with respect to any inaccuracy in or breach of any representation or
warranty of Seller unless the actual cost to the LLC or BHI (excluding counsel
fees) incurred as a direct result thereof exceeds the sum of $30,000.00 for
all such alleged inaccuracies or breaches of a representation or warranty by
Seller. The LLC and BHI shall notify Seller of any such Claim within thirty
(30) days after it has notice of such Claim, but failure to notify Seller as
aforesaid shall in no case prejudice the rights of the LLC or BHI or any other
indemnified party hereunder except to the extent Seller shall be prejudiced by
such failure. Should Seller discharge or undertake to defend the LLC or BHI
or any other indemnified party and should it be determined thereafter that
such party was not entitled to be indemnified (but only because
indemnification was not proper under this Agreement, and not because the claim
was successfully defended), the LLC, BHI, or such party shall repay Seller all
cost and expense related to such discharge or defense including its attorney's
fees and costs. With respect to any Claims described in clause (i) above,
Seller's obligations under this Section shall survive the Closing Date for a
period of two (2) years. With respect to any claims described in clause (ii)
above, Seller's obligations under this Section shall survive the Closing Date
for a period of two (2) years.
(b) Indemnification by the LLC and BHI. The LLC and BHI shall hold
harmless, indemnify and defend (with counsel reasonably acceptable to Seller)
Seller, any person or entity having a direct or indirect interest in Seller,
any officer, director, employee, investment advisor, partner or shareholder of
or in Seller or of or in any person or entity having a direct or indirect
ownership interest in Seller, from and against any and all obligations,
liabilities, claims, liens, losses, damages, costs and expenses (including
reasonable attorneys' fees and costs) (individually and collectively, a
"Claim") which meet at least one of the following criteria: (i) no matter how
arising, are third party claims related to the Property and become payable or
accrue on or after the Closing Date, or are third party related to or arise
from any act, conduct or omission of the LLC, BHI or their affiliates,
occurring at any time or times on or after the Closing Date, or (ii) result
from any inaccuracy in or breach of any representation or warranty of BHI, or
result from any breach or default by BHI under this Agreement of which Seller
did not have actual knowledge prior to Closing. Seller shall notify BHI of
any such Claim within thirty (30) days after it has notice of such Claim, but
failure to notify BHI as aforesaid shall in no case prejudice the rights of
Seller or any other indemnified party hereunder except to the extent BHI shall
be prejudiced by such failure. Should the LLC or BHI discharge or undertake
to defend Seller or any other indemnified party and should it be determined
thereafter that such party was not entitled to be indemnified (but only
because indemnification was not proper under this Agreement and not because
the claim was successfully defended), Seller or such party
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shall repay the LLC and BHI all cost and expense related to such discharge or
defense including its attorney's fees and costs.
18. NO BROKER.
Seller, the LLC and BHI all represent and warrant to the others that no
brokerage commission, finder's fee or other compensation is due or payable by
reason of either's actions in the transactions contemplated hereby. Each
party agrees to indemnify and hold the other harmless from and against any
losses, damages, costs and expenses (including reasonable attorneys' fees)
incurred by the other by reason of any breach or inaccuracy of the
representation and warranty contained in this Section . The parties'
respective obligations under this Section shall survive the termination of
this Agreement.
19. MISCELLANEOUS.
(a) Entire Agreement. Except for the other transaction documents
expressly contemplated by this Agreement, this Agreement is the entire
Agreement among the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements among the parties with respect to the
matters contained in this Agreement. Any waiver, modification, consent or
acquiescence with respect to any provision of this Agreement or with respect
to any failure to perform in accordance therewith shall be set forth in
writing and duly executed by or on behalf of the party to be bound thereby.
No waiver by any party of any breach hereunder shall be deemed a waiver of any
other or subsequent breach.
(b) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument. The signature
page of any counterpart may be detached therefrom without impairing the legal
effect of the signature(s) thereon provided such signature page is attached to
any other counterpart identical thereto except having additional signature
pages executed by other parties to this Agreement attached thereto.
(c) Time of the Essence. Time is of the essence in the performance of
and compliance with each of the provisions and conditions of this Agreement.
(d) Notices. Any communication, notice or demand of any kind whatsoever
which either party may be required or may desire to give to or serve upon the
other or upon any escrow holder hereunder shall be in writing and delivered by
personal service (including express or courier service), by electronic
communication whether by telex, telegram or telecopying, or by registered or
certified mail, postage prepaid, return receipt requested, addressed as
follows:
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Seller (or the LLC before the Closing Date):
J. Edward Connelly Associates, Inc.
2180 Noblestown Road
Pittsburgh, Pennsylvania 15205
Attention: John E. Connelly and
Alan Bernthaler
Telecopy No. (412) 920-4181
With a copy to: Sable, Makoroff & Gusky, P.C.
Seventh Floor, Frick Building
Frick Building
Pittsburgh, PA 15219-6002
Attention: Henry Gusky and Alan Gordon
Telecopy No.: 412/471-2859
BHI (or the LLC on or after the Closing Date):
President Broadwater Hotel, Inc.
c/o President Casinos, Inc.
802 N. First Street
St. Louis, MO 63102
Attention: John Aylsworth and
James Zweifel
Telecopy No.: 314/622-3172
With a copy to: Gerard Sandweg, Esquire
Thompson Coburn
One Mercantile Center
St. Louis, MO 63101
Telecopy No.: 314/552-7000
TITLE COMPANY: First American Title Insurance Company
c/o David M. Allen, Esq.
Page, Mannino, Peresich, Dickinson & McDermott
759 Vieux Marche Mall
Biloxi, MS 39530
Telecopy No.: 601/432-5539
Any party (including Title Company) may change its address for notice by
written notice given to the other in the manner provided in this Section .
Any such communication, notice or demand shall be deemed to have been duly
given or served on the date personally served, if by personal service, one (1)
day after the date of confirmed dispatch, if by electronic communication, or
on the date shown on the return receipt or other evidence of delivery, if
mailed.
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<PAGE>
(e) No Other Representations. The making, execution and delivery of
this Agreement by the parties hereto has been induced by no representations,
statements, warranties or agreements other than those expressly set forth
herein.
(f) Saving Clause. Wherever possible, each provision of this Agreement
shall be interpreted in such a manner as to be valid under applicable law,
but, if any provision of this Agreement shall be invalid or prohibited
thereunder, such invalidity or prohibition shall be construed as if such
invalid or prohibited provision had not been inserted herein and shall not
affect the remainder of such provision or the remaining provisions of this
Agreement.
(g) Standard of Interpretation. The language in all parts of this
Agreement shall be in all cases construed simply according to its fair meaning
and not strictly for or against any of the parties hereto for any reason
(including by virtue of the fact that this Agreement may have been drafted or
prepared by counsel for one of the parties, it being recognized that BHI and
Seller, and their respective counsel, contributed materially and substantially
to the preparation of this Agreement). Wherever the words "include" or
"includes" are used in this Agreement, they should be interpreted in a non-
exclusive manner as though the words "without limitation" immediately followed
the same. Section headings of this Agreement are solely for convenience of
reference and shall not govern the interpretation of any of the provisions of
this Agreement.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Mississippi without regard to
conflicts of law principles. Any action or proceeding seeking to enforce any
provision of, or based upon any right arising out of this Agreement shall be
brought by and against the parties in the United States District Court for the
Southern District of Mississippi (or, in the event that the dollar
jurisdictional amount for federal court jurisdiction are not met, then such
action shall be brought in the Circuit or Chancery Court in Harrison County,
Mississippi), and each of the parties hereto hereby consents to the
jurisdiction of such courts in any such action or proceeding and waives any
objection to venue laid therein.
(i) Attorneys' Fees. If any action is brought by either party against
the other party hereunder, the prevailing party shall be entitled to recover
from the other party reasonable attorneys' court costs and expenses incurred
in connection with the prosecution or defense of such action. Any attorneys'
fees, court costs and expenses to which a party in connection with the
enforcement of a liquidated damages provision hereunder shall not be deemed
covered by such liquidated damages provision, but rather shall be in addition
to the liquidated damages thereunder. For purposes of this Agreement, the
term "attorneys' fees" or "attorneys' fees and costs" shall mean the fees and
expenses of counsel to the parties hereto, which may include printing,
photostating, duplicating and other expenses, air freight charges, and fees
billed for
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<PAGE>
law clerks, paralegals and other persons not admitted to the bar but
performing services under the supervision of an attorney.
(j) Binding Agreement; Assignment. This Agreement shall be binding upon
and inure to the benefit of each of the parties hereto and to their respective
transferees, successors, and assigns; provided, however, that neither this
Agreement nor any of the rights or obligations of Seller hereunder shall be
transferred or assigned by Seller, without the prior written consent of BHI.
BHI shall have the right to assign all of its right, title and interest under
this Agreement to any wholly-owned subsidiary of BHI at any time prior to the
Closing, whereupon such assignee shall succeed to all of the rights and
obligations of BHI hereunder, provided, however, that President Casinos, Inc.
shall be and remain liable for all obligations of BHI under this Agreement.
(k) Exhibits. All Exhibits and Schedules attached hereto are
incorporated herein by reference. All Exhibit, Schedule and Section
references in this Agreement refer to the sections of and the exhibits
attached to this Agreement, unless the context clearly indicates otherwise.
(l) No Recording. This Agreement shall not be recorded or filed in the
public land or other public records of any jurisdiction by either party and
any attempt to do so may be treated by the other party as a breach of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
SELLER: J. EDWARD CONNELLY ASSOCIATES, INC.,
a Pennsylvania corporation
By:/s/ Alan Bernthaler, Vice Pres.
---------------------------------
LLC: PRESIDENT BROADWATER HOTEL, L.L.C.,
a Mississippi limited liability
company
By: J. Edward Connelly Associates,
Inc.,a Pennsylvania
corporation, Manager
By:/s/ Alan Bernthaler, Vice Pres.
--------------------------------
BHI: BROADWATER HOTEL, INC., a
Mississippi corporation
By:/s/ John S. Aylsworth
------------------------------------
39
EXHIBIT 2.3
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (this "Agreement"), made as of the 22th day of
July, 1997, is by PRESIDENT BROADWATER HOTEL, L.L.C., a Mississippi limited
liability company ("Borrower"), whose address is 2110 Beach Boulevard, Biloxi,
Mississippi 39531, PRESIDENT CASINOS, INC., a Delaware corporation ("President
Casinos"), whose address is 802 North First Street, St. Louis, Missouri 63102,
THE PRESIDENT RIVERBOAT CASINO-MISSISSIPPI, INC., a Mississippi corporation
("President Mississippi"), whose address is 2110 Beach Boulevard, Biloxi,
Mississippi 39531, jointly and severally (Borrower, President Casinos and
President Mississippi being hereinafter referred to collectively as
"Indemnitors" and individually as "Indemnitor"), in favor of LEHMAN BROTHERS
HOLDINGS INC., a Delaware corporation ("Lender"), whose address is 3 World
Financial Center, 12th Floor, 200 Vesey Street, New York, New York 10285-1200.
W I T N E S S E T H:
WHEREAS, Lender has extended to Borrower a loan in the principal amount of
Thirty Million and No/100 Dollars ($30,000,000.00) (the "Loan"); and
WHEREAS, the Loan is evidenced by a Promissory Note dated of even date
pherewith (the "Note"), executed by Borrower and payable to the order of
Lender in the stated principal amount of Thirty Million and No/100 Dollars
($30,000,000.00), and the Loan is secured by, among other things, a Deed of
Trust, Security Agreement and Fixture Filing dated of even date herewith (the
"Security Instrument"), from Borrower to Lender encumbering that certain real
property situated in the County of Harrison, State of Mississippi, as is more
particularly described on Exhibit "A" attached hereto and incorporated herein
by this reference, together with the buildings, structures and other
improvements now or hereafter located thereon (said real property, buildings,
structures and other improvements being hereinafter collectively referred to
as the "Property") and by other documents and instruments (the Note, the
Security Instrument and such other documents and instruments, as the same may
from time to time be amended, consolidated, renewed or replaced, being
collectively referred to herein as the "Loan Documents"); and
WHEREAS, as a condition to making the Loan, Lender has required that
Indemnitors indemnify Lender with respect to hazardous wastes on, in, under or
affecting the Property as herein set forth.
NOW, THEREFORE, to induce Lender to extend the Loan to Borrower and in
consideration of the foregoing premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Indemnitors, jointly and severally hereby covenant and agree for the benefit
of Lender, as follows:
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1. INDEMNITY. INDEMNITORS, JOINTLY AND SEVERALLY HEREBY ASSUME LIABILITY
FOR, AND HEREBY AGREE TO PAY, PROTECT, DEFEND (AT TRIAL AND APPELLATE LEVELS
AND WITH ATTORNEYS, CONSULTANTS AND EXPERTS ACCEPTABLE TO LENDER), AND SAVE
LENDER HARMLESS FROM AND AGAINST, AND HEREBY INDEMNIFY LENDER FROM AND AGAINST
ANY AND ALL LIENS, DAMAGES, LOSSES, LIABILITIES, OBLIGATIONS, SETTLEMENT
PAYMENTS, FINES, PENALTIES, ASSESSMENTS, CITATIONS, DIRECTIVES, CLAIMS,
LITIGATION, DEMANDS, DEFENSES, JUDGMENTS, SUITS, PROCEEDINGS, COSTS, RESPONSE
COSTS, DISBURSEMENTS AND EXPENSES OF ANY KIND OR OF ANY NATURE WHATSOEVER
(INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS', CONSULTANTS' AND
EXPERTS' FEES AND DISBURSEMENTS ACTUALLY INCURRED IN INVESTIGATING, DEFENDING,
SETTLING OR PROSECUTING ANY CLAIM, LITIGATION OR PROCEEDING) (COLLECTIVELY
"COSTS") WHICH MAY AT ANY TIME BE IMPOSED UPON, INCURRED BY OR ASSERTED OR
AWARDED AGAINST LENDER OR THE PROPERTY (INCLUDING ANY CLAIMS DUE TO THE
NEGLIGENT ACTS OR OMISSIONS OF LENDER), AND ARISING DIRECTLY OR INDIRECTLY
FROM OR OUT OF: (i) THE VIOLATION OF ANY LOCAL, STATE OR FEDERAL LAW, RULE OR
REGULATION, ORDINANCE, ORDER OR DECREE NOW OR HEREAFTER IN EFFECT PERTAINING
TO ENVIRONMENTAL REGULATION, CONTAMINATION OR CLEAN-UP (COLLECTIVELY,
"ENVIRONMENTAL LAWS"), INCLUDING, WITHOUT LIMITATION, THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980 (42 U.S.C. 9601
SECTION ET SEQ. AND 40 CFR SECTION 302.1 ET SEQ.), THE RESOURCE CONSERVATION
AND RECOVERY ACT OF 1976 (42 U.S.C. SECTION 6901 ET SEQ.), THE FEDERAL WATER
POLLUTION CONTROL ACT (33 U.S.C. SECTION 1251 ET SEQ. AND 40 CFR SECTION 116.1
ET SEQ.), AND THE HAZARDOUS MATERIALS TRANSPORTATION ACT (49 U.S.C. SECTION
1801 ET SEQ.), AND THE REGULATIONS PROMULGATED PURSUANT TO SAID LAWS, ALL AS
AMENDED, RELATING TO OR AFFECTING THE PROPERTY, WHETHER OR NOT CAUSED BY OR
WITHIN THE CONTROL OF INDEMNITORS; (II) THE PRESENCE, RELEASE OR THREAT OF
RELEASE OF ANY HAZARDOUS, TOXIC OR HARMFUL SUBSTANCES, WASTES, MATERIALS,
POLLUTANTS OR CONTAMINANTS (INCLUDING, WITHOUT LIMITATION, ASBESTOS,
POLYCHLORINATED BIPHENYLS, PETROLEUM PRODUCTS, FLAMMABLE EXPLOSIVES,
RADIOACTIVE MATERIALS, INFECTIOUS SUBSTANCES OR RAW MATERIALS WHICH INCLUDE
HAZARDOUS CONSTITUENTS) OR ANY OTHER SUBSTANCES OR MATERIALS WHICH ARE
INCLUDED UNDER OR REGULATED BY ENVIRONMENTAL LAWS (COLLECTIVELY, "HAZARDOUS
SUBSTANCES"), ON, IN, UNDER OR AFFECTING ALL OR ANY PORTION OF THE PROPERTY OR
ANY SURROUNDING AREAS, REGARDLESS OF WHETHER OR NOT CAUSED BY OR WITHIN THE
CONTROL OF INDEMNITORS; (iii) THE FAILURE BY INDEMNITORS TO COMPLY FULLY WITH
THE TERMS AND CONDITIONS OF THIS AGREEMENT; (iv) THE BREACH OF ANY
REPRESENTATION OR WARRANTY CONTAINED IN THIS AGREEMENT; OR (v) THE
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ENFORCEMENT OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE COST OF
ASSESSMENT, CONTAINMENT AND/OR REMOVAL OF ANY AND ALL HAZARDOUS SUBSTANCES
FROM ALL OR ANY PORTION OF THE PROPERTY OR ANY SURROUNDING AREAS, THE COST OF
ANY ACTIONS TAKEN IN RESPONSE TO THE PRESENCE, RELEASE OR THREAT OF RELEASE OF
ANY HAZARDOUS SUBSTANCES ON, IN, UNDER OR AFFECTING ANY PORTION OF THE
PROPERTY OR ANY SURROUNDING AREAS TO PREVENT OR MINIMIZE SUCH RELEASE OR
THREAT OF RELEASE SO THAT IT DOES NOT MIGRATE OR OTHERWISE CAUSE OR THREATEN
DANGER TO PRESENT OR FUTURE PUBLIC HEALTH, SAFETY, WELFARE OR THE ENVIRONMENT,
AND COSTS INCURRED TO COMPLY WITH THE ENVIRONMENTAL LAWS IN CONNECTION WITH
ALL OR ANY PORTION OF THE PROPERTY OR ANY SURROUNDING AREAS. "COSTS" AS USED
IN THIS AGREEMENT SHALL ALSO INCLUDE ANY DIMINUTION IN THE VALUE OF THE
SECURITY AFFORDED BY THE PROPERTY OR ANY FUTURE REDUCTION OF THE SALES PRICE
OF THE PROPERTY BY REASON OF ANY MATTER SET FORTH IN THIS SECTION 1. THE
FOREGOING INDEMNITY SHALL SPECIFICALLY NOT INCLUDE ANY SUCH COSTS RELATING TO
HAZARDOUS SUBSTANCES WHICH ARE INITIALLY PLACED ON, IN OR UNDER THE PROPERTY
AFTER FORECLOSURE OR OTHER TAKING OF TITLE TO THE PROPERTY BY LENDER. THE
BURDEN OF PROOF AS TO THE TIME ANY HAZARDOUS SUBSTANCE WAS INITIALLY PLACED
ON, IN OR UNDER THE PROPERTY SHALL BE UPON INDEMNITORS.
2. Representations Regarding Hazardous Substances. Indemnitors hereby
represent and warrant to and covenant and agree with Lender as follows,
subject to any contrary information contained in any written environmental
report provided by Borrower to Lender prior to the date hereof:
(a) To the best of Indemnitors' knowledge, information and belief, the
Property is not in direct or indirect violation of any Environmental Law;
(b) To the best of Indemnitors' knowledge, information and belief, no
Hazardous Substances are located on or have been handled, generated, stored,
processed or disposed of on or released or discharged from the Property
(including underground contamination) or transported to or from the Property
except for those substances used by Borrower in the ordinary course of its
business and in compliance with all Environmental Laws;
(c) The Property is not subject to any private or governmental lien or
judicial or administrative notice or action relating to Hazardous Substances;
(d) There are no existing or closed underground storage tanks or other
underground storage receptacles for Hazardous Substances on the Property;
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(e) Indemnitors have received no notice of, and to the best of
Indemnitors' knowledge and belief, there exists no investigation, action,
proceeding or claim by any agency, authority or unit of government or by any
third party which could result in any liability, penalty, sanction or judgment
under any Environmental Laws with respect to any condition, use or operation
of the Property nor do Indemnitors know of any basis for such a claim; and
(f) Indemnitors have received no notice that, and to the best of
Indemnitors' knowledge and belief, there has been no claim by any party that,
any use, operation or condition of the Property has caused any nuisance or any
other liability or adverse condition on any other property nor do Indemnitors
know of any basis for such a claim.
3. Covenants of Indemnitors.
(a) Indemnitors shall keep or cause the Property to be kept free from
Hazardous Substances (except those substances used by Borrower or President
Mississippi in the ordinary course of its business and in compliance with all
Environmental Laws) and in compliance with all Environmental Laws, shall not
install or use any underground storage tanks, shall expressly prohibit the
use, generation, handling, storage, production, processing and disposal of
Hazardous Substances by all tenants of space in the Improvements, and, without
limiting the generality of the foregoing, during the term of this Agreement,
shall not install in the Improvements or permit to be installed in the
Improvements asbestos or any substance containing asbestos.
(b) Indemnitors shall immediately notify Lender should Indemnitors, or
any of them, become aware of (i) any Hazardous Substances, or other potential
environmental problem or liability, with respect to the Property, (ii) any
lien, action or notice affecting the Property, Borrower or President
Mississippi resulting from any violation or alleged violation of any
Environmental Law, (iii) the institution of any investigation, inquiry or
proceeding concerning Borrower, the Property or President Mississippi pursuant
to any Environmental Law or otherwise relating to Hazardous Substances, or
(iv)the discovery of any occurrence, condition or state of facts which would
render any representation or warranty contained in this Agreement incorrect in
any respect if made at the time of such discovery. Indemnitors shall,
promptly and when and as required and regardless of the source of the
contamination, at their own expense, take all actions as shall be necessary or
advisable for the clean-up of any and all portions of the Property or other
affected property, including, without limitation, all investigative,
monitoring, removal, containment and remedial actions in accordance with all
applicable Environmental Laws (and in all events in a manner satisfactory to
Lender), and shall further pay or cause to be paid, at no expense to Lender,
all clean-up, administrative and enforcement costs of applicable governmental
agencies which may be asserted against the Property. In the event Indemnitors
fail to do so, Lender may (at its sole option, and with no obligation to do
so) cause the Property or other affected property to be freed from any
Hazardous Substances or otherwise brought into conformance with Environmental
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Laws and any cost incurred in connection therewith shall be included in Costs
and shall be paid by Indemnitors in accordance with the terms of Section 4(c)
hereof. In furtherance of the foregoing, Indemnitors hereby grant to Lender
access to the Property and an irrevocable license to remove any items deemed
by Lender to be Hazardous Substances and to do all things Lender shall deem
necessary to bring the Property into conformance with Environmental Laws.
(c) Upon the request of Lender, at any time and from time to time after
the occurrence of a default under this Agreement or the Loan Documents or at
such other time as Lender has reasonable grounds to believe that Hazardous
Substances are or have been released, stored or disposed of on or around the
Property or that the Property may be in violation of the Environmental Laws,
Indemnitors shall provide, at Indemnitors' sole expense, an inspection or
audit of the Property prepared by a hydrogeologist or environmental engineer
or other appropriate consultant approved by Lender indicating the presence or
absence of Hazardous Substances on the Property or an inspection or audit of
the improvements located on the Property prepared by an engineering or
consulting firm approved by Lender indicating the presence or absence of
friable asbestos or substances containing asbestos on the Property. If
Indemnitors fail to provide such inspection or audit within thirty (30) days
after such request, Lender may order the same, and Indemnitors hereby grant to
Lender access to the Property and an irrevocable license to undertake such
inspection or audit. The cost of such inspection or audit shall be included
in Costs and shall be paid by Indemnitors in accordance with the terms of
Section 4(c) hereof.
4. Indemnification Procedures.
(a) If any action shall be brought against Lender based upon any of the
matters for which Lender is indemnified hereunder, Lender shall notify
Indemnitors in writing thereof and Indemnitors shall promptly assume the
defense thereof, including, without limitation, the employment of counsel
acceptable to Lender and the negotiation of any settlement; provided, however,
that any failure of Lender to notify Indemnitors of such matter shall not
impair or reduce the obligations of Indemnitors hereunder. Lender shall have
the right, at the expense of Indemnitors (which expense shall be included in
Costs), to employ separate counsel in any such action and to participate in
the defense thereof. In the event Indemnitors shall fail to discharge or
undertake to defend Lender against any claim, loss or liability for which
Lender is indemnified hereunder, Lender may, at its sole option and election,
defend or settle such claim, loss or liability. The liability of Indemnitors
to Lender hereunder shall be conclusively established by such settlement,
provided such settlement is made in good faith, the amount of such liability
to include both the settlement consideration and the costs and expenses,
including, without limitation attorneys' fees and disbursements, incurred by
Lender in effecting such settlement. In such event, such settlement
consideration, costs and expenses shall be included in Costs and Indemnitors
shall pay the same as hereinafter provided. Lender's good faith in any such
settlement shall be conclusively established if the settlement is made on the
advice of independent legal counsel for Lender.
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(b) Indemnitors shall not, without the prior written consent of Lender:
(i) settle or compromise any action, suit, proceeding or claim or consent to
the entry of any judgment that does not include as an unconditional term
thereof the delivery by the claimant or plaintiff to Lender of a full and
complete written release of Lender (in form, scope and substance satisfactory
to Lender in its sole discretion) from all liability in respect of such
action, suit, proceeding or claim and a dismissal with prejudice of such
action, suit, proceeding or claim; or (ii) settle or compromise any action,
suit, proceeding or claim in any manner that may adversely affect Lender or
obligate Lender to pay any sum or perform any obligation as determined by
Lender in its sole discretion.
(c) All Costs shall be immediately reimbursable to Lender when and as
incurred and, in the event of any litigation, claim or other proceeding,
without any requirement of waiting for the ultimate outcome of such
litigation, claim or other proceeding, and Indemnitors shall pay to Lender any
and all Costs within ten (10) days after written notice from Lender itemizing
the amounts thereof incurred to the date of such notice. In addition to any
other remedy available for the failure of Indemnitors to periodically pay such
Costs, such Costs, if not paid within said ten-day period, shall bear interest
at the Default Interest Rate (as defined in the Note).
5. Reinstatement of Obligations. If at any time all or any part of any
payment made by Indemnitors or received by Lender from Indemnitors under or
with respect to this Agreement is or must be rescinded or returned for any
reason whatsoever (including, but not limited to, the insolvency, bankruptcy
or reorganization of Borrower or any Indemnitor), then the obligations of
Indemnitors hereunder shall, to the extent of the payment rescinded or
returned, be deemed to have continued in existence, notwithstanding such
previous payment made by Indemnitors, or receipt of payment by Lender, and the
obligations of Indemnitors hereunder shall continue to be effective or be
reinstated, as the case may be, as to such payment, all as though such
previous payment by Indemnitors had never been made.
6. Waivers by Indemnitors. To the extent permitted by law, Indemnitors
hereby waive and agree not to assert or take advantage of (as a defense or
otherwise):
(a) Any right to require Lender to proceed against any other person or
to proceed against or exhaust any security held by Lender at any time or to
pursue any other remedy in Lender's power or under any other agreement before
proceeding against Indemnitors hereunder;
(b) The defense of the statute of limitations with respect to
Borrower's obligations;
(c) Any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or persons or the failure
of Lender to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons;
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(d) Any failure on the part of Lender to ascertain the extent or nature
of any property (whether real or personal), rights, estates and interests now
or at any time hereafter securing the payment of the Note and/or the other
obligations of Borrower under the Loan Documents whether held by Lender or by
any person or entity on Lender's behalf or for Lender's account (the
"Collateral") or any insurance or other rights with respect thereto, or the
liability of any party liable for the Loan Documents or the obligations
evidenced or secured thereby;
(e) Demand, presentment for payment, notice of nonpayment, protest,
notice of protest and all other notices of any kind, or the lack of any
thereof, including, without limiting the generality of the foregoing, notice
of the existence, creation or incurring of any new or additional indebtedness
or obligation or of any action or non-action on the part of Lender, any
endorser or creditor of Borrower or of any Indemnitor or on the part of any
other person whomsoever under this or any other instrument in connection with
any obligation or evidence of indebtedness held by Lender;
(f) Any defense based upon an election of remedies by Lender;
(g) Any right or claim of right to cause a marshaling of the assets of
any Indemnitor;
(h) Any principle or provision of law, statutory or otherwise, which is
or might be in conflict with the terms and provisions of this Agreement;
(i) Any duty on the part of Lender to disclose to Indemnitors any facts
Lender may now or hereafter know about Borrower or the Property, regardless of
whether Lender has reason to believe that any such facts materially increase
the risk beyond that which Indemnitors intend to assume or has reason to
believe that such facts are unknown to Indemnitors or has a reasonable
opportunity to communicate such facts to Indemnitors, it being understood and
agreed that Indemnitors are fully responsible for being and keeping informed
of the financial condition of Borrower, of the condition of the Property and
of any and all circumstances bearing on the risk that liability may be
incurred by Indemnitors hereunder;
(j) Any lack of notice of disposition or of manner of disposition of
any Collateral;
(k) Failure to properly record any document or any other lack of due
diligence by Lender in creating or perfecting a security interest in or
collection, protection or realization upon any Collateral or in obtaining
reimbursement or performance from any person or entity now or hereafter liable
for the Loan Documents or any obligation secured thereby;
(l) The inaccuracy of any representation or other provision contained
in any Loan Document;
(m) Any sale or assignment of the Loan Documents or any interest
therein;
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(n) Any sale or assignment by Borrower of the Collateral, or any
portion thereof or interest therein, whether or not consented to by Lender;
(o) Any invalidity, irregularity or unenforceability, in whole or in
part, of any one or more of the Loan Documents;
(p) Any lack of commercial reasonableness in dealing with any of the
Collateral;
(q) Any deficiencies in the Collateral or any deficiency in the ability
of Lender to collect or to obtain performance from any persons or entities now
or hereafter liable for the payment and performance of any obligation hereby
guaranteed;
(r) An assertion or claim that the automatic stay provided by 11 U.S.C.
Section 362 (arising upon the voluntary or involuntary bankruptcy proceeding
of Borrower) or any other stay provided under any other debtor relief law
(whether statutory, common law, case law or otherwise) of any jurisdiction
whatsoever, now or hereafter in effect, which may be or become applicable,
shall operate or be interpreted to stay, interdict, condition, reduce or
inhibit the ability of Lender to enforce any of its rights, whether now or
hereafter acquired, which Lender may have against Indemnitors or the
Collateral;
(s) Any modifications of the Loan Documents or any obligation of
Borrower relating to the Loan by operation of law or by action of any court,
whether pursuant to the Bankruptcy Reform Act of 1978, as amended, or any
other debtor relief law (whether statutory, common law, case law or otherwise)
of any jurisdiction whatsoever, now or hereafter in effect, or otherwise;
(t) Any change in the composition of Borrower, including, without
limitation, the withdrawal or removal of any Indemnitor from any current or
future position of ownership, management or control of Borrower;
(u) The release of Borrower or of any other person or entity from
performance or observance of any of the agreements, covenants, terms or
conditions contained in any of the Loan Documents by operation of law,
Lender's voluntary act or otherwise; and
(v) Any action, occurrence, event or matter consented to by Indemnitors
under Section 7(h) hereof, under any other provision hereof, or otherwise.
7. General Provisions.
(a) Fully Recourse. All terms and provisions of this Agreement are
recourse obligations of Indemnitors and not restricted by any limitation on
personal liability.
(b) Unsecured Obligations. Indemnitors hereby acknowledge that
Lender's appraisal of the Property is such that Lender is not willing to
accept the consequences of the inclusion of Indemnitors' indemnity set forth
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herein among the obligations secured by the Security Instrument and the other
Loan Documents and that Lender would not make the Loan but for the unsecured
personal liability undertaken by Indemnitors herein. Indemnitors further
hereby acknowledge that even though the representations, warranties, covenants
or agreements of Indemnitors contained herein may be identical or
substantially similar to representations, warranties, covenants or agreements
of Borrower set forth in the Security Instrument and secured thereby, the
obligations of Indemnitors under this Agreement are not secured by the lien of
the Security Instrument or the security interests or other collateral
described in the Security Instrument or the other Loan Documents, it being the
intent of Lender to create separate obligations of Indemnitors hereunder which
can be enforced against Indemnitors without regard to the existence of the
Security Instrument or other Loan Documents or the liens or security interests
created therein.
(c) Survival. This Agreement shall be deemed to be continuing in
nature and shall remain in full force and effect and shall survive the payment
of the indebtedness evidenced and secured by the Loan Documents and the
exercise of any remedy by Lender under the Security Instrument or any of the
other Loan Documents, including, without limitation, any foreclosure or deed
in lieu thereof, even if, as a part of such remedy, the Loan is paid or
satisfied in full.
(d) No Subrogation; No Recourse Against Lender. Notwithstanding the
satisfaction by any Indemnitor of any liability hereunder, no other Indemnitor
shall have any right of subrogation, contribution, reimbursement or indemnity
whatsoever or any right of recourse to or with respect to the assets or
property of any other Indemnitor or to any Collateral, until the expiration of
ninety-one (91) days after payment in full of the Loan. In connection with
the foregoing, each Indemnitor expressly waives, until the expiration of
ninety-one (91) days after payment in full of the Loan, any and all rights of
subrogation to Lender against every other Indemnitor, each Indemnitor hereby
waives any rights to enforce any remedy which Lender may have against any
other Indemnitor and any right to participate in any Collateral. In addition
to and without in any way limiting the foregoing, each Indemnitor hereby
subordinates any and all indebtedness now or hereafter owed to it by any other
Indemnitor (other than any such indebtedness that has been assigned to Lender
or in which Lender has been granted a security interest or lien) to all
indebtedness of all other Indemnitors to Lender, if any, and agrees with
Lender that no Indemnitor shall demand or accept any payment of principal or
interest from any other Indemnitor, shall claim any offset or other reduction
of its obligations hereunder because of any such indebtedness, or take any
action to obtain any of the Collateral. Further, no Indemnitor shall have any
right of recourse against Lender by reason of any action Lender may take or
omit to take under the provisions of this Agreement or under the provisions of
any of the Loan Documents.
(e) Reservation of Rights. Nothing contained in this Agreement shall
prevent or in any way diminish or interfere with any rights or remedies,
including, without limitation, the right to contribution, which Lender may
have against any Indemnitor or any other party under the Comprehensive
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Environmental Response, Compensation and Liability Act of 1980 (codified at
Title 42 U.S.C. Section 9601 et seq.), as it may be amended from time to time,
or any other applicable federal, state or local laws, all such rights being
hereby expressly reserved.
(f) Financial Statements. Each Indemnitor hereby agrees, as a material
inducement to Lender to make the Loan to Borrower, to furnish to Lender
promptly upon demand by Lender current and dated financial statements
detailing the assets and liabilities of such Indemnitor as required by the
Security Instrument, certified by such Indemnitor, in form and substance
acceptable to Lender. Such financial statements may be consolidated, provided
that the notes to such financial statements indicate clearly that Borrower is
not bound in any way for the payment of any of the debts or obligations of any
other party covered by such consolidated financial statements and is not
liable to any of the creditors of any such other party. Indemnitors hereby
warrant and represent unto Lender that any and all balance sheets, net worth
statements and other financial data which have heretofore been given or may
hereafter be given to Lender with respect to such Indemnitor did or will at
the time of such delivery fairly and accurately present the financial
condition of such Indemnitor.
(g) Rights Cumulative; Payments. Lender's rights under this Agreement
shall be in addition to all rights of Lender under the Note, the Security
Instrument and the other Loan Documents. Further, payments made by
Indemnitors under this Agreement shall not reduce in any respect Borrower's
obligations and liabilities under the Note, the Security Instrument and the
other Loan Documents, except to the extent that such payments are required
under this Agreement or the other Loan Documents, or by law, to be applied by
Lender to the obligations and liabilities of Borrower under the Note, the
Security Instrument and the other Loan Documents.
(h) Consents. Indemnitors hereby consent and agree that Lender may at
any time, and from time to time, without further consent from Indemnitors do,
make, grant, consent or agree to any of the following, and the liability of
Indemnitors under this Agreement shall be unconditional and absolute and shall
in no way be impaired or limited by any of the following, whether with or
without notice to Indemnitors or with or without consideration: (i) release
and surrender the Collateral or any portion thereof; (ii) substitute for any
Collateral held by or on behalf of Lender other collateral of like kind, or of
any kind; (iii) make over-advances or increase the amount of the Loan; (iv)
extend the time for performance required by any of the Loan Documents or
extend or renew of the Note; (v) sue upon or foreclose the Note, the Security
Instrument or any of the other Loan Documents; (vi) sell or transfer the
Property subsequent to foreclosure; (vii) release Borrower, any other
Indemnitor or any other person or entity from performance or observance of any
of the agreements, covenants, terms or conditions contained in any of the Loan
Documents by operation of law, Lender's voluntary act or otherwise; (viii)
agree to modify the terms of any one or more of the Loan Documents; (ix) sell,
assign or otherwise transfer the Note, the Security Instrument and/or any
other Loan Documents or any interest therein; or (x) take or fail to take any
action of any type whatsoever. No such action which Lender shall take or fail
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to take in connection with the Loan Documents or any Collateral, nor any
course of dealing with Borrower or any other person, shall limit, impair or
release any of Indemnitors' obligations hereunder, affect this Agreement in
any way or afford any Indemnitor any recourse against Lender. Nothing
contained in this section shall be construed to require Lender to take or
refrain from taking any action referred to herein.
(i) Entire Agreement; Amendment; Severability. This Agreement contains
the entire agreement between the parties respecting the matters herein set
forth (except for the Loan Documents) and supersedes all prior agreements,
whether written or oral, between the parties respecting such matters. Any
amendments or modifications hereto, in order to be effective, shall be in
writing and executed by the parties hereto. A determination that any
provision of this Agreement is unenforceable or invalid shall not affect the
enforceability or validity of any other provision, and any determination that
the application of any provision of this Agreement to any person or
circumstance is illegal or unenforceable shall not affect the enforceability
or validity of such provision as it may apply to any other persons or
circumstances.
(j) Governing Law; Binding Effect; Assignment; Waiver of Acceptance.
This Agreement shall be interpreted, construed and enforced according to the
substantive laws of the State of Mississippi without giving effect to its
principles of choice of law or conflicts of law, except for specific rights,
claims or causes of action which may be provided to Lender under any
Environmental Laws. Should any obligation or remedy under this Agreement be
invalid or unenforceable pursuant to the laws provided herein to govern, the
laws of the other state referred to hereinabove or of another state whose laws
can validate and apply thereto shall govern. The provisions of this Agreement
shall be binding upon Indemnitors and the heirs, executors, legal
representatives, successors and assigns of Indemnitors and shall inure to the
benefit of Lender and the officers, directors, shareholders, agents and
employees of Lender and their respective heirs, successors and assigns. This
Agreement shall in no event be impaired by any change which may arise by
reason of the death of Borrower or any Indemnitor, if individuals, or by
reason of the dissolution of Borrower or any Indemnitor, if Borrower or any
Indemnitor is a corporation, partnership, limited liability company or similar
entity. Each Indemnitor has executed this Agreement individually and not as a
partner of any other indemnitor. This Agreement is assignable by Lender, and
any full or partial assignment hereof by Lender shall operate to vest in the
assignee all rights and powers herein conferred upon and granted to Lender and
so assigned by Lender. Indemnitors expressly waive notice of transfer or
assignment of this Agreement and acknowledge that the failure by Lender to
give any such notice shall not affect the liabilities of Indemnitors
hereunder. Notwithstanding the foregoing, no Indemnitor shall assign its
rights or obligations under this Agreement. Indemnitors hereby waive any
acceptance of this Agreement by Lender, and this Agreement shall immediately
be binding upon Indemnitors.
(k) Notice. All notices, demands, requests or other communications to
be sent by one party to the other hereunder or required by law shall be in
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writing and shall be deemed to have been validly given or served by delivery
of the same in person to the intended addressee, or by depositing the same
with Federal Express or another reputable private courier service for next
business day delivery to the intended addressee at its address set forth on
the first page of this Agreement or at such other address as may be designated
by such party as herein provided, or by depositing the same in the United
States mail, postage prepaid, registered or certified mail, return receipt
requested, addressed to the intended addressee at its address set forth on the
first page of this Agreement or at such other address as may be designated by
such party as herein provided. All notices, demands and requests shall be
effective upon such personal delivery, or one (1) business day after being
deposited with the private courier service, or two (2) business days after
being deposited in the United States mail as required above. Rejection or
other refusal to accept or the inability to deliver because of changed address
of which no notice was given as herein required shall be deemed to be receipt
of the notice, demand or request sent. By giving to the other party hereto at
least fifteen (15) days' prior written notice thereof in accordance with the
provisions hereof, the parties hereto shall have the right from time to time
to change their respective addresses and each shall have the right to specify
as its address any other address within the United States of America.
(l) No Waiver; Time of Essence; Business Days. The failure of any
party hereto to enforce any right or remedy hereunder, or to promptly enforce
any such right or remedy, shall not constitute a waiver thereof nor give rise
to any estoppel against such party nor excuse any of the parties hereto from
their respective obligations hereunder. Any waiver of such right or remedy
must be in writing and signed by the party to be bound. This Agreement is
subject to enforcement at law or in equity, including actions for damages or
specific performance. Time is of the essence hereof. The term "business day"
as used herein shall mean a weekday, Monday through Friday, except a legal
holiday or a day on which banking institutions in New York, New York are
authorized by law to be closed.
(m) Captions for Convenience; Pronouns. The captions and headings of
the sections and paragraphs of this Agreement are for convenience of reference
only and shall not be construed in interpreting the provisions hereof. All
personal pronouns used herein, whether used in the masculine, feminine or
neuter gender, shall include all other genders; and the singular shall include
the plural and vice versa.
(n) Attorneys' Fees. In the event it is necessary for Lender to retain
the services of an attorney or any other consultants in order to enforce this
Agreement, or any portion thereof, Indemnitors agree to pay to Lender any and
all costs and expenses, including, without limitation, attorneys' fees,
incurred by Lender as a result thereof and such costs, fees and expenses shall
be included in Costs.
(o) Successive Actions. A separate right of action hereunder shall
arise each time Lender acquires knowledge of any matter indemnified by
Indemnitors under this Agreement. Separate and successive actions may be
brought hereunder to enforce any of the provisions hereof at any time and from
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time to time. No action hereunder shall preclude any subsequent action, and
Indemnitors hereby waive and covenant not to assert any defense in the nature
of splitting of causes of action or merger of judgments.
(p) Joint and Several Liability. Notwithstanding anything to the
contrary contained herein, the representations, warranties, covenants and
agreements made by Indemnitors herein, and the liability of Indemnitors
hereunder, are joint and several.
(q) Reliance. Lender would not make the Loan to Borrower without this
Agreement. Accordingly, Indemnitors intentionally and unconditionally enter
into the covenants and agreements as set forth above and understand that, in
reliance upon and in consideration of such covenants and agreements, the Loan
shall be made and, as part and parcel thereof, specific monetary and other
obligations have been, are being and shall be entered into which would not be
made or entered into but for such reliance.
(r) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be effective only upon delivery and
thereafter shall be deemed an original, and all of which shall be taken to be
one and the same instrument, for the same effect as if all parties hereto had
signed the same signature page. Any signature page of this Agreement may be
detached from any counterpart of this Agreement without impairing the legal
effect of any signatures thereon and may be attached to another counterpart of
this Agreement identical in form hereto but having attached to it one or more
additional signature pages.
(s) SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(1) INDEMNITORS, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF
COMPETENT COUNSEL, (A) SUBMIT TO PERSONAL JURISDICTION IN THE STATES OF
MISSISSIPPI AND NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON
ARISING FROM OR RELATING TO THIS AGREEMENT, (B) AGREE THAT ANY SUCH ACTION,
SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN HARRISON COUNTY, MISSISSIPPI OR NEW YORK COUNTY, NEW YORK, (C)
SUBMIT TO THE JURISDICTION OF SUCH COURTS, AND, (D) TO THE FULLEST EXTENT
PERMITTED BY LAW, AGREE THAT NONE OF THEM WILL BRING ANY ACTION, SUIT OR
PROCEEDING IN ANY FORUM OTHER THAN SUCH COURTS IN NEW YORK COUNTY, NEW YORK
(BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION, SUIT
OR PROCEEDING IN ANY OTHER FORUM). INDEMNITORS FURTHER CONSENT AND AGREE TO
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT,
ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO
THE BORROWER OR INDEMNITORS AT THE ADDRESS FOR NOTICES DESCRIBED IN SECTION
7(k) HEREOF, AND CONSENT AND AGREE THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY
RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE
VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY
LAW).
(2) INDEMNITORS, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF
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COMPETENT COUNSEL, WAIVE, RELINQUISH AND FOREVER FORGO THE RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY
RELATING TO THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF LENDER OR
INDEMNITORS, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS,
EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR
INDEMNITORS, IN EACH OR THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE.
(t) Waiver by Indemnitors. Indemnitors covenant and agree that upon
the commencement of a voluntary or involuntary bankruptcy proceeding by or
against any Indemnitor, no other Indemnitor shall seek a supplemental stay or
other relief, whether injunctive or otherwise, pursuant to 11 U.S.C. Section
105 or any other provision of the Bankruptcy Reform Act of 1978, as amended,
or any other debtor relief law (whether statutory, common law, case law, or
otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which
may be or become applicable, to stay, interdict, condition, reduce or inhibit
the ability of Lender to enforce any rights of Lender against any of
Indemnitors by virtue of this Agreement or otherwise.
IN WITNESS WHEREOF, Indemnitors have executed this Indemnity Agreement under
seal as of the day and year first above written.
PRESIDENT BROADWATER HOTEL, L.L.C.,
a Mississippi limited liability company
By: Broadwater Hotel, Inc., a
Mississippi corporation, as
manager
By: /s/ John S. Aylsworth
----------------------------
Name: John S. Aylsworth
---------------------------
PRESIDENT CASINOS, INC.
By: /s/ John S. Aylsworth
--------------------------------
Name: John S. Aylsworth
--------------------------------
Its: Executive Vice President
--------------------------------
(CORPORATE SEAL)
THE PRESIDENT RIVERBOAT CASINO-
MISSISSIPPI, INC.
By: /s/ John S. Aylsworth
--------------------------------
Name: John S. Aylsworth
--------------------------------
Its: Executive Vice President
--------------------------------
(CORPORATE SEAL)
14
EXHIBIT 2.4
INDEMNITY AND GUARANTY AGREEMENT
THIS INDEMNITY AND GUARANTY AGREEMENT (this "Agreement"), made as of the
22th day of July, 1997, by PRESIDENT CASINOS, INC., a Delaware corporation
having a mailing address at 802 North First Street, St. Louis, Missouri 63102
("President Casinos"), and THE PRESIDENT RIVERBOAT CASINO-MISSISSIPPI, INC., a
Mississippi corporation, having a mailing address at 2110 Beach Boulevard,
Biloxi, Mississippi 39531 (President Casinos and President Riverboat Casino-
Mississippi, Inc., being hereinafter referred together as "Indemnitor"), in
favor of LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation whose address
is 3 World Financial Center, 12th Floor, 200 Vesey Street, New York, New York
10285-1200 ("Lender").
W I T N E S S E T H:
THAT, WHEREAS, Lender has this day made a loan to President Broadwater
Hotel, L.L.C., a Mississippi limited liability company ("Borrower") and a
wholly-owned subsidiary of President Casino in the principal face amount of
$30,000,000.00 (the "Loan");
WHEREAS, the Loan is evidenced by that certain Promissory Note dated the
date hereof from Borrower to Lender in the principal face amount of
$30,000,000.00(the "Note");
WHEREAS, the Loan is secured by, among other things, that certain Deed of
Trust and Security Agreement dated as of the date hereof from Borrower, as
grantor, for the benefit of Lender (the "Deed of Trust"; and the Note, the
Deed of Trust and all other documents executed or delivered in connection with
the Loan are sometimes hereinafter referred to collectively as the "Loan
Documents") creating a first lien on Borrower's interest in certain real
property and improvements located in Harrison County, Mississippi (the
"Security Property"); which real property is more particularly described in
Exhibit "A" attached hereto and incorporated herein by this reference;
WHEREAS, as a condition to making the Loan to Borrower, Lender has required
that Indemnitor indemnify Lender from and against and guarantee payment to
Lender of those items for which Borrower is personally liable and for which
Lender has recourse against Borrower under the terms of the Note and the Deed
of Trust; and
WHEREAS, President Casinos is the parent corporation of Borrower and
President Riverboat Casino-Mississippi, Inc., is an affiliate of Borrower, the
extension of the Loan to Borrower is of substantial benefit to Indemnitor and,
therefore, Indemnitor desires to indemnify Lender from and against and
guarantee payment to Lender of those items for which Borrower is personally
liable and for which Lender has recourse against Borrower under the terms of
the Note and the Deed of Trust.
<PAGE>
NOW, THEREFORE, to induce Lender to extend the Loan to Borrower and in
consideration of the foregoing premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Indemnitor, jointly and severally, hereby covenants and agrees for the benefit
of Lender, as follows:
1. Indemnity and Guaranty. Indemnitor hereby assumes liability for, hereby
guarantees payment to Lender of, hereby agrees to pay, protect, defend and
save Lender harmless from and against, and hereby indemnifies Lender from and
against any and all liabilities, obligations, losses, damages, costs and
expenses (including, without limitation, attorneys' fees), causes of action,
suits, claims, demands and judgments of any nature or description whatsoever
(collectively, "Costs") which may at any time be imposed upon, incurred by or
awarded against Lender as a result of: (i) proceeds paid under any insurance
policies (or paid as a result of any other claim or cause of action against
any person or entity) by reason of damage, loss or destruction to all or any
portion of the Security Property, to the full extent of such proceeds not
previously delivered to Lender, but which, under the terms of the Loan
Documents, should have been delivered to Lender; (ii) proceeds or awards
resulting from the condemnation or other taking in lieu of condemnation of all
or any portion of the Security Property, to the full extent of such proceeds
or awards not previously delivered to Lender, but which, under the terms of
the Loan Documents, should have been delivered to Lender; (iii) all tenant
security deposits or other refundable deposits paid to or held by Borrower or
any other person or entity in connection with leases of all or any portion of
the Security Property which are not applied in accordance with the terms of
the applicable lease or other agreement, or which are not delivered to Lender
upon a foreclosure of the Security Property or action in lieu thereof, unless
such deposits have previously been delivered to Lender's servicer pursuant to
the Lockbox Agreement; (iv) rent and other payments received from tenants
under leases of all or any portion of the Security Property paid more than one
month in advance, except to the extent such rent and other payments have been
deposited in the "Lockbox Account" established pursuant to the Lockbox
Agreement; (v) rents, issues, profits, revenues and proceeds of accounts or
general intangibles of all or any portion of the Security Property received or
applicable to a period after any notice of default from Lender under the Loan
Documents, except to the extent such rents, issues, profits or revenues have
been deposited in the "Lockbox Account" established pursuant to the Lockbox
Agreement;(vi) waste committed on the Security Property, damage to the
Security Property as a result of the intentional misconduct or negligence of
Borrower or any of its principals, officers or general partners, or any agent
or employee of such persons, or any removal or disposal of the Security
Property in violation of the terms of the Loan Documents; (vii) any valid
taxes, assessments, mechanic's liens, materialmen's liens or other liens not
paid to the appropriate payee which could create liens on any portion of the
Security Property which would be superior to the lien or security title of the
Deed of Trust or the other Loan Documents, to the full extent of the amount
claimed by any such lien claimant; (viii) all obligations and indemnities of
Borrower under the Loan Documents relating to hazardous or toxic substances or
compliance with environmental laws and regulations to the full extent of any
losses or damages (including those resulting from diminution in value of any
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Security Property) incurred by Lender as a result of the existence of such
hazardous or toxic substances or failure to comply with environmental laws or
regulations; (ix) failure of the Security Property to be in compliance with
the requirements of the Americans with Disabilities Act of 1990, the Fair
Housing Amendments Act of 1988, all state and local laws and ordinances
related to handicapped access and all rules, regulations, and orders issued
pursuant thereto including, without limitation, the Americans with
Disabilities Act Accessibility Guidelines for Buildings and Facilities; (x)
failure to operate and maintain the Security Property in accordance with other
laws, ordinances and regulations relating thereto; (xi) all obligations of
Borrower under the Loan Documents to indemnify, hold harmless or defend Lender
against any claims, actions or demands against Lender relating to the loan
evidenced hereby, the Loan Documents or the Security Property other than those
finally determined to have resulted solely from the gross negligence or
willful misconduct of Lender; (xii) fraud or material misrepresentation by
Borrower or any member or general partner in Borrower, or by any principals,
officers or general partners of Borrower or any member or general partner in
Borrower, or by any guarantor, any indemnitor or any agent, employee or other
person authorized or apparently authorized to make statements or
representations on behalf of Borrower or any member or general partner in
Borrower, or on behalf of any principal, officer or general partner of
Borrower or of any member or general partner in Borrower, or on behalf of any
guarantor or any indemnitor, to the full extent of any losses, damages and
expenses incurred by Lender on account thereof; (xiii) the amount of any loss
or damage to the Security Property resulting from flood or earthquake, to the
extent such loss or damage is not covered by flood or earthquake insurance,
respectively (whether such lack of coverage results from coverage limits,
deductibles, coinsurance provisions, or otherwise); (xiv) the amount of any
loss, damage or liability incurred by Lender as a result of Borrower's hazard
insurance coverage on the Security Property being less than full replacement
cost coverage; (xv) any loss of the Security Property due to forfeiture
thereof or of any portion thereof or interest therein as a result of any
criminal or quasi-criminal activity by Borrower (or any person so related to
Borrower or the Security Property that the Security Property or any portion
thereof or any interest therein might be forfeited on account of the activity
of such person), to the full extent of the diminution in the net realizable
value to Lender of the Security Property; (xvi) costs and expenses (including,
without limitation, attorney's fees) incurred by Lender in the enforcement of
Lender's rights and remedies under the Note or any of the other Loan
Documents, or at law or in equity with respect to the loan evidenced and
secured by the Loan Documents; (xvii) all out of pocket costs and expenses,
including, without limitation, legal fees and expenses and fees and expenses
of other third party consultants, sustained or incurred by Lender in the event
of a voluntary bankruptcy filing by Borrower, any member or general partner in
Borrower, any Indemnitor, or President Riverboat Casino-Mississippi, Inc.
("President Mississippi") or any person or entity succeeding to the rights of
President Mississippi under that certain Restated Lease Agreement dated
November, 1992, and effective as of July 15, 1992, as amended, between BH
Acquisition Corporation and President Mississippi (President Mississippi and
any such person or entity succeeding to such rights under the Restated Lease
Agreement being hereinafter referred to as "Sublessee"), or an involuntary
3
<PAGE>
filing against Borrower, any member or general partner in Borrower, any
Indemnitor or Sublessee not dismissed within ninety (90) days (except if such
involuntary action is brought by Lender); (xviii) failure to permit on-site
inspections of the Security Property in accordance with the terms of the Deed
of Trust or failure to deliver financial information as required under the
Loan Documents, subject to any notice and right to cure provisions set forth
therein; (xix) any financial information concerning Borrower, any member or
general partner in Borrower, any Indemnitor or Sublessee submitted to Lender
by any of them is fraudulent in any respect, containing any fraudulent
information or misrepresenting in any material respect the financial condition
of Borrower, any member or general partner in Borrower, any Indemnitor or
Sublessee; (xx) Borrower's failure to obtain Lender's prior written consent to
any subordinate financing secured by the Security Property as required under
Section 1.13 of the Deed of Trust; (xxi) Borrower's failure to obtain Lender's
prior written consent to any transfer of the Security Property or of any
direct or indirect ownership interest in Borrower to the extent such consent
is required under the Loan Documents; (xxii) Borrower contesting the validity
or enforceability of the Loan Documents and/or asserting defenses for the sole
purpose of delaying, hindering or impairing Lender's rights or remedies under
the Loan Documents or at law or in equity; or (xxiii) the amount of any loss,
damage or liability incurred by Lender as a result of any default under,
transfer or assignment of, or cancellation, rejection, surrender, amendment or
modification of that certain Ground Lease Agreement, dated May 24, 1995, by
and between the Mississippi Division of the United Sons of Confederate
Veterans (the "Confederate Veterans") and BH Acquisition Corporation, as
assigned to Borrower (the "Lease"), or as a result of Borrower's failure to
obtain a Consent, Estoppel, Non-Disturbance and Modification Agreement
substantially in the form previously provided by Lender to Borrower, or
otherwise in form and substance satisfactory to Lender, including, without
limitation, any losses, costs or expenses incurred in connection with
construction of substitute fairways, tee boxes and greens and any other
improvements presently located on the property affected by the Lease,
including the costs of obtaining any necessary governmental consents or
approvals, permits or rezonings for such purpose. Nothing contained in this
Section 1 shall (A) be deemed to be a release or impairment of the
indebtedness evidenced by the Note or the other obligations of Borrower under
the Loan Documents or the lien of the Loan Documents upon the Security
Property, or (B) preclude Lender from foreclosing the Loan Documents in case
of any default or from enforcing any of the other rights of Lender except as
stated in this section, or (C) limit or impair in any way whatsoever this
Agreement or release, relieve, reduce, waive or impair in any way whatsoever,
any obligation of Indemnitor under this Agreement.
This is a guaranty of payment and performance and not of collection. The
liability of Indemnitor under this Agreement shall be direct and immediate and
not conditional or contingent upon the pursuit of any remedies against
Borrower or any other person (including, without limitation, other guarantors,
if any), nor against the collateral for the Loan. Indemnitor waives any right
to require that an action be brought against Borrower or any other person or
to require that resort be had to any collateral for the Loan or to any balance
of any deposit account or credit on the books of Lender in favor of Borrower
4
<PAGE>
or any other person. In the event, on account of the Bankruptcy Reform Act of
1978, as amended, or any other debtor relief law (whether statutory, common
law, case law or otherwise) of any jurisdiction whatsoever, now or hereafter
in effect, which may be or become applicable, Borrower shall be relieved of or
fail to incur any liability as provided in the Loan Documents, Indemnitor
shall nevertheless be fully liable to the extent provided above in the first
paragraph of this Section 1. In the event of a default under the Loan
Documents which is not cured within any applicable grace or cure period,
Lender shall have the right to enforce its rights, powers and remedies
(including, without limitation, foreclosure of all or any portion of the
collateral for the Loan) thereunder or hereunder, in any order, and all
rights, powers and remedies available to Lender in such event shall be non-
exclusive and cumulative of all other rights, powers and remedies provided
thereunder or hereunder or by law or in equity. If the obligations guaranteed
hereby are partially paid or discharged by reason of the exercise of any of
the remedies available to Lender, this Agreement shall nevertheless remain in
full force and effect, and Indemnitor shall remain liable for all remaining
indebtedness and obligations guaranteed hereby, even though any rights which
Indemnitor may have against Borrower may be destroyed or diminished by the
exercise of any such remedy. Nothing herein shall be deemed to make
Indemnitor liable to repay the indebtedness evidenced by the Note.
2. Indemnification Procedures.
(a) If any action shall be brought against Lender based upon any of the
matters for which Lender is indemnified hereunder, Lender shall notify
Indemnitor in writing thereof and Indemnitor shall promptly assume the defense
thereof, including, without limitation, the employment of counsel reasonably
acceptable to Lender and the negotiation of any settlement; provided, however,
that any failure of Lender to notify Indemnitor of such matter shall not
impair or reduce the obligations of Indemnitor hereunder. Lender shall have
the right, at the expense of Indemnitor (which expense shall be included in
Costs), to employ separate counsel in any such action and to participate in
the defense thereof. In the event Indemnitor shall fail to discharge or
undertake to defend Lender against any claim, loss or liability for which
Lender is indemnified hereunder, Lender may, at its sole option and election,
defend or settle such claim, loss or liability. The liability of Indemnitor
to Lender hereunder shall be conclusively established by such settlement,
provided such settlement is made in good faith, the amount of such liability
to include both the settlement consideration and the costs and expenses,
including, without limitation, attorneys' fees and disbursements, incurred by
Lender in effecting such settlement. In such event, such settlement
consideration, costs and expenses shall be included in Costs and Indemnitor
shall pay the same as hereinafter provided. Lender's good faith in any such
settlement shall be conclusively established if the settlement is made on the
advice of independent legal counsel for Lender.
(b) Indemnitor shall not, without the prior written consent of Lender:
(i) settle or compromise any action, suit, proceeding or claim or consent to
the entry of any judgment that does not include as an unconditional term
thereof the delivery by the claimant or plaintiff to Lender of a full and
5
<PAGE>
complete written release of Lender (in form, scope and substance satisfactory
to Lender in its sole discretion) from all liability in respect of such
action, suit, proceeding or claim and a dismissal with prejudice of such
action, suit, proceeding or claim; or (ii) settle or compromise any action,
suit, proceeding or claim in any manner that may adversely affect Lender or
obligate Lender to pay any sum or perform any obligation as determined by
Lender in its sole discretion.
(c) All Costs shall be immediately reimbursable to Lender when and as
incurred and, in the event of any litigation, claim or other proceeding,
without any requirement of waiting for the ultimate outcome of such
litigation, claim or other proceeding, and Indemnitor shall pay to Lender any
and all Costs within ten (10) days after written notice from Lender itemizing
the amounts thereof incurred to the date of such notice. In addition to any
other remedy available for the failure of Indemnitor to periodically pay such
Costs, such Costs, if not paid within said ten-day period, shall bear interest
at the Default Interest Rate (as defined in the Note).
3. Reinstatement of Obligations. If at any time all or any part of any
payment made by Indemnitor or received by Lender from Indemnitor under or with
respect to this Agreement is or must be rescinded or returned for any reason
whatsoever (including, but not limited to, the insolvency, bankruptcy or
reorganization of Indemnitor or Borrower), then the obligations of Indemnitor
hereunder shall, to the extent of the payment rescinded or returned, be deemed
to have continued in existence, notwithstanding such previous payment made by
Indemnitor, or receipt of payment by Lender, and the obligations of Indemnitor
hereunder shall continue to be effective or be reinstated, as the case may be,
as to such payment, all as though such previous payment by Indemnitor had
never been made.
4. Waivers by Indemnitor. Indemnitor hereby waives and agrees not to
assert or take advantage of:
(a) Any right to require Lender to proceed against Borrower or any
other person or to proceed against or exhaust any security held by Lender at
any time or to pursue any other remedy in Lender's power or under any other
agreement before proceeding against Indemnitor hereunder;
(b) Any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or persons or the failure
of Lender to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons;
(c) Demand, presentment for payment, notice of nonpayment, protest,
notice of protest and all other notices of any kind, or the lack of any
thereof, including, without limiting the generality of the foregoing, notice
of the existence, creation or incurring of any new or additional indebtedness
or obligation or of any action or non-action on the part of Borrower, Lender,
any endorser or creditor of Borrower or of Indemnitor or on the part of any
other person whomsoever under this or any other instrument in connection with
any obligation or evidence of indebtedness held by Lender;
6
<PAGE>
(d) Any defense based upon an election of remedies by Lender;
(e) Any right or claim or right to cause a marshaling of the assets of
Indemnitor;
(f) Any principle or provision of law, statutory or otherwise, which is
or might be in conflict with the terms and provisions of this Agreement;
(g) Any duty on the part of Lender to disclose to Indemnitor any facts
Lender may now or hereafter know about Borrower or the Security Property,
regardless of whether Lender has reason to believe that any such facts
materially increase the risk beyond that which Indemnitor intends to assume or
has reason to believe that such facts are unknown to Indemnitor or has a
reasonable opportunity to communicate such facts to Indemnitor, it being
understood and agreed that Indemnitor is fully responsible for being and
keeping informed of the financial condition of Borrower, of the condition of
the Security Property and of any and all circumstances bearing on the risk
that liability may be incurred by Indemnitor hereunder;
(h) Any lack of notice of disposition or of manner of disposition of
any collateral for the Loan;
(i) Any invalidity, irregularity or unenforceability, in whole or in
part, of any one or more of the Loan Documents;
(j) Any lack of commercial reasonableness in dealing with the
collateral for the Loan;
(k) Any deficiencies in the collateral for the Loan, or any deficiency
in the ability of Lender to collect or to obtain performance from any persons
or entities now or hereafter liable for the payment and performance of any
obligation hereby guaranteed;
(l) An assertion or claim that the automatic stay provided by 11 U.S.C.
Section 362 (arising upon the voluntary or involuntary bankruptcy proceeding
of Borrower) or any other stay provided under any other debtor relief law
(whether statutory, common law, case law or otherwise) of any jurisdiction
whatsoever, now or hereafter in effect, which may be or become applicable,
shall operate or be interpreted to stay, interdict, condition, reduce or
inhibit the ability of Lender to enforce any of its rights, whether now or
hereafter required, which Lender may have against Indemnitor or the collateral
for the Loan;
(m) Any modifications of the Loan Documents or any obligation of
Borrower relating to the Loan by operation of law or by action of any court,
whether pursuant to the Bankruptcy Reform Act of 1978, as amended, or any
other debtor relief law (whether statutory, common law, case law or otherwise)
of any jurisdiction whatsoever, now or hereafter in effect, or otherwise; and
(n) Any action, occurrence, event or matter consented to by Indemnitor
under Section 5(h) hereof, under any other provision hereof, or otherwise.
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5. General Provisions.
(a) Fully Recourse. All of the terms and provisions of this Agreement
are recourse obligations of Indemnitor and not restricted by any limitation on
personal liability.
(b) Unsecured Obligations. Indemnitor hereby acknowledges that
Lender's appraisal of the Security Property is such that Lender is not willing
to accept the consequences of the inclusion of Indemnitor's indemnity set
forth herein among the obligations secured by the Deed of Trust and the other
Loan Documents and that Lender would not make the Loan but for the unsecured
personal liability undertaken by Indemnitor herein.
(c) Survival. This Agreement shall be deemed to be continuing in
nature and shall remain in full force and effect and shall survive the
exercise of any remedy by Lender under the Deed of Trust or any of the other
Loan Documents, including, without limitation, any foreclosure or deed in lieu
thereof, even if, as a part of such remedy, the Loan is paid or satisfied in
full.
(d) No Subrogation; No Recourse Against Lender. Notwithstanding the
satisfaction by Indemnitor of any liability hereunder, Indemnitor's rights of
subrogation, contribution, reimbursement or indemnity, if any, or any right of
recourse to or with respect to the assets or property of Borrower or to any
collateral for the Loan shall (a) be subject and subordinate to the rights of
Lender and (b) shall not be exercised until such time, if any, as the Loan is
paid in full. In connection with the foregoing, Indemnitor expressly agrees
not to exercise any and all rights of subrogation to Lender against Borrower,
and Indemnitor hereby agrees not to exercise any rights to enforce any remedy
which Lender may have against Borrower and any right to participate in any
collateral for the Loan. In addition to and without in any way limiting the
foregoing, Indemnitor hereby subordinates any and all indebtedness of Borrower
now or hereafter owed to Indemnitor to all indebtedness of Borrower to Lender,
and agrees with Lender that Indemnitor shall not demand or accept any payment
of principal or interest from Borrower, shall not claim any offset or other
reduction of Indemnitor's obligations hereunder because of any such
indebtedness and shall not take any action to obtain any of the collateral
from the Loan until such time, if any, as the Loan is paid in full. Further,
Indemnitor shall not have any right of recourse against Lender by reason of
any action Lender may take or omit to take under the provisions of this
Agreement or under the provisions of any of the Loan Documents.
(e) Reservation of Rights. Nothing contained in this Agreement shall
prevent or in any way diminish or interfere with any rights or remedies,
including, without limitation, the right to contribution, which Lender may
have against Borrower, Indemnitor or any other party under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (codified at
Title 42 U.S.C. Section 9601 et seq.), as it may be amended from time to time,
or any other applicable federal, state or local laws, all such rights being
hereby expressly reserved.
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<PAGE>
(f) Financial Statements. Indemnitor hereby agrees, as a material
inducement to Lender to make the Loan to Borrower, to furnish to Lender
promptly upon demand by Lender current and dated financial statements
detailing the assets and liabilities of Indemnitor certified by Indemnitor, in
form and substance acceptable to Lender. Indemnitor hereby warrants and
represents unto Lender that any and all balance sheets, net worth statements
and other financial data which have heretofore been given or may hereafter be
given to Lender with respect to Indemnitor did or will at the time of such
delivery fairly and accurately present in all material respects the financial
condition of Indemnitor.
(g) Rights Cumulative; Payments. Lender's rights under this Agreement
shall be in addition to all rights of Lender under the Deed of Trust and the
other Loan Documents. FURTHER, PAYMENTS MADE BY INDEMNITOR UNDER THIS
AGREEMENT SHALL NOT REDUCE IN ANY RESPECT BORROWER'S OBLIGATIONS AND
LIABILITIES UNDER THE NOTE, THE DEED OF TRUST AND THE OTHER LOAN DOCUMENTS,
except to the extent that such payments are required under this Agreement or
the other Loan Documents, or by law, to be applied by Lender to obligations
and liabilities of Borrower under the Note, the Deed of Trust and the other
Loan Documents.
(h) No Limitation on Liability. Indemnitor hereby consents and agrees
that Lender may at any time and from time to time without further consent from
Indemnitor do any of the following events, and the liability of Indemnitor
under this Agreement shall be unconditional and absolute and shall in no way
be impaired or limited by any of the following events, whether occurring with
or without notice to Indemnitor or with or without consideration: (i) any
extensions of time for performance required by any of the Loan Documents or
extension or renewal of the Note; (ii) any sale, assignment or foreclosure of
the Note, the Deed of Trust or any of the other Loan Documents or any sale or
transfer of the Security Property; (iii) any change in the composition of
Borrower, including, without limitation, the withdrawal or removal of
Indemnitor from any current or future position of ownership, management or
control of Borrower; (iv) the accuracy or inaccuracy of the representations
and warranties made by Indemnitor herein or by Borrower in any of the Loan
Documents; (v) the release of Borrower or of any other person or entity from
performance or observance of any of the agreements, covenants, terms or
conditions contained in any of the Loan Documents by operation of law,
Lender's voluntary act or otherwise; (vi) the release or substitution in whole
or in part of any security for the Loan; (vii) Lender's failure to record the
Deed of Trust or to file any financing statement (or Lender's improper
recording or filing thereof) or to otherwise perfect, protect, secure or
insure any lien or security interest given as security for the Loan; (viii)
the modification of the terms of any one or more of the Loan Documents; or
(ix) the taking or failure to take any action of any type whatsoever. No such
action which Lender shall take or fail to take in connection with the Loan
Documents or any collateral for the Loan, nor any course or dealing with
Borrower or any other person, shall limit, impair or release Indemnitor's
obligations hereunder, effect this Agreement in any way or afford Indemnitor
any recourse against Lender. Nothing contained in this Section shall be
construed to require Lender to take or refrain from taking any action referred
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<PAGE>
to herein.
(i) Entire Agreement; Amendment; Severability. This Agreement contains
the entire agreement between the parties respecting the matters herein set
forth and supersedes all prior agreements, whether written or oral, between
the parties respecting such matters. Any amendments or modifications hereto,
in order to be effective, shall be in writing and executed by the parties
hereto. A determination that any provision of this Agreement is unenforceable
or invalid shall not affect the enforceability or validity of any other
provision, and any determination that the application of any provision of this
Agreement to any person or circumstance is illegal or unenforceable shall not
affect the enforceability or validity of such provision as it may apply to any
other persons or circumstances.
(j) Governing Law; Binding Effect; Waiver of Acceptance. This
Agreement shall be governed by and construed in accordance with the laws of
the State of Mississippi, except to the extent that the applicability of any
of such laws may now or hereafter be preempted by Federal law, in which case
such Federal law shall so govern and be controlling. This Agreement shall
bind Indemnitor and the heirs, personal representatives, successors and
assigns of Indemnitor and shall inure to the benefit of Lender and the
officers, directors, shareholders, agents and employees of Lender and their
respective heirs, successors and assigns. Notwithstanding the foregoing,
Indemnitor shall not assign any of its rights or obligations under this
Agreement without the prior written consent of Lender, which consent may be
withheld by Lender in its sole discretion. Indemnitor hereby waives any
acceptance of this Agreement by Lender, and this Agreement shall immediately
be binding upon Indemnitor.
(k) Notice. All notices, demands, requests or other communications to
be sent by one party to the other hereunder or required by law shall be in
writing and shall be deemed to have been validly given or served by delivery
of the same in person to the intended addressee, or by depositing the same
with Federal Express or another reputable private courier service for next
business day delivery to the intended addressee at its address set forth on
the first page of this Agreement or at such other address as may be designated
by such party as herein provided, or by depositing the same in the United
States mail, postage prepaid, registered or certified mail, return receipt
requested, addressed to the intended addressee at its address set forth on the
first page of this Agreement or at such other address as may be designated by
such party as herein provided. All notices, demands and requests shall be
effective upon such personal delivery, or one (1) business day after being
deposited with the private courier service, or two (2) business days after
being deposited in the United States mail as required above. Rejection or
other refusal to accept or the inability to deliver because of changed address
of which no notice was given as herein required shall be deemed to be receipt
of the notice, demand or request sent. By giving to the other party hereto at
least fifteen (15) days' prior written notice thereof in accordance with the
provisions hereof, the parties hereto shall have the right from time to time
to change their respective addresses and each shall have the right to specify
as its address any other address within the United States of America.
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<PAGE>
(l) No Waiver; Time of Essence; Business Day. The failure of any
party hereto to enforce any right or remedy hereunder, or to promptly enforce
any such right or remedy, shall not constitute a waiver thereof nor give rise
to any estoppel against such party nor excuse any of the parties hereto from
their respective obligations hereunder. Any waiver of such right or remedy
must be in writing and signed by the party to be bound. This Agreement is
subject to enforcement at law or in equity, including actions for damages or
specific performance. Time is of the essence hereof. The term "business day"
as used herein shall mean a weekday, Monday through Friday, except a legal
holiday or a day on which banking institutions in New York, New York are
authorized by law to be closed.
(m) Captions for Convenience. The captions and headings of the
sections and paragraphs of this Agreement are for convenience of reference
only and shall not be construed in interpreting the provisions hereof.
(n) Attorneys' Fees. In the event it is necessary for Lender to retain
the services of an attorney or any other consultants in order to enforce this
Agreement, or any portion thereof, Indemnitor agrees to pay to Lender any and
all costs and expenses, including, without limitation, attorneys' fees,
incurred by Lender as a result thereof and such costs, fees and expenses shall
be included in Costs.
(o) Successive Actions. A separate right of action hereunder shall
arise each time Lender acquires knowledge of any matter indemnified or
guaranteed by Indemnitor under this Agreement. Separate and successive
actions may be brought hereunder to enforce any of the provisions hereof at
any time and from time to time. No action hereunder shall preclude any
subsequent action, and Indemnitor hereby waives and covenants not to assert
any defense in the nature of splitting of causes of action or merger of
judgments.
(p) Reliance. Lender would not make the Loan to Borrower without this
Agreement. Accordingly, Indemnitor intentionally and unconditionally enters
into the covenants and agreements as set forth above and understands that, in
reliance upon and in consideration of such covenants and agreements, the Loan
shall be made and, as part and parcel thereof, specific monetary and other
obligations have been, are being and shall be entered into which would not be
made or entered into but for such reliance.
(q) SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(1) INDEMNITOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF
COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE WHERE THE
SECURITY PROPERTY IS LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON
ARISING FROM OR RELATING TO THIS AGREEMENT, (B) AGREES THAT ANY SUCH ACTION,
SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION SITTING IN THE COUNTY WHERE THE SECURITY PROPERTY IS LOCATED, (C)
SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND, (D) TO THE FULLEST EXTENT
PERMITTED BY LAW, AGREES THAT NEITHER OF THEM WILL BRING ANY ACTION, SUIT OR
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<PAGE>
PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF
LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM).
INDEMNITOR FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR
OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR
CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO THE INDEMNITOR AT THE ADDRESS FOR
NOTICES DESCRIBED IN SECTION 5(k) HEREOF, AND CONSENT AND AGREE THAT SUCH
SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT
NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN
ANY OTHER MANNER PERMITTED BY LAW).
(2) INDEMNITOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF
COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN
ANY WAY RELATING TO THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF LENDER
OR INDEMNITOR, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS,
EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR
INDEMNITOR, IN EACH OR THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT
OR OTHERWISE.
(r) Waiver by Indemnitor. Indemnitor covenants and agrees that, upon
the commencement of a voluntary or involuntary bankruptcy proceeding by or
against Borrower, Indemnitor shall not seek or cause Borrower or any other
person or entity to seek a supplemental stay or other relief, whether
injunctive or otherwise, pursuant to 11 U.S.C. Section 105 or any other
provision of the Bankruptcy Reform Act of 1978, as amended, or any other
debtor relief law, (whether statutory, common law, case law or otherwise) of
any jurisdiction whatsoever, now or hereafter in effect, which may be or
become applicable, to stay, interdict, condition, reduce or inhibit the
ability of Lender to enforce any rights of Lender against Indemnitor or the
collateral for the Loan by virtue of this Agreement or otherwise.
IN WITNESS WHEREOF, Indemnitor has executed this Agreement under seal as of
the day and year first above written.
INDEMNITOR:
PRESIDENT CASINOS, INC.
By: /s/ John S. Aylsworth
--------------------------------
Name: John S. Aylsworth
--------------------------------
Title: Executive Vice President
--------------------------------
(CORPORATE SEAL)
THE PRESIDENT RIVERBOAT CASINO-
MISSISSIPPI, INC., a Mississippi
corporation
By: /s/ John S. Aylsworth
--------------------------------
Name: John S. Aylsworth
--------------------------------
Title: Executive Vice President
--------------------------------
(CORPORATE SEAL)
EXHIBIT 2.5
UNCONDITIONAL GUARANTY OF LEASE OBLIGATIONS
FOR AND IN CONSIDERATION OF the sum of Ten and No/100 Dollars ($10.00) and
other good and valuable consideration paid or delivered to the undersigned
PRESIDENT CASINOS, INC., a Delaware corporation (hereinafter referred to as
"Guarantor"), the receipt and sufficiency whereof are hereby acknowledged by
Guarantor, and for the purpose of seeking to induce LEHMAN BROTHERS HOLDINGS
INC., a Delaware corporation (hereinafter referred to as "Lender"), to extend
credit or otherwise provide financial accommodations to President Broadwater
Hotel, L.L.C., a Mississippi limited liability company (hereinafter referred
to as "Lessor"), which extension of credit and provision of financial
accommodations will be to the direct interest, advantage and benefit of
Guarantor, Guarantor does hereby absolutely, unconditionally and irrevocably
guarantee to Lender the full and prompt payment and performance of any and all
obligations of The President Riverboat Casino-Mississippi, Inc., a Mississippi
corporation and a wholly-owned subsidiary of Guarantor (hereinafter referred
to as "Lessee"), under the terms of that certain Restated Lease Agreement
dated November, 1992 and effective as of July 15, 1992, between BH Acquisition
Corporation ("BH"), as lessor, and Lessee, as lessee, as amended by that
certain First Amendment to the Restated Lease Agreement dated August 12, 1993,
and effective as of August 1, 1993 and as further amended by that certain
Second Amendment to the Restated Lease Agreement effective as of July 22,
1997 (such Restated Lease Agreement, as so amended, and as the same may be
hereafter amended or modified is hereinafter referred to as the "Restated
Lease") including, without limitation, the obligations of Lessee to make all
rental and other payments required under the terms of the Lease. Guarantor
hereby acknowledges that BH has contemporaneously with the execution of this
Guaranty merged into J. Edward Connelly Associates, Inc. ("JECA"), with JECA
being the surviving corporation, and that the rights and interests of BH as
lessor under the Restated Lease have been transferred to JECA by operation of
law and that JECA has contemporaneously with the execution of this Guaranty
has transferred and assigned such rights and interests under the Restated
Lease to Lessor and that Lessor has assigned its rights and interests under
the Restated Lease to Lender pursuant to that certain Deed of Trust, Security
Agreement and Fixture Filing of even date herewith from Lessor for the benefit
of Lender (the "Deed of Trust"), and that certain Assignment of Leases and
Rents of even date herewith from Lessor to Lender (the "Assignment of Rents";
the Deed of Trust, the Assignment of Rents, the promissory note described in
and secured by the Deed of Trust (the "Note") and all other agreements,
documents or instruments now or hereafter evidencing, securing or otherwise
relating to the indebtedness secured by the Deed of Trust are hereinafter
collectively referred to as the "Loan Documents").
1. Agreement to Pay and Perform; Costs of Collection. Guarantor does
hereby agree that if any and all sums which are now or may hereafter become
due from Lessee under the Restated Lease are not paid by Lessee in accordance
with their terms, or if any and all other obligations of Lessee under the
Restated Lease are not performed by Lessee in accordance with their terms,
Guarantor will immediately make such payments and perform such obligations.
<PAGE>
Guarantor further agrees to pay Lender on demand all costs and expenses
(including court costs and reasonable attorneys' fees and disbursements) paid
or incurred by Lender in endeavoring to collect the obligations and
indebtedness guaranteed hereby, to enforce any of the other obligations of
Lessee guaranteed hereby, or any portion thereof, or to enforce this Guaranty,
and until paid to Lender, such sums shall bear interest at the rate of 14% per
annum, or if such rate of interest may not be collected under applicable law,
then at the maximum rate of interest, if any, which may be collected under
applicable law.
2. Reinstatement of Refunded Payments. If, for any reason, any payment to
Lender of any of the obligations guaranteed hereunder is required to be
refunded by Lender to Lessee, or paid or turned over to any other person,
including, without limitation, by reason of the operation of bankruptcy,
reorganization, receivership or insolvency laws or similar laws of general
application relating to creditors' rights and remedies now or hereafter
enacted, Guarantor agrees to pay the amount so required to be refunded, paid
or turned over (the "Turnover Payment"), and the obligations of Guarantor
shall not be treated as having been discharged by the original payment to
Lender giving rise to the Turnover Payment, and this Guaranty shall be treated
as having remained in full force and effect for any such Turnover Payment so
made by Lender, as well as for any amounts not theretofore paid to Lender on
account of such obligations.
3. Rights of Lender to Deal with Collateral, Lessor, Lessee and Other
Persons. Guarantor hereby consents and agrees that Lender may (or, with
respect to the Restated Lease, Lender may authorize Lessor or give its consent
to Lessor to take any of the following actions) at any time, and from time to
time, without thereby releasing Guarantor from any liability hereunder and
without notice to or further consent from Guarantor, either with or without
consideration: release or surrender any lien or other security of any kind or
nature whatsoever held by it or by any person, firm or corporation on its
behalf or for its account, securing any indebtedness or liability hereby
guaranteed; substitute for any collateral so held by it, other collateral of
like kind, or of any kind; modify the terms of the Loan Documents or the
Restated Lease; extend or renew the Loan Documents or the Restated Lease for
any period; grant releases, compromises and indulgences with respect to the
Loan Documents or the Restated Lease and to any persons or entities now or
hereafter liable thereunder or hereunder; release any other guarantor, surety,
endorser or accommodation party of the Loan Documents or the Restated Lease;
or take or fail to take any action of any type whatsoever. No such action
which Lender shall take or fail to take in connection with the Loan Documents
or the Restated Lease, or any of them, or any security for the payment of the
indebtedness of Lessor to Lender or for the performance of any obligations or
undertakings of Lessor or Lessee, nor any course of dealing with Lessor or
Lessee or any other person, shall release Guarantor's obligations hereunder,
affect this Guaranty in any way or afford Guarantor any recourse against
Lender. The provisions of this Guaranty shall extend and be applicable to all
renewals, amendments, extensions, consolidations, restatements and
modifications of the Restated Lease and any and all references herein to the
Restated Lease shall be deemed to include any such renewals, extensions,
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<PAGE>
amendments, consolidations, restatements or modifications thereof. In
addition, this Guaranty shall not be affected or liability hereunder
terminated or modified in any way by any renewal, amendment, extension,
consolidation, restatement or modification of any of the Loan Documents.
4. No Contest with Lender; Subordination. So long as any obligation hereby
guaranteed remains unpaid or undischarged, Guarantor will not, by paying any
sum recoverable hereunder (whether or not demanded by Lender) or by any means
or on any other ground, claim any set-off or counterclaim against Lessor or
Lessee in respect of any liability of Guarantor to Lessor or Lessee or, in
proceedings under federal bankruptcy law or insolvency proceedings of any
nature, prove in competition with Lender in respect of any payment hereunder
or be entitled to have the benefit of any counterclaim or proof of claim or
dividend or payment by or on behalf of Lessor or Lessee or the benefit of any
other security for any obligation hereby guaranteed which, now or hereafter,
Lender may hold or in which it may have any share. Guarantor hereby expressly
waives any right of contribution from or indemnity against Lessor or Lessee,
whether at law or in equity, arising from any payments made by Guarantor
pursuant to the terms of this Guaranty, and Guarantor acknowledges that
Guarantor has no right whatsoever to proceed against Lessor or Lessee for the
reimbursement of any such payments. In connection with the foregoing,
Guarantor expressly waives any and all rights of subrogation to Lender against
Lessor or Lessee, and Guarantor hereby waives any rights to enforce any remedy
which Lender may have against Lessor or Lessee and any rights to participate
in any collateral for Lessor's obligations under the Loan Documents or
Lessee's obligations under the Restated Lease. Guarantor hereby subordinates
any and all indebtedness of Lessor or Lessee now or hereafter owed to
Guarantor to all indebtedness of Lessor or Lessee to Lender, and agrees with
Lender that until all such indebtedness to Lender is paid in full and all
obligations and undertakings of Lessor or Lessee under by reason of, or
pursuant to the Loan Documents and the Restated Lease have been completely
performed (a) Guarantor shall not demand or accept any payment from Lessor or
Lessee on account of such indebtedness, (b) Guarantor shall not claim any
offset or other reduction of Guarantor's obligations hereunder because of any
such indebtedness, and (c) Guarantor shall not take any action to obtain any
interest in any of the security described in and encumbered by the Loan
Documents because of any such indebtedness.
5. Waiver of Defenses. Guarantor hereby agrees that its obligations
hereunder shall not be affected or impaired by, and hereby waives and agrees
not to assert or take advantage of any defense based on:
(a) any statute of limitations in any action hereunder or for the
collection or for the payment or performance of any obligation hereby
guaranteed;
(b) the incapacity, lack of authority, death or disability of Lessor or
Lessee or any other person or entity, or the failure of Lender to file or
enforce a claim against the estate (either in administration, bankruptcy or in
any other proceeding) of Lessor, Lessee or Guarantor or any other person or
entity;
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<PAGE>
(c) the dissolution or termination of existence of Lessor, Lessee or
Guarantor;
(d) the voluntary or involuntary liquidation, sale or other disposition
of all or substantially all of the assets of Lessor or Lessee;
(e) the voluntary or involuntary receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, assignment,
composition, or readjustment of, or any similar proceeding affecting, Lessor,
Lessee or Guarantor, or any of Lessor's, Lessee's or Guarantor's properties or
assets; the rejection or termination of the Restated Lease in any bankruptcy
proceeding, Guarantor hereby agreeing that, in the event of any such rejection
or termination, Guarantor shall nevertheless pay and perform for the benefit
of Lender all sums and other obligations guaranteed hereby notwithstanding any
such rejection or termination;
(f) the damage, destruction, condemnation, foreclosure or surrender of
all or any part of the property that is the subject matter of the Restated
Lease;
(g) the failure of Lender to give notice of the existence, creation or
incurring of any new or additional indebtedness or obligation or of any action
or nonaction on the part of any other person whomsoever in connection with any
obligation hereby guaranteed;
(h) any failure or delay of Lender to commence an action against Lessor
or Lessee, to assert or enforce any remedies against Lessor or Lessee under
the Loan Documents or the Restated Lease, or to realize upon any security;
(i) any failure of any duty on the part of Lender to disclose to
Guarantor any facts it may now or hereafter know regarding Lessor or Lessee,
whether such facts materially increase the risk to Guarantor or not;
(j) failure to accept or give notice of acceptance of this Guaranty by
Lender;
(k) failure to make or give notice of presentment and demand for
payment of any of the indebtedness or performance of any of the obligations
hereby guaranteed;
(l) failure to make or give protest and notice of dishonor or of
default to Guarantor or to any other party with respect to the indebtedness or
performance of obligations hereby guaranteed, notice of intent to accelerate
or notice of acceleration;
(m) any and all other notices whatsoever to which Guarantor might
otherwise be entitled;
(n) any lack of diligence by Lender in collection, protection or
realization upon any collateral securing the payment of the indebtedness of
Lessor or the performance of the payment obligations or other obligations
4
<PAGE>
hereby guaranteed;
(o) the invalidity or unenforceability of any of the Loan Documents or
the Restated Lease;
(p) the compromise, settlement, release or termination of any or all of
the obligations of Lessor under the Loan Documents or the obligations of
Lessee under the Restated Lease;
(q) any exculpation of liability contained in the Loan Documents or the
Restated Lease;
(r) any transfer by Lessor of all or any part of the security
encumbered by the Loan Documents;
(s) the failure of Lender to perfect any security or to extend or renew
the perfection of any security; or
(t) to the fullest extent permitted by law, any other legal, equitable
or surety defenses whatsoever to which Guarantor might otherwise be entitled,
it being the intention that the obligations of Guarantor hereunder are
absolute, unconditional and irrevocable.
6. Guaranty of Payment and Performance and Not of Collection. This is a
guaranty of payment and performance and not of collection. The liability of
Guarantor under this Guaranty shall be primary, direct and immediate and not
conditional or contingent upon the pursuit of any remedies against Lessor or
Lessee or any other person, nor against securities or liens available to
Lender, its successors, successors in title, endorsees or assigns. Guarantor
hereby waives any right to require that an action be brought against Lessor or
Lessee or any other person or to require that resort be had to any security or
to any balance of any deposit account or credit on the books of Lender in
favor of Lessor, Lessee or any other person.
7. Rights and Remedies of Lender. If any default or event of default under
the Restated Lease shall occur, Lender shall have the right to enforce its
rights, powers and remedies thereunder or hereunder or under any other
agreement, document or instrument now or hereafter evidencing, securing or
otherwise relating to the obligations under the Restated Lease, in any order,
and all rights, powers and remedies available to Lender in such event shall be
nonexclusive and cumulative of all other rights, powers and remedies provided
thereunder or hereunder or by law or in equity. Accordingly, Guarantor hereby
authorizes and empowers Lender upon the occurrence of any default or event of
default under the Restated Lease and the expiration of any applicable grace or
notice and cure period, at its sole discretion, and without notice to
Guarantor, to exercise any right or remedy which Lender may have. If the
obligations guaranteed hereby are partially paid by reason of the election of
Lender to pursue any of the remedies available to Lender, or if such
obligations are otherwise partially paid, this Guaranty shall nevertheless
remain in full force and effect, and Guarantor shall remain liable for the
entire balance of the obligations guaranteed hereby even though any rights
5
<PAGE>
which Guarantor may have against Lessee may be destroyed or diminished by the
exercise of any such remedy.
8. Application of Payments. Guarantor hereby authorizes Lender, without
notice to Guarantor, to apply all payments and credits received from Lessee or
from Guarantor or realized from any security in such manner and in such
priority as Lender in its sole judgment shall see fit to the obligations and
undertakings which are the subject of this Guaranty.
9. Business Failure, Bankruptcy or Insolvency. In the event of the
business failure of Guarantor or if there shall be pending any bankruptcy or
insolvency case or proceeding with respect to Guarantor under federal
bankruptcy law or any other applicable law or in connection with the
insolvency of Guarantor, or if a liquidator, receiver, or trustee shall have
been appointed for Guarantor, Lender may file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of Lender allowed in any proceedings relative to Guarantor, and,
irrespective of whether the payment obligations or other obligations of Lessee
guaranteed hereby shall then be due and payable, by declaration or otherwise,
Lender shall be entitled and empowered to file and prove a claim for the whole
amount of any sums or sums owing with respect to the payment obligations or
other obligations of Lessee guaranteed hereby, and to collect and receive any
moneys or other property payable or deliverable on any such claim.
10. Financial Statements and Other Information. Guarantor hereby represents
and warrants to Lender that all financial statements of Guarantor heretofore
delivered by Guarantor to Lender are true and correct in all material
respects, and to the best of Guarantor's knowledge accurately present in all
material respects the business assets and liabilities of Guarantor as at the
close of business on the date thereof and the results of operations for the
period then ended based upon the assumptions stated in the footnotes of such
statements; that no material adverse change has occurred in the assets,
liabilities, financial condition or business of Guarantor as shown or
reflected therein since the date thereof; and that Guarantor has no
liabilities or known contingent liabilities which are not reflected in such
financial statements or referred to in the notes thereto other than
Guarantor's obligations under this Guaranty.
11. Covenants of Guarantor. Guarantor hereby covenants and agrees with
Lender that until all payment obligations and other obligations and
undertakings of Lessee under, by reason of, or pursuant to the Restated Lease
have been completely performed:
(a) Guarantor will do or cause to be done all things necessary to
preserve and keep in full force and effect its legal existence, rights and
franchises, to effect and maintain its foreign qualifications, licensing,
domestication or authorization, and to comply with all applicable laws and
regulations (including, without limitation, environmental laws);
(b) Guarantor will continue to engage primarily in the business now
conducted by it; and
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(c) Guarantor will not become a party to or agree to or affect any
disposition of assets, other than the disposition of assets in the ordinary
course of business, consistent with past practices.
12. Changes in Writing; No Revocation. This Guaranty may not be changed
orally, and no obligation of Guarantor can be released or waived by Lender
except by a writing signed by a duly authorized officer of Lender. This
Guaranty shall be irrevocable by Guarantor until all payment obligations and
all other obligations and undertakings of Lessee under, by reason of, or
pursuant to the Restated Lease have been completely performed.
13. Notices. All notices, demands or requests provided for or permitted to
be given pursuant to this Guaranty (hereinafter in this paragraph referred to
as "Notice") must be in writing and shall be deemed to have been properly
given or served by personal delivery or by sending same by overnight courier
or by depositing the same in the United States mail, postpaid and registered
or certified, return receipt requested, at the addresses set forth below.
Each Notice shall be effective upon being delivered personally or upon being
sent by overnight courier or upon being deposited in the United States mail as
aforesaid. The time period in which a response to any such Notice must be
given or any action taken with respect thereto, however, shall commence to run
from the date of receipt if personally delivered or sent by overnight courier
or, if so deposited in the United States Mail, the earlier of three (3)
business days following such deposit and the date of receipt as disclosed on
the return receipt. Rejection or other refusal to accept or the inability to
deliver because of changed address of which no Notice was given shall be
deemed to be receipt of the Notice sent. By giving at least fifteen (15) days
prior Notice thereof, Guarantor or Lender shall have the right from time to
time and at any time during the term of this Guaranty to change their
respective addresses and each shall have the right to specify as its address
any other address within the United States of America. For the purposes of
this Guaranty:
The address of Lender is:
Lehman Brothers Holdings Inc.
200 Vesey Street, 12th Floor
World Financial Center
New York, NY 10285-0900
with a copy to:
Long Aldridge Norman LLP
303 Peachtree Street
Suite 5300
Atlanta, GA 30308
Attn: Clyde E. Click, Esq.
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The address of Guarantor is:
President Casinos, Inc.
802 North First Street
St. Louis, MO 63102
Attn: John S. Aylsworth and
James Zweifel
with a copy to:
Thompson Coburn
One Mercantile Center
St. Louis, MO 63101
Attn: Gerard K. Sandweg, Jr., Esq.
14. Governing Law. Guarantor acknowledges and agrees that this Guaranty and
the obligations of Guarantor hereunder shall be governed by and interpreted
and determined in accordance with the laws of the State of Mississippi
(excluding the laws applicable to conflicts or choice of law) and the laws of
the United States of America.
15. CONSENT TO JURISDICTION; WAIVERS. GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF
MISSISSIPPI OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS GUARANTY, AND (B) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAWS OF
ANY STATE (I) TO THE RIGHT, IF ANY, TO TRIAL BY JURY, (II) TO OBJECT TO
JURISDICTION WITHIN THE STATE OF MISSISSIPPI OR VENUE (INCLUDING FEDERAL) IN
ANY PARTICULAR FORUM WITHIN THE STATE OF MISSISSIPPI, AND (III) TO THE RIGHT,
IF ANY, TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES OR ANY DAMAGES OTHER THAN ACTUAL DAMAGES. GUARANTOR AGREES THAT, IN
ADDITION TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE
LAW, ALL SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE
BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO
GUARANTOR AT THE ADDRESS SET FORTH IN PARAGRAPH 14 ABOVE, AND SERVICE SO MADE
SHALL BE COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL BE SO MAILED. NOTHING
CONTAINED HEREIN, HOWEVER, SHALL PREVENT LENDER FROM BRINGING ANY SUIT, ACTION
OR PROCEEDING OR EXERCISING ANY RIGHTS AGAINST ANY SECURITY AND AGAINST
GUARANTOR PERSONALLY, AND AGAINST ANY PROPERTY OF GUARANTOR, WITHIN ANY OTHER
STATE.
16. Successors and Assigns. The provisions of this Guaranty shall be
binding upon Guarantor and its heirs, successors, successors in title, legal
representatives, and assigns,
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and shall inure to the benefit of Lender, its successors, successors in title,
legal representatives and assigns.
17. Assignment by Lender. This Guaranty is assignable by Lender in whole or
in part in conjunction with any assignment of the Loan Documents or portions
thereof, and any assignment hereof or any transfer or assignment of the Loan
Documents or portions thereof by Lender shall operate to vest in any such
assignee the rights and powers, in whole or in part, as appropriate, herein
conferred upon and granted to Lender.
18. Severability. If any term or provision of this Guaranty shall be
determined to be illegal or unenforceable, all other terms and provisions
hereof shall nevertheless remain effective and shall be enforced to the
fullest extent permitted by law.
19. References to Loan Documents. This Guaranty is a guaranty of the
Restated Lease as specifically provided in Section 1 hereof and in accordance
with the other terms and provisions hereof. References herein to the Loan
Documents shall not be deemed to make this Guaranty a guaranty of the
indebtedness evidenced by the Note.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of
the 22th day of July, 1997.
PRESIDENT CASINOS, INC.
By: /s/ John S. Aylsworth
-------------------------------
Name: John S. Aylsworth
-------------------------------
Title: Executive Vice President
-------------------------------
(CORPORATE SEAL)
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ACKNOWLEDGMENT
STATE OF MISSOURI
CITY OF ST. LOUIS
Personally appeared before me, the undersigned authority in and for the said
county and state, on this 18th day of July, 1997, within my jurisdiction, the
within named John S. Aylsworth, who acknowledged that (he)(she) is Executive
Vice President of President Casinos, Inc., a Delaware corporation, and that
for and on behalf of said corporation, and as its act and deed (he)(she)
executed the above and foregoing instrument, after first having been duly
authorized by said corporation so to do.
/s/ G. K. Sandweg
-------------------------------
NOTARY PUBLIC
My commission expires:
March 22, 2000
10
EXHIBIT 2.6
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
PRESIDENT BROADWATER HOTEL, L.L.C.
THE UNITS REPRESENTED BY THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY
OPERATING AGREEMENT HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION AS PROVIDED IN THE SECURITIES ACT OF 1933, AS AMENDED, OR AS
PROVIDED IN ANY STATE SECURITIES LAW. WITHOUT REGISTRATION, THE UNITS MAY NOT
BE TRANSFERRED, EXCEPT UPON DELIVERY TO THE LIMITED LIABILITY COMPANY OF
ADVANCE NOTICE OF THE INTENDED TRANSFER AND, IF REQUESTED BY THE AUTHORIZED
PERSON, AN OPINION OF COUNSEL SATISFACTORY TO THE AUTHORIZED PERSON THAT
NEITHER THE SECURITIES ACT OF 1933, AS AMENDED, NOR STATE SECURITIES LAWS
REQUIRE REGISTRATION OF THE TRANSFER AND THAT THE TRANSFER WILL NOT VIOLATE
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
IN ADDITION, THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING
AGREEMENT CONTAINS CERTAIN OTHER RESTRICTIONS ON THE TRANSFER OF SUCH UNITS.
<PAGE>
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 -- DEFINITIONS...............................................- 1 -
ARTICLE 2 -- ORGANIZATION..............................................- 6 -
2.1 Organization of the Company.............................- 6 -
2.2 Name....................................................- 6 -
2.3 Principal Office........................................- 6 -
2.4 Term....................................................- 6 -
2.5 Title to Company Assets.................................- 7 -
2.6 Registered Agent and Registered Office..................- 7 -
ARTICLE 3 -- CONTRIBUTIONS.............................................- 7 -
3.1 Member Contributions....................................- 7 -
3.2 Initial Contribution....................................- 7 -
3.3 Additional Contributions................................- 7 -
3.4 Maintenance of Capital Accounts.........................- 7 -
3.5 No Priority.............................................- 7 -
3.6 No Third Party Beneficiaries............................- 7 -
3.7 Classes of Units........................................- 7 -
3.8 Redemption of Class B Unit..............................- 8 -
ARTICLE 4 -- MANAGEMENT................................................- 8 -
4.1 Management Vested in Managers and Not in Members........- 8 -
4.2 Management of Company Business..........................- 8 -
4.3 Compensation............................................- 9 -
4.4 Right to Rely on Manager................................- 9 -
4.5 No Liability...........................................- 10 -
4.6 Indemnification........................................- 10 -
ARTICLE 5 -- RIGHTS AND DUTIES OF MEMBERS.............................- 10 -
5.1 Representations and Warranties of Members..............- 10 -
5.2 Approval Rights........................................- 11 -
5.4 Transfers..............................................- 12 -
5.5 Rights of an Assignee..................................- 13 -
5.6 Voluntary Withdrawal...................................- 13 -
5.7 Distributions to Members Who Have Withdrawn............- 13 -
ARTICLE 6 -- MEETINGS; APPROVALS WITHOUT A MEETING....................- 13 -
ARTICLE 7 -- SINGLE PURPOSE ENTITY PROVISIONS.........................- 14 -
ARTICLE 8 -- OTHER BUSINESS VENTURES..................................- 17 -
ARTICLE 9 -- RECORDS, ACCOUNTING, TAX MATTERS.........................- 17 -
9.1 Books and Records......................................- 17 -
9.2 Data Storage...........................................- 17 -
9.3 Tax Reports............................................- 17 -
9.4 Tax Matters Partner....................................- 18 -
9.5 Election of Basis Adjustment...........................- 18 -
9.6 Organizational Expenses................................- 18 -
9.7 Fiscal and Taxable Year................................- 18 -
9.8 Accounts...............................................- 18 -
<PAGE>
9.9 Tax Status.............................................- 18 -
ARTICLE 10 -- DISTRIBUTION AND ALLOCATION RULES.......................- 19 -
10.1 Cash Available for Distribution; Cash from
Sale or Refinancing....................................- 19 -
10.2 Allocations of Income, Gain, and Profit................- 19 -
10.3 Allocations of Loss and Deduction......................- 19 -
10.4 Tax Regulation Allocations.............................- 19 -
10.5 Curative Allocations...................................- 21 -
10.6 Change of Units........................................- 21 -
10.7 Contributed Property Adjustments and Revalued
Asset Adjustments......................................- 21 -
ARTICLE 11 -- DISSOLUTION, LIQUIDATION AND WINDING UP.................- 21 -
11.1 Dissolution............................................- 21 -
11.2 Liquidation and Termination............................- 22 -
ARTICLE 12 -- GENERAL.................................................- 23 -
12.1 Amendment..............................................- 23 -
12.2 Arbitration............................................- 23 -
12.3 Benefit................................................- 24 -
12.4 Computation of Time....................................- 24 -
12.5 Confidentiality........................................- 24 -
12.6 Construction...........................................- 24 -
12.7 Governing Law..........................................- 24 -
12.8 Entire Agreement.......................................- 24 -
12.9 Equitable Relief.......................................- 24 -
12.10 Execution..............................................- 24 -
12.11 Exhibits...............................................- 24 -
12.12 Expenses of Prevailing Party...........................- 25 -
12.13 Further Assurances.....................................- 25 -
12.14 Invalidity of Provisions...............................- 25 -
12.15 No Waiver..............................................- 25 -
12.16 Notices................................................- 25 -
12.17 Waiver of the Right to Jury Trial......................- 25 -
EXHIBIT A -- CONTRIBUTIONS............................................- 27 -
<PAGE>
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
The Members enter into this Agreement as of the Effective Date. The
Members mutually agree as follows:
ARTICLE 1 -- DEFINITIONS
The definitions below govern this Agreement unless the context
unambiguously requires otherwise.
"Act" means the Mississippi Limited Liability Company Act, as amended
from time to time, and any successor statute, as applicable to the Company.
"Adjusted Capital Account Deficit" means the negative balance in a
Member's Capital Account at the end of a particular taxable year, after
increasing the Capital Account with the amount, if any, of such negative
balance the Member is obligated to restore under this Agreement, and the
amount of such negative balance the Member is deemed to be obligated to
restore under Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), and
reducing the Capital Account with the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5), and (6).
"Affiliate" means, with respect to a Person, (i) any Person directly or
indirectly controlling, controlled by or under common control with such
Person, (ii) any Person owning or controlling directly or indirectly ten
percent (10%) or more of the outstanding voting securities of such Person,
(iii) any officer, director or partner of such Person, or (iv) any officer,
director or partner of a Person described in the foregoing clauses (i) or
(ii).
"Agreement" means this Amended and Restated Limited Liability Company
Operating Agreement, as amended from time to time.
"Approval Rights" means the rights of a Member to vote, approve, or
consent to the matters described in Section 5.2.
"Assignee" means a transferee of a Unit who has not become a Member.
"Bankruptcy" means the entry of an order for relief by the court in a
proceeding under the United States Bankruptcy Code, Title 11, U.S.C., as
amended, or its equivalent under a state insolvency act or a similar law of
other jurisdictions.
"BHI" means Broadwater Hotel, Inc., a Mississippi corporation.
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"Biloxi Property" means certain real property located in the City of
Biloxi, Second Judicial District of Harrison County, State of Mississippi,
transferred by JECA to the Company as its initial Contribution.
"Capital Account" means an account maintained for each Member in
accordance with Regulations Section 1.704-1(b)(2)(iv). Without limiting the
generality of the foregoing, the Members' Capital Accounts will be adjusted in
accordance with Regulations Section 1.704-1(b)(2)(iv)(g) for allocations to
the Members of depreciation, depletion, amortization and gain or loss, as
computed for book purposes with respect to contributed property and revalued
Company assets.
"Capital Event" means a sale or exchange of all or substantially all of
the Company's property, including a foreclosure or condemnation.
"Cash" means money and equivalents, such as checks, but only when
collected, and bank transfers.
"Cash Available for Distribution" means Cash from Operations less
Expenses.
"Cash from Operations" means all sums provided by operations and either
received in Cash or converted to Cash by the Company during any fiscal period,
including sums released from Reserves, but excluding Contributions, Cash from
Sales or Refinancings and loans or advances by Members to the Company.
"Cash from Sales or Refinancings" means the net Cash realized by the
Company from a Capital Event (including principal and interest payments from
any note or other obligation received by the Company in connection with a
Capital Event), from any refinancing of Company property, or from insurance
proceeds from an extraordinary event, in each case, after retirement of debt,
after subtracting all expenses related to the transaction and after making an
allowance for reserves for repairs, replacements, contingencies and
anticipated obligations (including debt service, lost rent, and costs of
improvements).
"Class A Unit" means any of the Class A Units described in Section 3.7.
"Class B Unit" means the Class B Unit described in Section 3.7.
"Certificate of Formation" means the certificate of formation referred to
in section 79-29-201 of the Act, filed with the Mississippi Secretary of State
for the purpose of forming the Company, as the same may be amended or restated
from time to time as provided in the Act.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time (including any successor statute or statutes
2
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constituting the United States tax laws), as applicable to the Company and the
Members.
"Company" means the Mississippi limited liability company governed by
this Agreement and the Act, having the name specified in Section 2.2.
"Company Minimum Gain" means an amount computed as described in
Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
"Contribution" means Cash, other property (net of each liability assumed
by the Company in connection with the Contribution and net of each liability
subject to which the Company received the Contribution), or any other valuable
consideration Transferred by a Person to the Company as a condition of
becoming a Member and any subsequent Transfer to the Company by a Person as a
Member.
"Effective Date" means the date that this Amended and Restated Limited
Liability Company Operating Agreement is executed by all initial parties
hereto.
"Event of Dissociation" means any of the following:
(a) a Member voluntarily withdraws from the Company;
(b) a Member: makes an assignment for the benefit of creditors; is the
subject of a Bankruptcy; files a petition or answer seeking any
reorganization, arrangement, composition, readjustment, liquidation,
or similar relief under any statute, law or regulation or files an
answer or other pleading admitting or failing to contest the
material allegations of a petition filed in such a proceeding; or
seeks, approves of or acquiesces in the appointment of a trustee,
receiver or liquidator of the Member or of all or any substantial
part of the Member's property;
(c) one hundred twenty (120) days after the start of any proceeding
against a Member seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation, if the proceeding has not been
dismissed, or if within ninety (90) days after the appointment of a
trustee, receiver or liquidator of the Member or of all or any
substantial part of the Member's property, without the Member's
approval, the appointment is not vacated or stayed, or within ninety
(90) days after the expiration of any such stay, the appointment is
not vacated;
(d) if a Member is a natural person: the Member's death; or the entry
by a court of competent jurisdiction
3
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adjudicating the Member incompetent to manage the Member's person or
estate;
(e) if a Member is a trust, the termination of the trust but not merely
the substitution of a new trustee;
(f) if a Member is a general or limited partnership or a limited
liability company, the dissolution and commencement of winding up
thereof;
(g) if a Member is a corporation, the filing of a certificate of
dissolution, or its equivalent, for the corporation or revocation of
its charter and the lapse of one hundred eighty (180) days after
notice to the corporation of revocation without a reinstatement of
its charter;
(h) if a Member is an estate, the distribution by the fiduciary of all
of the estate's Units; or
(i) assignment by a Member of all of its Units.
"Expenses" means for any fiscal period, the amount of Cash disbursed in
the period in order to operate the Company (including capital expenditures and
debt service) and to pay expenses of the Company (excluding expenditures in
connection with Capital Events) and amounts set aside for the period for
working capital and to pay taxes, insurance and other costs and expenses
incident to the operation of the Company, including Reserves.
"JECA" means J. Edward Connelly Associates, Inc., a Pennsylvania
corporation.
"Lehman Indebtedness" means that certain indebtedness to be incurred by
the Company to Lehman Brothers Holdings Inc. or its Affiliates, in the
original principal amount of $30,000,000 (plus all interest, charges, fees and
expenses with respect thereto) and to be secured by the Lehman Mortgage.
"Lehman Mortgage" means that certain Deed of Trust, Security Agreement
and Fixture Filing from the Company to Lehman Brothers Holdings Inc. or its
Affiliates, on the Biloxi Property.
"LIBOR" means, with respect to a given Priority Return Period, the rate
per annum (rounded upwards, if not already in even one-sixteenths of one
percent, to the nearest one-sixteenth of one percent) published in the Money
Rates section of The Wall Street Journal for the date which is two (2) LIBOR
Business Days prior to the first day of such Priority Return Period, as the
London Interbank Offered Rate for U.S. dollar deposits having designated
maturity of one (1) month (or if such publication shall cease to be publicly
available or if the information contained in such publication, in JECA's
judgment, shall cease to accurately reflect such London interbank Offered
Rate, then JECA
4
<PAGE>
may select any publicly available source of similar market data that, in
JECA's sole judgment, accurately reflects such London Interbank Offered Rate).
"LIBOR Business Day" means any day that is not a Saturday, Sunday or a
day on which banks in the City of London, England are required or permitted to
be closed for interbank or foreign exchange transactions.
"Lockbox Account" means the lockbox account described in the Lockbox
Agreement.
"Lockbox Agreement" means that certain Security Agreement and Lockbox
Agreement dated as of July 22, 1997 among the Company, Lehman Brothers
Holdings Inc. and J.E. Robert Company, Inc.
"Manager" means the Person designated, appointed or elected as such as
provided by this Agreement.
"Member" means any Person that signs this Agreement in person or by an
attorney-in-fact, or otherwise is a party to this Agreement at the time the
Company is formed and is identified as a Member in this Agreement and any
Person who is subsequently admitted as a Member, until an Event of
Dissociation occurs with respect to such Person.
"Member Nonrecourse Debt Minimum Gain" means an amount of partner
nonrecourse debt minimum gain determined in accordance with Regulations
Section 1.704-2(i)(3).
"Organization" means any Person other than an individual.
"Permitted Voluntary Withdrawal" shall have the meaning specified in
Section 5.6.
"Person" includes individuals, partnerships, domestic or foreign limited
partnerships, domestic or foreign limited liability companies, domestic or
foreign corporations, trusts, business trusts, real estate investment trusts,
estates and other associations or business entities.
"Priority Return" means, with respect to a given Priority Return Period,
an amount equal to the product of the Priority Return Percentage, the
Redemption Price and the number of days in such Priority Return Period,
divided by the number of days in the calendar year of which the Priority
Return Period is a part.
"Priority Return Percentage" means, with respect to a given Priority
Return Period, a percentage per annum equal to the greater of (i) eight and
three-fourths percent (8.75%) or (ii) a percentage equal to four percent (4%)
plus LIBOR.
"Priority Return Period" means (i) with respect to the first Priority
Return to be distributed by the Company, the period
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commencing on July 24, 1997 and continuing through August 31, 1997, and (ii)
with respect to the calculation of each subsequent Priority Return
distribution, the calendar month or portion thereof with respect to which such
Priority Return is to be distributed.
"Qualified Entity" means, with respect to a Member, (i) each corporation
with respect to which the Member or one or more Qualified Entities with
respect to such Member elects and has the unqualified legal right to elect a
majority of the board of directors without regard to the vote of any other
holder of any securities of such corporation; and (ii) each partnership or
limited liability company all of the equity securities of which are owned by
the Member or one or more Qualified Entities with respect to such Member and
such Member and/or Qualified Entities shall have control of such partnership
or limited liability company. The term "control" as used in clause (ii) of
the immediately preceding sentence means the possession of the power to direct
or cause the direction of management and policies of such partnership or
limited liability company, whether through the ownership of an equity
interest, by contract or otherwise.
"Redemption Date" means such day on which the Lehman Indebtedness shall
be fully and finally discharged and the Lehman Mortgage is released.
"Redemption Price" means the sum of $10,000,000.
"Regulations" means the Income Tax Regulations promulgated under the
Code, as amended from time to time, including corresponding provisions of
succeeding regulations.
"Reserves" means any sums which the Manager sets aside for the payment of
taxes, future expenses (including capital expenditures and debt service) or
any other purposes as the Manager, in its sole discretion, deems desirable for
the Company.
"Securities Laws" means all applicable federal and state securities laws,
including the Securities Act of 1933, as amended, and any regulations
promulgated thereunder.
"Tax Matters Partner" has the meaning specified in Code Section
6231(a)(7).
"Tax Regulation Allocations" means the allocations described in Section
10.4.
"Transfer", when used as a noun, means any sale, exchange, gift,
assignment, transfer, pledge, hypothecation, or any other type of disposition
or encumbrance, whether with or without consideration, whether voluntary or
involuntary, and in the case of an individual, whether during lifetime or at
death, any event that causes a revocable trust holding a Unit to become an
irrevocable trust and, when used as a verb, means the corresponding verb.
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"Unit" means any of the Class A Units or the Class B Unit.
"Voluntary Dissociation" shall have the meaning set forth in Section 5.6.
"Wrongful Voluntary Dissociation" shall have the meaning set forth in
Section 5.6.
ARTICLE 2 -- ORGANIZATION
2.1 Organization of the Company. The Company has organized as a limited
liability company under the Act and desires that the Company continue to
qualify as a limited liability company. JECA executed that certain Limited
Liability Company Agreement of President Broadwater Hotel, L.L.C. on July 10,
1997 (the "Prior Agreement"). This Agreement supersedes and replaces the
Prior Agreement. The Manager shall confirm the filing of a Certificate of
Formation and all necessary conforming documents and such other filing,
recording, publishing and other acts as are necessary to comply with all
requirements for the formation and operation of a limited liability company in
Mississippi and all other jurisdictions where the Company desires to conduct
its business.
2.2 Name. The name of the Company is "PRESIDENT BROADWATER HOTEL,
L.L.C."
2.3 Principal Office. The Company will locate its principal office in
Biloxi, Mississippi or such other place designated by the Manager.
2.4 Term. The Company shall have a perpetual existence.
2.5 Title to Company Assets. The Company will hold title to assets in
the name of the Company or such nominees as the Manager determines
appropriate.
2.6 Registered Agent and Registered Office. The registered agent and
the registered office for the Company will be as reflected in the Certificate
of Formation.
ARTICLE 3 -- CONTRIBUTIONS
3.1 Member Contributions. Each Member has made or will make an initial
Contribution of money and/or other property as of the Effective Date in the
amounts and form set forth in Exhibit A to this Agreement.
3.2 Initial Contribution. If a Member fails to make the Member's
initial Contribution on a timely basis, then the Member's Unit(s) will be
adjusted to reflect such failure.
3.3 Additional Contributions. The Members have not agreed to make any
additional Contributions. The Members may
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require additional contributions to the Company with the approval of the
Members as provided by Section 5.2.
3.4 Maintenance of Capital Accounts. The Company shall maintain for
each Member a Capital Account in accordance with the rules applicable to
partnerships in the Regulations.
3.5 No Priority. Except as specifically provided in this Agreement, no
Member may either demand a distribution from the Company or have the right to
withdraw from the Company or to demand the return of any Contribution or have
priority over any other Member either as to the return of any Contribution or
as to distributions.
3.6 No Third Party Beneficiaries. The contribution obligation of the
Members under this Article is not intended to create any obligation to third
party beneficiaries. No creditor may rely on that obligation unless the
Member against whom the obligation is asserted has expressly agreed in writing
that the creditor may do so.
3.7 Classes of Units. The Units of the Company shall be divided into
the following classes, having the rights, powers and preferences therein
described:
(a) Class A Units. The Company shall issue a single Class A Unit to
Broadwater Hotel, Inc. and thereafter may issue Class A Units in
such amounts, at such times, to such Persons and on such other terms
and conditions as the Manager may determine. Ownership of one or
more Class A Units shall entitle a Member only to such Approval
Rights as are expressly set forth in Section 5.2 of this Agreement.
Each Class A Unit shall entitle its holder to share in the
allocations and distributions of the Company as described in
Articles 10 and 11.
(b) Class B Unit. The Company shall issue one (1) Class B Unit to JECA.
Ownership of the Class B Unit shall entitle JECA only to such
Approval Rights as are expressly set forth in Section 5.2 of this
Agreement. The Class B Unit shall entitle its holder to share in
the allocations and distributions of the Company as described in
Articles 10 and 11. The Company shall redeem the Class B Unit on
the terms and conditions set forth in Section 3.8.
3.8 Redemption of Class B Unit. The Company shall purchase, and the
holder thereof shall sell, the Class B Unit on the Redemption Date for the
Redemption Price. The Redemption Price shall be paid by certified check or
wire transfer of immediately available funds. The purchase and sale of the
Class B Unit shall be in complete liquidation of the interest in the Company
of the holder of the Class B Unit.
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ARTICLE 4 -- MANAGEMENT
4.1 Management Vested in Managers and Not in Members. Management of the
Company is vested in the Manager and not in the Members. BHI will serve as
the initial Manager. Except as provided below, a Manager will hold office
indefinitely. A Manager may resign at any time. A resignation of a Manager
as Manager is not an Event of Dissociation and has no effect on the Manager's
status as a Member. The Members may select a replacement Manager to fill a
vacancy created by a resignation or otherwise with the approval of the Members
as provided by Section 5.2. The Manager will devote such time and attention
to the Company as the Manager deems reasonably necessary and advisable to
manage the affairs of the Company to its best advantage.
4.2 Management of Company Business. Subject to the Approval Rights of
the Members to the extent specifically required by Section 5.2 and the
provisions of Article 7, the Manager will have the power, on behalf of the
Company, to do all things necessary or convenient to carry out the business
and affairs of the Company, including the following:
(a) to operate a hotel, marina, golf course and restaurant;
(b) to Transfer or acquire property or the use of property;
(c) to enter into leases, contracts and guaranties;
(d) to borrow money, including from any Manager or Member or their
Affiliates on such terms and conditions as the Manager may
determine, and to issue notes, bonds, and other obligations and to
secure any of the same by mortgage or pledge of Company property or
income;
(e) to lend money, to invest and reinvest the Company's funds, and to
receive and hold property as security for repayment;
(f) to open bank accounts and designate the number and identity of the
individuals authorized to write checks and make withdrawals of
funds;
(g) to hire employees and appoint agents of the Company;
(h) to designate a replacement registered agent or file a change of
registered office;
(i) to pay, collect, compromise, arbitrate, prosecute or defend legal
actions with respect to, or otherwise adjust, claims or demands of
or against the Company;
(j) to indemnify any Person;
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(k) to purchase liability and other insurance to protect the Company's
property and business;
(l) to participate in Organizations of any kind with any Person;
(m) to make donations to the public welfare or for religious,
charitable, scientific, literary or educational purposes; and
(n) to execute, acknowledge and deliver any and all instruments
appropriate to the foregoing, and to apply Company assets.
4.3 Compensation. Except as otherwise provided in this Agreement, the
Manager will receive no compensation from the Company without the approval of
the Members as provided by Section 5.2; provided that the Company will
reimburse the Manager for reasonable expenses incurred in managing and
operating the Company.
4.4 Right to Rely on Manager. Any Person dealing with the Company may
rely (without duty of further inquiry) upon a certificate signed by the
Manager as to:
(i) The identity of any Manager or Member;
(ii) The existence or nonexistence of any fact or facts which
constitute a condition precedent to acts by the Manager or
which are in any other manner germane to the affairs of the
Company;
(iii) The Persons who are authorized to execute and deliver any
instrument or document of the Company; or
(iv) Any act or failure to act by the Company or any other matter
whatsoever involving the Company, the Manager or any Member.
Except as otherwise required by law, the signature of the Manager shall be
sufficient to constitute execution of a document on behalf of the Company, and
all of the Members agree that a copy of this Agreement may be shown to the
appropriate parties in order to confirm the same, and further agree that the
signature of the Manager shall be sufficient to execute any document necessary
to effectuate this or any other provision of this Agreement. The Manager
shall have the power and authority to execute on behalf of the Company, the
Manager and/or the Members any document to be filed with the Secretary of the
State of Mississippi pursuant to the Act. All of the Members do hereby
appoint the Manager as their attorneys-in-fact for the execution of any or all
of the documents described in this Section 4.4.
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4.5 No Liability. Unless specifically assumed in writing, no Member or
Manager will have personal liability for the liabilities of the Company. The
failure of the Company to observe any formalities or requirements relating to
the exercise of its powers or management of its business or affairs under this
Agreement or the Act will not result in the imposition of personal liability
on any Member or Manager. Neither the Company nor the Manager will have any
liability to any Member resulting either from any acts or omissions made
within the scope of authority granted the Manager under this Agreement or from
the disallowance or adjustment of any deductions or credits in the income tax
returns of the Company or the Members. The Manager will discharge its duties
in good faith, with the care an ordinarily prudent person in a like position
would exercise under similar circumstances, in a manner it reasonably believes
to be in the best interest of the Company.
4.6 Indemnification. The Company will indemnify and hold harmless the
Manager from and against any loss, expense, damage, or injury suffered or
sustained by any of them by reason of any acts, errors in judgment, omissions,
or alleged acts or omissions related to the business of the Company to the
fullest extent allowed by law. The Company's duty to indemnify will include
any judgment, award, settlement, reasonable legal fees, and other costs and
expenses related to the defense of any actual or threatened action,
proceeding, or claim and including any payments made by the Manager, or by
reason of any disallowance by any taxing authority of any deduction taken on
any Company tax return.
ARTICLE 5 -- RIGHTS AND DUTIES OF MEMBERS
5.1 Representations and Warranties of Members. Each Member represents
and warrants to the Company and each other Member as follows:
(a) If that Member is an Organization, that it is duly organized,
validly existing, and in good standing under the law of the jurisdiction of
its organization and that it has full power to execute the Agreement and to
perform its obligations under the Agreement.
(b) The Member has such knowledge of business and financial affairs as
is necessary to enable the Member to understand the risks associated with the
Company's business and an investment in the Company's securities and to
understand the particular financial, legal and tax implications of the
Company's business and ownership of a Unit, and has had the opportunity to
consult with the Member's own legal, tax and other advisors to determine
whether the purchase of a Unit is consistent with the Member's objectives, and
has had access to any and all information concerning the Company which the
Member and the Member's legal, tax and other advisors have requested and
consider necessary to make appropriate evaluation of this investment.
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(c) The Member understands that the Company has not registered the Units
under the Securities Laws in reliance on exemptions from registration under
various provisions of applicable statutes, rules and regulations. The Member
understands that its Unit(s) may not be resold unless registered or unless an
exemption from registration is available. The Member represents that the
Unit(s) are being acquired for investment for the Member's own account with no
present intention of reselling or otherwise disposing of the same and
understands that the reliance of the Members and the Company upon such
exemptions is predicated upon the lack of such intention. The Member further
acknowledges that, in the opinion of the Securities and Exchange Commission,
the statutory basis for one such exemption would not be present, if,
notwithstanding this representation, the Member contemplates its acquiring the
Unit(s) for resale upon the occurrence or non-occurrence of some event.
(d) The Member acknowledges that no trading market for Unit(s) in the
Company does or will exist at any time and that any Transfer of such Unit(s)
may result in adverse tax consequences.
(e) The Member acknowledges that other provisions of this Agreement
restrict the Transfer of such Unit(s).
5.2 Approval Rights. Each Member holding Units will have only the
Approval Rights set forth in this Section.
(a) The following actions require the approval of Members holding in the
aggregate a majority of all Class A Units then issued and outstanding:
(i) a Capital Event;
(ii) if required by Section 11.2, the designation of the liquidating
trustee in a dissolution and winding up of the Company;
(iii) if the Company is manager-managed, the removal of a Manager and
the selection of a replacement Manager;
(iv) the admission of a Member;
(v) a voluntary withdrawal of a Member;
(vi) a voluntary dissolution of the Company;
(vii) a revaluation of Company assets;
(viii) a merger or consolidation with another Person;
(ix) a change in the status of the Company from one in which
management is vested in one or more managers to one in which
management is vested in the members, or vice versa;
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(x) the making of an election for the Company to be classified for
income tax purposes as an association taxable as a corporation;
(xi) the continuation of the Company after a Capital Event; or
(xii) any amendment to this Agreement, other than an amendment which
directly and adversely impacts the holder of the Class B Unit.
Provided, however, that if the Company shall be in default under any of
its obligations under the Lehman Indebtedness or hereunder to the holder of
the Class B Unit, the holder of the Class B Unit shall, for so long as such
default exists and is continuing, have the sole power to exercise the Approval
Rights granted to the holder of the Class A Units under this Section 5.2(a).
(b) The following actions require the approval of (A) Members holding in
the aggregate a majority of all Class A Units then issued and outstanding and
(B) the Member holding the Class B Unit:
(i) any additional mandatory Contributions; or
(ii) any amendment to this Agreement which directly and adversely
impacts the holder of the Class B Unit, including, but not
limited to, any amendment which would modify the allocations,
distributions or Priority Returns to which the Class B Unit is
entitled.
Unless otherwise required by this Agreement or by law, Members holding in the
aggregate a majority of all Class A Units then issued and outstanding may
approve any other matter submitted for the approval of the Members.
5.3 Admission of Members. Upon the approval of the Members as provided
by Section 5.2, an Assignee or any other Person may be admitted as a Member;
provided, however, that if the Assignee is a Qualified Entity, the approval of
the Members is not required and such Assignee shall automatically become a
Member upon satisfying the requirements of Section 5.4. If the approved
Person is not an Assignee, this approval will indicate the Contribution
required for the Person to become a new Member. The Assignee or other Person
to be admitted will become a substitute or new Member, as the case may be,
only after signing this Agreement, and, if a new Member, after making any
required Contribution. Notwithstanding this Section, the Members need not
approve the Transfer (which Transfer complies with Section 5.4) of a Unit from
one Member to another Member for the transferee
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Member to exercise the increased Approval Rights (or Management Rights, if
management is vested in the Members) associated with the Transferred Unit.
5.4 Transfers. No Member or Assignee will voluntarily Transfer any Unit
to an Assignee until the Company receives from the proposed Assignee such
information and agreements that the Company may reasonably require, including
any taxpayer identification number and any agreement that federal, state or
local tax laws may require and the proposed Assignee's written agreement to be
bound by all of the terms of the Agreement as an Assignee, and, if admitted as
a Member, as a Member. No Member or Assignee will voluntarily Transfer any
Unit to an Assignee in a Transfer which constitutes a sale or exchange for
federal income tax purposes until the Company receives an opinion of counsel
to the Company that any such Transfer, alone or when combined with other
transactions, would not result in a termination of the Company within the
meaning of Code Section 708 (or, if so, that no material adverse tax
consequences would result to the Company or the Members by reason of such
termination), the Company's losing its status as a partnership for income tax
purposes or the taxation of the Company as a publicly-traded partnership for
income tax purposes, unless the Manager waives this requirement in writing.
An attempted Transfer in violation of this Article is void. If a Member
Transfers all of such Member's Units to an Assignee, the Member will cease to
be a Member, even if the Transfer does not result in an Event of Dissociation.
5.5 Rights of an Assignee. Unless and until admitted as a Member as
provided in Section 5.3, an Assignee will have no Approval Rights. An
Assignee that has not become a Member will receive, to the extent Transferred,
the share of allocations and distributions (including the allocations and
distributions as provided in Article 10 and any distributions representing the
return of contributions) to which the assignor would otherwise be entitled or
for which the Assignee would otherwise be responsible for with respect to the
Transferred Unit. The Company will treat an Assignee as a Member for the
terms of Article 9 concerning record keeping and tax reporting.
5.6 Voluntary Withdrawal. Each Member hereby covenants and agrees that
such Member shall not voluntarily take any action which would constitute an
Event of Dissociation with respect to such Member (a "Voluntary
Dissociation"); provided, that any Member may make a Voluntary Dissociation
from the Company upon giving ninety days' prior written notice of withdrawal
to the other Members as provided in the Act (a "Permitted Voluntary
Dissociation"). Unless a Voluntary Dissociation is a Permitted Voluntary
Dissociation, the Voluntary Dissociation will violate this Agreement (a
"Wrongful Voluntary Dissociation"). A withdrawn Member who shall have made a
Voluntary Dissociation shall have the rights of an Assignee.
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5.7 Distributions to Members Who Have Withdrawn. Upon any Event of
Dissociation the withdrawn Member shall not be entitled to any special
distribution, including without limitation a distribution of the fair value of
the withdrawn Member's Units, but instead its Assignee shall have the right to
share in distributions and profits and losses as provided in Section 5.5;
provided, that distributions to a Member who has made a Wrongful Voluntary
Dissociation shall be reduced by any damages suffered by the Company or its
Members as a result of the withdrawn Member's violation of this Agreement.
ARTICLE 6 -- MEETINGS; APPROVALS WITHOUT A MEETING
Unless otherwise required by law, the Members or Managers may take any
action or vote without a meeting. Members holding in the aggregate a majority
of the Class A Units then issued and outstanding may call a meeting of the
Members to take action or vote on matters related to the Company by giving
(10) days' prior written notice of the time and place to all the Members
eligible to attend. Any action or vote which must be taken at a meeting of
the Members or Managers, as the case may be, may be taken without a meeting if
a consent in writing, setting forth the action so taken, is signed by all of
the Members or Managers, as the case may be, entitled to act or vote with
respect to such matter. Such consent will have the same effect as an act or
vote of such Members or Managers, as the case may be.
ARTICLE 7 -- SINGLE PURPOSE ENTITY PROVISIONS
Notwithstanding any other provision in this Agreement to the contrary,
for so long as any part of the Lehman Indebtedness is outstanding, the
following provisions shall be in effect:
(a) Purpose. The Company's business and purpose shall consist solely
of the acquisition, ownership, operation and management of a real estate
project known as Broadwater Beach Hotel and Resort, the Broadwater East
Towers, the Broadwater Marina and the Sun Golf Course located on the Biloxi
Property, and such activities as are necessary, incidental or appropriate in
connection therewith.
(b) Powers and Duties. Without the consent of all Members, no Manager
shall have authority to:
(i) do any act in contravention of this Agreement;
(ii) do any act which would make it impossible to carry on the
ordinary business of the Company, except as otherwise provided
in this Agreement;
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(iii) possess the Biloxi Property, or assign rights in the Biloxi
Property, for other than a Company purpose;
(iv) borrow money on behalf of the Company other than in the
ordinary course of business, or grant consensual liens on the
Company's property; except, however, that the Manager is hereby
authorized to secure financing for the Company pursuant to the
terms of the Lehman Mortgage and other indebtedness expressly
permitted in this Article 7 or in the documents related to the
Lehman Mortgage, and to grant a mortgage, lien or liens on the
Biloxi Property to secure the Lehman Indebtedness;
(v) dissolve or liquidate the Company;
(vi) sell or lease, or otherwise dispose of all or substantially all
of the assets of the Company;
(vii) file a voluntary petition or otherwise initiate proceedings to
have the Company adjudicated bankrupt or insolvent, or consent
to the institution of bankruptcy or insolvency proceedings
against the Company, or file a petition seeking or consenting
to reorganization or relief of the Company as debtor under any
applicable federal or state law relating to bankruptcy,
insolvency, or other relief for debtors with respect to the
Company; or seek or consent to the appointment of any trustee,
receiver, conservator, assignee, sequestrator, custodian,
liquidator (or other similar official) of the Company or of all
or any substantial part of the properties and assets of the
Company, or make any general assignment for the benefit or
creditors of the Company, or admit in writing the inability of
the Company to pay its debts generally as they become due or
declare or effect a moratorium on the Company debt or take any
action in furtherance of any action;
(viii) amend, modify or alter this Agreement;
(ix) merge or consolidate with any other entity.
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Notwithstanding the foregoing and so long as any obligations secured
by the Lehman Mortgage remain outstanding and not discharged in full, no
Manager or Member shall have authority (1) to take any action in items (iv)
through (ix) above unless such action has been approved by a unanimous vote of
all Members, or (2) to take any action in items (iv) through (vi) and (viii)
and (ix) without the written consent of the holder of the Lehman Mortgage.
(c) Title to Company Property. All property owned by the Company shall
be owned by the Company as an entity and, insofar as permitted by applicable
law, no Member shall have any ownership interest in any Company property in
its individual name or right, and each Member's Unit(s) shall be personal
property for all purposes.
(d) Separateness/Operation Matters. The Company shall conduct its
business and operations in accordance with the following provisions:
(i) the Company will not assume liability for the debts of any
other Person, and the Company will not hold itself out as being
liable for the debts of any other Person;
(ii) none of the liabilities of the Company shall be paid from the
funds of its Members or any other Person without the Company
being obligated for such liabilities;
(iii) the Company shall not guarantee the debt or the performance
of any obligation of any of its Members or any other Person.
The Company will not pledge any of the Company assets for the
benefit of any of its Members or any other Person, and no
Person shall pledge its assets for the benefit of the Company;
(iv) the Company shall conduct its affairs strictly in accordance
with this Agreement and shall observe all necessary,
appropriate, and customary Company formalities, including, but
not limited to, maintaining accurate and separate books,
records and accounts (including, but not limited to,
transaction accounts with any Affiliate of the Company);
(v) the books, records, and accounts of the Company will at all
times be maintained
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in a manner permitting the assets and liabilities of the
Company to be easily separated and readily ascertained from
those of any other Person;
(vi) the Company will hold itself out to creditors and the public as
a legal entity separate and distinct from any other entity, and
will not hold itself out to the public or to any of its
individual creditors as being a unified entity with assets and
liabilities in common with any other Person; and
(vii) the Company shall not commingle its assets or funds with those
of any other Person.
(e) Effect of Bankruptcy, Death or Incompetency of Member. The
bankruptcy, death, dissolution, liquidation, termination or adjudication of
incompetency of a Member shall not cause the termination or dissolution of the
Company and the business of the Company shall continue. Upon any such
occurrence, the trustee, receiver, executor, administrator, committee,
guardian or conservator of such Member shall have all the rights of such
Member for the purpose of settling or managing its estate or property, subject
to satisfying conditions precedent to the admission of such assignee as a
substitute Member. The transfer by such trustee, receiver, executor,
administrator, committee, guardian or conservator of any Unit shall be subject
to all of the restrictions hereunder to which such transfer would have been
subject if such transfer had been made by such bankrupt, deceased, dissolved,
liquidated, terminated or incompetent Member.
(f) Manager Consent. Without the consent of BHI and all of the Members,
the Company shall not file a voluntary petition or otherwise initiate
proceedings to have the Company adjudicated bankrupt or insolvent, or consent
to the institution of bankruptcy or insolvency proceedings against the
Company, or file a petition seeking or consenting to reorganization or relief
of the Company as debtor under any applicable federal or state law relating to
bankruptcy, insolvency, or other relief for debtors with respect to the
Company; or seek or consent to the appointment of any trustee, receiver,
conservator, assignee, sequestrator, custodian, liquidator (or other similar
official) of the Company or of all or any substantial part of the properties
and assets of the Company, or make any general assignment for the benefit or
creditors of the Company, or admit in writing the inability of the Company to
pay its debts generally as they become due or declare or effect a moratorium
on the Company debt or take any action in furtherance of any action.
ARTICLE 8 -- OTHER BUSINESS VENTURES
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Any Member or Manager may engage in or possess an interest in independent
ventures of any kind and neither the Company nor any of the Members or
Managers will have any right by virtue of this Agreement or the Act in or to
such independent ventures or to the income, profits, or benefits derived
therefrom. No Member shall have any obligation to present to the Company any
investment opportunity which may come to such Member's attention, even if such
opportunity is of such character as to be a suitable investment for the
Company.
ARTICLE 9 -- RECORDS, ACCOUNTING, TAX MATTERS
9.1 Books and Records. The Manager will keep proper and complete
records and books of account in which it will record all transactions and
other matters relative to the Company's business in accordance with generally
accepted accounting principles, consistently applied, or in accordance with
such other accounting method customarily used by businesses similar to the
Company. The Manager will maintain a Capital Account for each Member as
provided in Regulations Section 1.704-1(b)(2)(iv). As required by the Act,
the Company will keep at its principal place of business the following:
(a) a current list of the full name and last known street address
of each Member and Manager;
(b) a copy of the Certificate of Formation and all certificates of
amendment and restatement thereof, together with executed
copies of any powers of attorney pursuant to which any
certificate has been executed; and
(c) copies of this Agreement, and all amendments thereto;
9.2 Data Storage. The Company may compile the data for any books,
accounts, or records required by this Agreement in any form (including in
electronic media) from which a Person may retrieve such information into a
readily usable form.
9.3 Tax Reports. The Manager will cause the Company to submit to the
official or agency administering the tax laws of each applicable jurisdiction
any information, reports or other documents required or requested to be filed,
as and when due. The Manager will cause the Company to pay all taxes,
interest and additions to tax or penalties due from the Company to any such
jurisdiction. The Company will bear the cost of preparing such information,
reports or other documents. Within seventy-five (75) days after the close of
each taxable year of the Company, the Manager will prepare and deliver to each
Member a report containing all Company information necessary to prepare the
Member's federal income tax returns. Except for the elections described in
Sections 9.5 and 9.6, the Manager will make such tax
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elections and determinations on behalf of the Company as the Manager deems
appropriate.
9.4 Tax Matters Partner. The Manager will designate the Tax Matters
Partner. The Tax Matters Partner will represent the Company and its Members
before federal, state, and local taxing authorities, and before courts of
competent jurisdiction, in tax matters affecting the Company, the Members in
their capacity as Members, or both, and may execute agreements or other
documents relating to or affecting such tax matters including agreements or
consents to extend the period of limitations on assessment of deficiencies
with respect to "partnership items" or "affected items," as such terms are
defined in Code Section 6231, and other agreements or documents that bind the
Members with respect to such tax matters or otherwise affect the rights of the
Company, the Members, or both. The Members will cooperate and do or refrain
from doing anything reasonably requested by the Tax Matters Partner to conduct
such proceedings. The Tax Matters Partner may retain accountants, attorneys,
and other professionals to assist him in such matters. The Company will pay
for or reimburse the Tax Matters Partner for all expenses incurred in
performing the duties described in this Section.
9.5 Election of Basis Adjustment. On the first U.S. Partnership Return
of Income (Form 1065) filed by the Company, the Company will elect under Code
Section 754 that the basis of the Company assets be adjusted for federal
income tax purposes pursuant to Code Sections 734 and 743.
9.6 Organizational Expenses. The Company will elect to deduct expenses
incurred in organizing the Company ratably as provided in Code Section 709.
9.7 Fiscal and Taxable Year. The fiscal and taxable year of the Company
will end on the last day of February.
9.8 Accounts. Subject to any contrary provisions contained in any
document required in connection with the Lehman Indebtedness, the Company will
deposit its funds in such bank account or accounts, or invested in such
interest-bearing investments established and maintained in the name of the
Company only, as designated by the Manager. Only the Manager or agents of the
Manager may make a withdrawal from any account or investment. In no event
will Company funds be commingled with those of any other Person.
9.9 Tax Status. Unless the Members approve an election by the Company
to be classified for income tax purposes as an association taxable as a
corporation in accordance with Section 5.2, the Company will be classified as
a partnership for income tax purposes and will be subject to all provisions of
Subchapter K of Chapter 1 of Subtitle A of the Code; provided, however, the
filing of partnership tax returns with any jurisdiction will not be construed
to expand the non-tax
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obligations or liabilities of the Company or its Members. No Member will take
any action that would cause the Company to be excluded from the application of
Subchapter K of Chapter 1 of Subtitle A of the Code, or any similar provision
of the tax laws of any other jurisdiction. The Members intend this Agreement
to be construed as appropriate to classify the Company as a partnership for
tax purposes. The Members do not intend to form a partnership under the
Uniform Partnership Law or the Mississippi Limited Partnership Act, or any
similar partnership or limited partnership law of any other jurisdiction.
ARTICLE 10 -- DISTRIBUTION AND ALLOCATION RULES
10.1 Cash Available for Distribution; Cash from Sale or Refinancing.
Except as otherwise provided in Section 11.2, the Company will distribute Cash
Available for Distribution and Cash from Sale or Refinancing to the Members as
follows:
(a) First, to the extent funds are available in the Lockbox Account and
provided to be applied to Priority Returns in accordance with the Lockbox
Agreement, on the first day of each month beginning on September 1, 1997 and
ending on the Redemption Date, to JECA, an amount equal to its unpaid Priority
Returns; provided, however, that (i) in no event whatsoever shall the Company
distribute to JECA in the aggregate in any calendar year more than One Million
Dollars ($1,000,000) (or, in the case of calendar year 1997, more than
$441,096, or, in the case of the calendar year in which the Lehman
Indebtedness is finally paid in full, more than a pro rata portion of One
Million Dollars ($1,000,000) based on the number of days in such calendar year
during which any part of the Lehman Indebtedness was outstanding) pursuant to
this Agreement or otherwise, (ii) any distribution which would have been made
to JECA pursuant to this Section 10.1 but for the application of the foregoing
clause (i) shall bear interest from the date on which such distribution would
have been made to JECA pursuant to this Section 10.1 but for the application
of the foregoing clause (i) at a rate per annum equal to the Priority Return
Percentage until such distribution is made to JECA, and (iii) if the Company
fails to make any distribution to which JECA is otherwise entitled pursuant to
this Section 10.1 for any reason other than the application of the foregoing
clause (i), then (A) all subsequent distributions made by the Company to JECA
pursuant to this Section 10.1 prior to the next anniversary of the Company's
incurrence of the Lehman Indebtedness shall be applied to all distributions
remaining unpaid in the order in which such distributions were to be made, and
(B) the aggregate distributions remaining unpaid as of the next anniversary of
the Company's incurrence of the Lehman Indebtedness shall bear interest from
such anniversary at a rate per annum equal to the Priority Return Percentage
until such distributions are made to JECA; provided, further, however, the
Company shall make no payment of interest (which term does not include any
unpaid Priority Return) accruing by reason of the foregoing clauses (ii) or
(iii) until all of the Lehman Indebtedness has been paid in full; and
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<PAGE>
(b) Last, at such times as the Manager designates, to BHI.
10.2 Allocations of Income, Gain, and Profit. Each year after making
the Tax Regulation Allocations, the Company will allocate Company net taxable
income (and book income), including each item required to be separately stated
under Code Section 702, as follows:
(a) First, to JECA, until the aggregate amount so allocated under this
subsection in the current year and in all prior years, equals the total
Priority Returns; and
(b) Last, to BHI.
10.3 Allocations of Loss and Deduction. Each year after making the Tax
Regulation Allocations, the Company will allocate Company net taxable loss
(and book loss), including each item required to be separately stated under
Code Section 702, solely to BHI.
10.4 Tax Regulation Allocations. The Company will make the following
allocations in the following order:
(a) Company Minimum Gain Chargeback. If Company Minimum Gain has a net
decrease during any Company taxable year, the Company will allocate items of
income and gain for such year (and, if necessary, for subsequent years) to
each Member in the amounts required by Regulations Sections 1.704-2(f) and
1.704-2(g)(2).
(b) Member Nonrecourse Debt Minimum Gain Chargeback. If Member
Nonrecourse Debt Minimum Gain has a net decrease during any Company taxable
year, the Company will allocate to each Member who has a share of the Member
Nonrecourse Debt Minimum Gain items of income and gain for such year (and, if
necessary, for subsequent years) in the amounts required by Regulations
Section 1.704-2(i).
(c) Qualified Income Offset. If a Member unexpectedly receives an
adjustment, allocation, or distribution described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6), the Company will allocate to the Member
items of Company income and gain (consisting of a pro rata portion of each
item of Company income, including gross income, and gain for such year) in an
amount and manner sufficient to eliminate the Adjusted Capital Account
Deficit, if any, caused by such adjustment, allocation, or distribution, as
quickly as possible as required by Regulations Section 1.704-1(b)(2)(ii)(d).
(d) Nonrecourse Deductions. The Company will allocate each nonrecourse
deduction, as defined in Regulations Section 1.704-2(b)(1) and determined in
accordance with Regulations Section 1.704-2(c), in the same manner in which
the Company allocates net taxable loss.
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<PAGE>
(e) Member Nonrecourse Deductions. The Company will allocate each
member nonrecourse deduction, as defined in Regulations Section 1.704-2(i)(2),
to the Members who bear the economic risk of loss with respect to the
liability to which such member nonrecourse deductions are attributable as
provided in Regulations Section 1.704-2(i)(1).
(f) Code Section 704(c) Allocations. If any Member contributes property
(other than money) to the Company (or is deemed so to contribute under
applicable income tax principles) and the fair market value of such property
at the time it is contributed differs from the contributing Member's adjusted
tax basis in the property, the Company will allocate items of income, gain,
profit, depreciation, cost recovery and depletion relating to such property in
the manner required by Code Section 704(c). The Company will not offset these
Code Section 704(c) allocations by any curative allocations described in
Section 10.5. The Company will make these Code Section 704(c) allocations
solely for purposes of federal, state and local taxes. Such allocations shall
be made using the "traditional method," the "traditional method with curative
allocations," the "remedial allocation method" and/or another reasonable
allocation method as provided in Regulations Section 1.704-3, as the Manager
shall determine. The Company will not take these Code Section 704(c)
allocations into account in computing any Member's Capital Account or share of
distributions.
(g) Revaluation Allocations. The Company will revalue Company assets
upon the approval of the Members as provided by Section 5.2. The Company will
determine the Members' distributive shares of depreciation, depletion,
amortization and gain or loss, as computed for tax purposes, with respect to
Company assets that are revalued, so as to take account of the variation
between the adjusted tax basis and book value of such revalued Company assets
in the same manner as under Code Section 704(c) and Section 10.4(f).
(h) Allocation of Cancellation of Debt Income. The Company will
allocate any cancellation of debt income realized by the Company among the
Members in proportion to the allocation among the Members (as provided in Code
Section 752) of the debt to which such income is attributable.
(i) Calculation of Minimum Gain. To the extent permitted by Regulations
Section 1.704-2(h)(3), the Company will treat distributions of Cash as having
been made from the proceeds of a nonrecourse liability or a Member nonrecourse
liability only to the extent that such distributions would cause or increase
an Adjusted Capital Account Deficit for any Member.
10.5 Curative Allocations. The Tax Regulation Allocations are intended
to comply with Regulation Sections 1.704-1(b) and 1.704-2. The Tax Regulation
Allocations may not be consistent with the manner in which the Members intend
to divide Company distributions. Accordingly, the Manager, to the
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<PAGE>
extent not inconsistent with Code Section 704(b), may allocate income, gain,
profit, loss, deduction and other items among the Members so as to effect the
economic objectives of the Members, and to offset any distortion of such
objectives otherwise resulting from the Tax Regulation Allocations.
10.6 Change of Units. Upon the issuance, increase, decrease or Transfer
of a Unit during any year the Company will allocate items of income, gain,
loss, deduction, and credit (or basis) allocable to that Unit in proportion to
the number of calendar days in the year that the holder was recognized as the
owner for federal income tax purposes of that Unit, without regard for the
results of Company operations during the portion of the year in which the
holder was recognized as the owner for federal income tax purposes of that
Unit, and without regard for the date, amount, or recipient of any
distributions made with respect to that Unit. The foregoing allocation rule
will not apply if the transferor and transferee agree to an allocation based
on the results as of the record date of the Transfer and agree to reimburse
the Company for the cost of making and reporting their agreed allocation; the
Transfer of the Unit causes a termination of the Company within the meaning of
Code Section 708; or Code Section 706(d) requires different allocations of
certain cash basis items.
10.7 Contributed Property Adjustments and Revalued Asset Adjustments.
The Members' Capital Accounts will be adjusted in accordance with Regulations
Section 1.704-1(b)(2)(iv)(g) for allocations to the Members of depreciation,
depletion, amortization, and gain or loss, as computed for book purposes, with
respect to contributed property and revalued assets.
ARTICLE 11 -- DISSOLUTION, LIQUIDATION AND WINDING UP
11.1 Dissolution. Subject to Article 7 hereof, the dissolution of the
Company will occur upon any of the following events:
(a) the happening of the events specified in this Agreement or in the
Certificate of Formation as grounds for dissolution, including the
expiration of the term provided for in Section 2.4;
(b) the written approval of the Members as provided by Section 5.2;
(c) a Capital Event unless the business of the Company is continued
either under a right to continue stated in the Certificate of
Formation and in this Agreement, or by the approval of the remaining
Members as provided by Section 5.2 within ninety (90) days after the
Capital Event;
24
<PAGE>
(d) an Event of Dissociation of a Member unless there are at least two
remaining Members, in which case the Company shall automatically
continue;
(e) entry of a decree of dissolution under Section 79-29-802 of the Act;
or
(f) when the Company is not the surviving entity in a merger or
consolidation.
Dissolution will take effect on the date of the event giving rise to the
dissolution, but the Company will not terminate until its assets have been
distributed pursuant to Section 11.2.
11.2 Liquidation and Termination. In a dissolution and winding up of
the Company, the Manager (or if no Manager, a liquidating trustee approved by
the Members as provided by Section 5.2), will proceed diligently to wind up
the affairs of the Company and distribute its assets pursuant to this Section
11.2. During the interim, the Manager will continue to exercise the rights of
and operate the Company consistently with the liquidation thereof, exercising
all the power and authority vested by the Act. As expeditiously as possible
after the dissolution of the Company:
(a) The Manager will make or cause to be made a complete accounting of
the assets, liabilities and operations of the Company as of the last day of
the month in which the dissolution occurs.
(b) The Manager will pay all liabilities of the Company (including loans
from Members but excluding Member Contributions and Member Capital Accounts)
and establish a Reserve, if the Manager deems a Reserve necessary, for payment
of future or contingent Company obligations.
(c) The Company will allocate its estimated net loss for the year and
any loss realized by the Company on liquidation, including any book adjustment
loss under Section 11.2(e), in accordance with Article 10 and its estimated
net gain for the year and any gain realized upon liquidation, including any
book adjustment gain under paragraph 11.2(e) of this Section, in accordance
with Article 10.
(d) The Manager will distribute the balance of the proceeds of the
liquidation after allocating gain or loss under Section 11.2(c) as follows:
(i) First, to JECA, until the aggregate amount so distributed
equals the sum of (A) the total unpaid Priority Returns, and (B) the
Redemption Price; and
(ii) Last, to the Members in accordance with the positive balance
in each Member's Capital Account, after taking into account amounts
distributed under Section 11.2(d)(i) and the
25
<PAGE>
allocation of all gains and losses related to the liquidation of the Company
and the in-kind distribution, if, any, of capital assets.
Distributions of Company assets may be made in Cash or in kind, in the sole
and absolute discretion of the Manager, but, if in kind, they will be deemed
distributed at their fair market values on the date of distribution (for
federal income tax purposes).
(e) If any Company property is distributed to the Members in kind, for
purposes of reflecting the allocation of gain or loss from liquidation in the
Members' Capital Accounts, the Company will make a book adjustment with
respect to the property distributed in kind as provided in the Regulations
Code Section 704(b).
(f) All salable assets of the Company may be sold in connection with any
liquidation at public or private sale, at such price and upon such terms as
the Manager deems advisable. Any Member or Manager and any Person related to
any Member or Manager may purchase assets at such sale.
ARTICLE 12 -- GENERAL
12.1 Amendment. Subject to Section 5.2 and Article 7 hereof, the
Members may amend this Agreement in whole or in part only by a written
agreement specifically referring to this Agreement.
12.2 Arbitration. If a dispute arises out of this Agreement between or
among the Members or any Manager, and if the disputants cannot settle this
dispute through negotiation, the disputants will try in good faith to settle
the dispute through mediation administered by the Commercial Mediation Rules
of the American Arbitration Association. If the parties fail to resolve the
dispute within twenty-one (21) days after starting mediation, then upon notice
by any disputant to the others, the disputants will settle the dispute by
binding arbitration conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The county and state of the
Company's principal place of business will serve as the place of the
arbitration. An arbitrator may not consolidate arbitration proceedings under
this Agreement with other pending arbitration proceedings without the prior
written consent of all disputants. A panel of three arbitrators with at least
five years of experience in the relevant area will handle the arbitration.
Subject to the control of the arbitrators or as the disputants may otherwise
mutually agree, the disputants will have the right to conduct reasonable
discovery for a period of forty-five (45) days after the filing of an answer
or other responsive pleading. The arbitrators may not award punitive damages
and may not make any ruling, finding or award inconsistent with this
Agreement. Any disputant may enter a judgment upon the award rendered by the
arbitrators in any court having jurisdiction over the dispute. Neither a
party nor an arbitrator may disclose the existence,
26
<PAGE>
content, or results of any arbitration proceeding. A non-prevailing disputant
will reimburse a prevailing disputant's legal and arbitration fees and
expenses. The award of the arbitrators will include a reasoned opinion. This
Agreement involves interstate commerce and is therefore enforceable as
provided in the Federal Arbitration Act, 9 U.S.C. Section 1 et seq.
12.3 Benefit. This Agreement binds and benefits the parties, their
heirs, legal representatives, successors and assigns.
12.4 Computation of Time. In computing any period of time, the day of
the act, event or default from which the designated period of time begins to
run will not be included. The last day of the period so computed will be
included, unless it is a Saturday, Sunday, or legal holiday, and, if so, the
period will run until the end of the next day not a Saturday, Sunday, or legal
holiday.
12.5 Confidentiality. Each party agrees to use its best efforts to
maintain confidential the terms of this Agreement.
12.6 Construction. Unless the context otherwise requires, when used in
the Agreement, the singular includes the plural and vice versa, the whole
includes the part and vice versa, and the masculine includes the feminine (and
neuter) and vice versa. The words "include", "includes", and "including" will
be deemed to be followed by the phrase "without limitation". Captions are
inserted for convenience only and will have no legal effect. Each reference
to a statute will be deemed to be followed by the words "and the regulations
thereunder." "Will" is a mandatory word denoting an obligation to pay or
perform. "May" is a permissive word denoting an option. The parties jointly
prepared this Agreement. Any uncertainty or ambiguity will not be interpreted
against any party but will be interpreted according to the application of the
rules of interpretation for arm's length agreements.
12.7 Governing Law. The substantive law of Mississippi will govern this
Agreement without regard to its choice of laws rules except to the extent
preempted by federal law.
12.8 Entire Agreement. This instrument constitutes the entire agreement
among the Members concerning the Company. The Members have made no
representations, warranties, understandings or agreements concerning the
Company other than those expressly included in this Agreement.
12.9 Equitable Relief. The Company and each Member will have the right
to seek and obtain equitable relief to enforce this Agreement.
12.10 Execution. The parties may execute this Agreement in any number
of counterparts, and each counterpart
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<PAGE>
will, for all purposes, be deemed an original instrument. All such
counterparts together will constitute but one and the same Agreement.
Facsimile transmission of any original signed counterpart and retransmission
of any signed facsimile transmission will be the same as transmission of an
original counterpart. At the request of any party, the parties will confirm
facsimile transmitted signatures by signing an original Agreement.
12.11 Exhibits. All exhibits referred to and attached to this Agreement
are incorporated into the Agreement by this reference.
12.12 Expenses of Prevailing Party. The prevailing party in any
arbitration and/or litigation in connection with this Agreement may recover
legal fees and costs incurred in conducting, prosecuting or defending such
arbitration or litigation from the nonprevailing party.
12.13 Further Assurances. Each of the parties to this Agreement will
execute, acknowledge, deliver, file, record and publish such further
certificates, instruments, agreements and other documents, and will take all
such further action required by law or necessary in furtherance of the
Company's purposes and the intent of this Agreement.
12.14 Invalidity of Provisions. The invalidity, illegality, or
unenforceability of any term of the Agreement will not affect the validity,
legality or enforceability of the remaining terms of the Agreement; provided
that if permitted by applicable law, any invalid, illegal, or unenforceable
provision may be considered in determining the intent of the parties with
respect to other provisions of this Agreement.
12.15 No Waiver. The failure or delay of any party to this Agreement in
requiring strict performance by any other party of any term of this Agreement
will not constitute a waiver of the term or of the right to require strict
performance of the term or any other term.
12.16 Notices. A party may only effect a notice, approval or other
communication required or permitted under this Agreement by giving such notice
in writing, postage or charges prepaid, and addressed to the address following
the Person's name on Exhibit A, and delivering it in person, by certified mail
(return receipt requested), or by overnight express delivery service.
Delivery by messenger or courier will constitute personal delivery. A Member
may change the Member's address for the purpose of this Section by notice to
the Company at its principal office in the manner provided in this Section. A
notice will become effective two (2) days after it is deposited in the mail,
one (1) day after it is consigned to an overnight delivery service, or upon
receipt of personal delivery.
28
<PAGE>
12.17 Waiver of the Right to Jury Trial. THE PARTIES WAIVE THE RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY ON ANY MATTER ARISING OUT OF THIS AGREEMENT OR THE
RELATIONSHIP OF THE PARTIES CREATED HEREUNDER.
[the remainder of this page is intentionally left blank]
29
<PAGE>
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the Effective Date.
BROADWATER HOTEL, INC. J. EDWARD CONNELLY ASSOCIATES, INC.
By /s/ John S. Aylsworth By /s/ Alan Bernthaler
------------------------------- -------------------------------
Name: Name: Alan Bernthaler
------------------------------- -------------------------------
Title: Title: Vice President
------------------------------- -------------------------------
30
<PAGE>
EXHIBIT A -- CONTRIBUTIONS
Member Number and Class
Name and Address Contribution of Units
Broadwater Hotel, Inc. $5,000,000 cash One Class A Unit
c/o President Casinos, Inc.
802 N. First Street
St. Louis, MO 63102
Attn: John Aylsworth
and James Zweifel
J. Edward Connelly The exchange of a portion, One Class B Unit
Associates, Inc. valued at $10,000,000, of
2180 Noblestown Road JECA's previous ownership in
Pittsburgh, PA 15205 the Company described in
Attn: John E. Connelly the Prior Agreement. For
and Alan Bernthaler purposes of Code Section
704(c), JECA's adjusted tax
basis in all of the property
contributed to the Company
(whether real, personal, tangible
or intangible) was $19,464,370
at the time of JECA's contribution.
31
<PAGE> 1
=================================================================
--------------------------
UPDATED SUMMARY APPRAISAL
--------------------------
BROADWATER BEACH HOTEL
--------------------------
BILOXI, MISSISSIPPI
--------------------------
PREPARED BY:
Hospitality Valuation Services
A Division of Hotel Consulting Services, Inc.
372 Willis Avenue
Mineola, New York 11501
516-248-8828
SUBMITTED TO:
Mr. Jim Zweifel
Chief Financial Officer
President Casinos, Inc.
800 North First Street
St. Louis, Missouri 63102
<PAGE> 2
<TABLE>
<C> <S>
April 11, 1997
Mr. Jim Zweifel
Chief Financial Officer
President Casinos, Inc.
800 North First Street
St. Louis, Missouri 63102
=================
372 Willis Avenue
Mineola, New York 11501 Re: Updated Summary Appraisal
516-248-8828 Broadwater Beach Hotel
516-742-3059 FAX Biloxi, Mississippi
HVS Reference #9710148
Dear Mr. Zweifel:
Stephen Rushmore, CRE, MAI, CHA
President and Founder Pursuant to your request, we herewith submit our updated
summary appraisal pertaining to the above-captioned property.
We have inspected the site and facilities and analyzed the
hostelry market conditions in the Biloxi/Gulfport area. Based
on the available data, our analysis, and our experience in the
hotel industry, it is our opinion that the market value of the
fee simple interest in the subject property described in this
report, including the sandwich lease interest in the dock space
currently leased from the State of Mississippi and leased to
President Casinos, Inc., as of April 1, 1997, is not less than:
$41,500,000
FORTY-ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
The following updated summary appraisal, which complies with
the requirements set forth in the Uniform Standards of
Professional Appraisal Practice for a summary appraisal report,
is a brief recapitulation of the appraisers' data, analyses,
and conclusions. It does not include a full discussion of the
data, reasoning, and analyses that were utilized in the
New York appraisal process to develop the appraisers' opinion of value.
San Francisco Supporting documentation is in the appraisers' file and will be
Miami made available upon request. The valuation is expressly made
Denver subject to all normal assumptions and limiting conditions, a
Vancouver copy of which is included in this report.
London
Specialists in Hotel Appraisal
and Consulting Worldwide
</TABLE>
<PAGE> 3
It should also be noted that this updated summary appraisal is
meant to serve as an update of our previous appraisal reports
for the subject property dated October 18, 1996, and January
23, 1995. The reader is advised to refer to the original
appraisal reports for more detailed information regarding our
analysis and conclusions.
SUBJECT OF THE The subject of the summary appraisal is the fee simple interest
ASSIGNMENT in several non-contiguous parcels of land, totaling +-257.2
acres, improved with a number of different structures that
constitute the Broadwater Beach Resort and Resort East.
Specifically, the subject of the appraisal includes the
333-room Broadwater Beach Resort (Resort), the 284-room
Broadwater Tower, now formally named Broadwater Resort East
(Tower), the 138-slip Broadwater Marina, and the 18-hole Sun
golf course. In addition to these components, the 218-room
Broadwater Inn (Inn) is currently operated as part of the
Broadwater Resort; however, this component is specifically
excluded from this appraisal. The subject property is located
along the northern side of Beach Boulevard, approximately
one-eighth mile east of Brady Drive, in the City of Biloxi,
County of Harrison, and State of Mississippi. The civic address
for the Resort property is 2110 Beach Boulevard, Biloxi,
Mississippi, 39531, while the Tower property is located at 2060
Beach Boulevard.
As will be discussed throughout this summary report, the Biloxi
market is in the infancy of its transformation from a
deteriorating, seasonal resort community characterized by a
number of independent hotels and motels suffering from deferred
maintenance, to a full-scale destination resort, characterized
by a number of recently opened full-service hotels and several
planned luxury resorts offering an array of attractions in
addition to gaming. Casino operators have realized that in
order to effectively compete in the Gulf Coast market, it is
necessary to offer not only a first-class casino, but also a
land-based resort, complete with hotel rooms, food and beverage
outlets, meeting space, and a number of other entertainment
attractions that serve to differentiate the product. In all
cases, the casino and land-based resort are marketed as a
single entity.
In contrast, the subject property represents an older resort
property that suffers from deferred maintenance and a
significant amount of functional obsolescence. Furthermore, the
property's casino dock space is leased to an outside operator
and, as such, the property is not able to capitalize on the
marketing and operational synergies typically enjoyed by its
competitors. As a result, both the hotel and casino operation
have suffered, and neither
<PAGE> 4
represents the highest and best use of one of the largest, and
most well-located development sites available along the Gulf
Coast.
The subject property leased its dock area and other related
areas for a 30-year period, beginning July 15, 1992. This
agreement would preclude an investor from purchasing the site
and redeveloping it as a destination resort. Rather, an outside
investor would need to consider the value of the hotel, marina,
and golf course in its current state, along with the value in
the sandwich lease position and the upside potential that would
occur if the lease were terminated prior to its natural end.
OBJECTIVE OF The objective of the updated summary appraisal is to estimate
THE UPDATED the market value of the fee simple interest in the subject
SUMMARY property, as well as the market value of the sandwich leasehold
APPRAISAL interest in the dock area currently leased from the State of
Mississippi and leased to President Casinos, Inc.
Market value is defined as:
The most probable price, as of a specified date, in cash, or
in terms equivalent to cash, or in other precisely revealed
terms, for which the specified property rights should sell
after reasonable exposure in a competitive market under all
conditions requisite to a fair sale, with the buyer and
seller each acting prudently, knowledgeably and for
self-interest, and assuming that neither is under undue
duress.<F4>
PROPERTY The property rights appraised are the fee simple interest in
RIGHTS the land and improvements, including furniture, fixtures, and
APPRAISED equipment, as well as the sandwich leasehold interest in the
dock area currently leased from the State of Mississippi and
leased to President Casinos, Inc.
EFFECTIVE DATE The effective date of the appraisal is April 1, 1997. All
OF THE projections are expressed in inflated dollars, and the value
APPRAISAL estimate represents 1997 dollars. The subject property was
inspected by Rodney G. Clough on September 24, 1996, and by
Frank P. Dougherty on January 10, 1995.
SCOPE OF THE The information contained in this report was collected and
APPRAISAL analyzed by the staff of Hospitality Valuation Services. Data
such as operating histories and a description of the subject
property were supplied by the current owners and management of
the property. The subject property has been inspected,
[FN]
<F4> "The Appraisal of Real Estate - Tenth Edition", Appraisal
Institute, Chicago, IL, 1992, p. 20.
<PAGE> 5
and we have gathered economic data, information on comparable
sales, areawide and competitive occupancies and average rates,
operating expenses, and capitalization and equity yield rates.
We have analyzed this information and considered the sales
comparison and income capitalization approaches. In the income
capitalization approach, the subject property has been valued
using a ten-year discounted cash flow analysis in which the
cash flow to equity and the equity reversion are discounted to
the present value at the equity yield rate, and the income to
the mortgagee is discounted at a mortgage interest rate. The
sum of the equity and mortgage values is the total property
value.
In the development of the opinion of value, the appraisers
performed a complete appraisal process as defined by the
Uniform Standards of Professional Appraisal Practice. This
means that no departures from Standard 1 were invoked.
OWNERSHIP On June 15, 1992, BH Acquisition Corporation, which is wholly
HISTORY owned by John E. Connelly, purchased the Broadwater Beach
Resort from the Joe W. and Dorothy Dorsett Brown Foundation.
The property, which included the hotel, two 18-hole golf
courses (one of which, the Sea golf course, has since been
sold), and the marina, was purchased for $19.98 million. On
March 29, 1993, BH Acquisition Corporation purchased the Grand
Biloxi Beach Resort, which is now known as the Broadwater
Tower, for $6,436,079 and the assumption of several capital
leases.
In August of 1992, BH Acquisition Corporation entered into a
Public Trust Tidelands lease with the Secretary of the State of
Mississippi. The lessor agreed to lease all submerged lands or
tidelands and superadjacent water column within the marina
parcel of the property. The initial term of the lease is ten
years with a five-year renewal option. The annual rental during
the first five-year term is $295,000. At the end of the first
five-year term, the new rental amount will be determined in
accordance with the then current Mississippi law.
On July 15, 1992, BH Acquisition Corporation entered into a
lease with President Casinos, Inc. to lease certain dock areas,
related tidelands and fastlands, 21 hotel units, and the right
to use approximately 685 parking spaces on a non-exclusive
basis and 400 parking spaces on an exclusive basis. The initial
term of the lease was for three years, with nine additional
three-year renewal options. The lease is in its first renewal
period, and the annual rental amount is $2,725,000 net to BH
Acquisition Corporation.
<PAGE> 6
President Casinos, Inc. is responsible for all real estate
taxes, maintenance, utilities, and other charges, including the
annual rental payment to fulfill the Public Trust Tidelands
lease. The subject property is currently managed by BH
Acquisition Corporation, and no formal management contract is in
place.
According to a letter dated July 17, 1996, the subject property
was at one point under contract to be purchased by Primadonna
Resorts, Inc. This transaction, which did not ultimately come
to fruition, was expected to include the associated rights in
the leasehold interest, which comprises the operation of the
President Casino and the associated defined premises (including
the dock area, tidelands, and fastlands) for $15,000,000, as
well as the resort premises for an additional $41,500,000.
It is our understanding that the subject property is now under
contract to be purchased by President Casinos, Inc. under the
same terms as the failed Primadonna transaction.
DESCRIPTION As it is currently operated, the Broadwater Beach Resort
OF THE consists of five distinct components, all of which are jointly
PROPERTY owned and operated by BH Acquisition Corporation: the 333-room
Broadwater Beach Resort (Resort), the 284-room Broadwater
Resort East (Tower), the 138-slip Broadwater Marina, the
18-hole Sun golf course, and the Broadwater Inn. This appraisal
specifically excludes the interests in the Broadwater Inn.
The Resort consists of a total of 354 guestrooms located in 20
different two- to three-story structures, all of which surround
a central courtyard area. It should be noted that although the
Resort contains a total of 354 rooms, 21 units are leased to
President Casinos, Inc. for use as office space. Therefore,
this 21-room block has been permanently removed from the
available room count. Because we have assumed that the
President Casino would remain at its current site, all future
projections for the Resort property are based on a room count
of 333.
The main building of the Resort houses all of the property's
public space, including +-14,200 square feet of meeting space, a
restaurant, a small lobby lounge, a gift shop, and a beauty
salon. Since its opening in the early 1950s, the Resort was
slowly expanded over the next 28 years. The last building to be
constructed, the Garden apartments, was finished in
approximately 1968. Recreational amenities at the property
include two outdoor
<PAGE> 7
swimming pools, two volleyball nets, six tennis courts, a
playground, a covered recreational center and snack bar, and a
jogging track.
With the exception of several rooms in the main building, all
of the guestrooms at the Resort are exterior-corridor rooms.
Approximately 32 units have full kitchens, and many of the
rooms are adjoining. Typical guestroom furnishings include two
double beds, a chair, a small table, and a bureau. The rooms
are not equipped with desks or any type of work surface.
The Tower originally opened in 1975 and consists of one
eight-story building that houses the majority of the public
space as well as the superior guestrooms, and three additional
two-story structures that contain the cabana guestrooms. Housed
on the first and second floors of the Tower are a restaurant, a
full lounge, a small lobby lounge, and approximately 13,800
square feet of meeting space. A separate one-story structure,
which was at one time a nightclub leased to an independent
operator, is now known as Gulf Hall and contains approximately
8,800 square feet of meeting space. Additional amenities at the
Tower include a large outdoor swimming pool with surrounding
deck, and four tennis courts.
Located directly across from the Resort is the Broadwater
Marina, which contains 136 slips, a restaurant with lounge,
docking space for the President Casino, and approximately 600
parking spaces. The Sun golf course is situated to the north
and northwest of the Resort property; although this 18-hole,
7,190-yard course is actually contiguous with the Resort
property, a railroad easement prohibits direct access.
CONDITION According to owner representatives, prior to the 1992
AND acquisition by BH, the resort was in very poor condition.
UTILITY Between June of 1992 and March of 1996, a total of
OF THE approximately $4,479,206, or $13,450 per salable guestroom, was
PROPERTY spent to renovate the Resort. Some of the major projects
included the installation of a new computer and telephone
system, the addition of fire alarms, the purchase of new golf
maintenance equipment, and a complete soft goods renovation of
the majority of the guestrooms. The room renovation included
the installation of new carpets, drapes, bedspreads, wall
vinyl, and televisions. Within the Tower, approximately
$633,534 has been spent in renovations since the acquisition of
this property. Some of the major projects included the
installation of new televisions in all guestrooms, a complete
ballroom renovation, the replacement of all guestroom
mattresses,
<PAGE> 8
and the replacement of carpet and wall vinyl in approximately
179 guestrooms.
Although BH Acquisition has spent a considerable amount of
money renovating and repairing the subject property over the
last several years, as a result of its age and staggered
construction, the property (or more specifically, the Resort)
suffers from a significant amount of incurable functional
obsolescence. This obsolescence is most obvious in the size and
configuration of the guest bathrooms, the sprawling design of
the guestroom structures, the lack of fire sprinklers in the
guestrooms, the exterior appearance of the buildings, and the
type of construction. In addition, although the guestrooms
received a soft goods renovation, the bathrooms were not
renovated and are dated in appearance and show signs of wear.
Lastly, the guestroom furnishings are worn and dated in
appearance and will need to be replaced within the next several
years.
Within the Tower, only a minimal amount of money has been spent
to date on the guestrooms, and although the rooms in the
high-rise building are in fair condition, the rooms in the
Cabana buildings are in need of renovation. Furthermore, the
guestroom corridors within the Cabana buildings are in
particularly poor condition.
In consideration of the property's current condition, we have
included a capital deduction for a minor renovation in 1997 and
1998. Our deduction includes approximately $1,250,000 during
the first projection year and $850,000 during the second. This
is expected to allow the subject property to upgrade its room
product to a level that will enable the operation to make gains
on its lost market share.
Overall, the subject property is currently considered to be in
fair to poor condition. Although the needed capital
improvements will address several of the most notable
deficiencies, the subject property will continue to be dated in
appearance because of its age and the amount of incurable
obsolescence. As will be discussed later in this report, the
condition of the subject facilities will continue to limit the
property's competitiveness, particularly when compared to the
older competitors that have been renovated and the newer hotels
that have opened recently. Although the subject property's
abundance of recreational amenities and the ability to offer
golf packages will be competitive advantages, the majority of
the competition represent superior products.
<PAGE> 9
MARKET AREA The subject property's market area is the Biloxi-Gulfport-
ANALYSIS Pascagoula MSA, which includes the counties of Harrison,
Hancock, and Jackson. More specifically, the subject
property's market area could be defined as the Mississippi
Gulf Coast, and primarily the cities of Gulfport and Biloxi.
In November of 1991, a referendum legalizing dockside gaming
throughout the State of Mississippi passed, and in August of
1992, Biloxi's first riverboat casino opened. Although some
local residents may regret the day this occurred, casino gaming
has emerged as the economic salvation of the Gulf Coast,
despite a number of drawbacks. In the pre-casino era, the Gulf
Coast's economy was primarily dependent on four major
industries: the military, which has a major presence in the
area by way of Keesler Air Force Base; the seafood industry,
which is largely dependent on the nation's and world's desire
for Gulf shrimp; shipbuilding, which is largely dependent on
government defense contracts; and tourism, which has long been
a mainstay of the area.
Each of these four major industries, with the exception of the
military and Keesler Air Force Base, was struggling in the
early 1990s. The decline in government defense spending, as
well as the nationwide recession during the last several years,
had a significant negative impact on the area's shipbuilding
trade, and a turnaround for this industry is not seen in the
foreseeable future. Although the seafood industry has been
relatively stable over the last several years, a decline in
local harvests, rising operating costs, and an increase in
foreign competition have all combined to slow any major growth
in this industry. Tourism has long been one of the area's most
successful industries; however, prior to casino gaming, this
sector was primarily seasonal, with many of the smaller lodging
facilities closing during the winter months.
Although Biloxi and the Mississippi Gulf Coast Coliseum and
Convention Center, which boasts a 12,000-seat arena and a
102,000-square-foot convention center, have always been the
principal hosts of most of the large, in-state convention
business, the construction of newer convention facilities in
both New Orleans and Mobile has successfully lured many of the
regional convention and group business to these cities.
However, usage of the facility remains strong; attendance
levels increased steadily each year since 1991. The following
table illustrates countywide convention data made available
through the Mississippi Gulf Coast Convention and Visitors
Bureau; as of April, 1997, only fiscal year data ending
September, 1996, was available.
<PAGE> 10
<TABLE>
===========================================================================================
TABLE 1 CONVENTIONS, DELEGATES, AND ECONOMIC IMPACT - HARRISON COUNTY
- -------------------------------------------------------------------------------------------
<CAPTION>
CONVENTIONS DELEGATES ECONOMIC IMPACT
----------------- ------------------- ----------------------
1994/95 1995/96 1994/95 1995/96 1994/95 1995/96
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
October 35 33 9,560 9,665 $ 6,803,802 $ 6,878,530
November 13 12 2,420 3,310 1,722,301 2,355,710
December 7 3 1,620 1,100 1,152,946 782,864
January 13 10 3,620 2,625 2,576,335 1,922,278
February 18 19 5,495 5,032 3,910,763 3,684,915
March 26 20 8,760 8,965 6,234,446 6,565,037
April 16 34 3,800 6,965 2,704,440 5,100,444
May 35 32 9,849 7,356 7,009,482 5,199,829
June 43 39 11,575 10,375 8,237,867 7,394,209
July 41 45 11,780 10,481 8,395,545 7,675,199
August 25 37 6,645 12,081 4,729,212 8,846,873
September 31 28 4,876 10,150 3,470,224 7,432,808
Totals: 303 312 80,000 88,105 56,947,363 63,838,696
Yearly Increase: 3.0 % 10.1 % 12.1 %
Mississippi Gulf Coast Convention and Visitors Bureau
- -------------------------------------------------------------------------------------------
</TABLE>
In order to become more competitive, the Biloxi facility is
undergoing an expansion. Construction recently commenced on a
70,000-square-foot exhibit and meeting space addition, which is
scheduled to open in November of 1997. This expansion bodes
well for the subject property and the Biloxi area as it will
allow the center to attract a greater variety of groups.
Despite the significant cutbacks in military spending over the
last several years, the government presence within Biloxi and
the entire Gulf Coast has continued to be a stabilizing factor.
Keesler Air Force Base survived the recent round of base
closings and, in fact, has benefited as personnel from the
closed bases have been relocated to Keesler. In July, 1992, the
U.S. Navy Homeport opened in Pascagoula, just east of Biloxi.
This new base is home to six guided-missile frigates and
employs approximately 2,000 people. Despite this recent opening
and the slight expansion of Keesler, a continued decline in
military spending is expected into the future; thus any future
growth in this segment of the local economy will be limited.
Overall, the economic outlook for both Biloxi and Gulfport was
rather bleak prior to the legalization of gaming; however, the
casino industry has had a dramatic effect on local, regional,
and state economies. According to state legislation, casino
gaming is legal on waters that lie adjacent to the State of
<PAGE> 11
Mississippi south of its three most southern counties: Hancock,
Harrison, and Jackson. Although this very poorly worded
legislation has caused a significant amount of confusion about
what is and is not a viable casino site, in general casinos are
allowed along the Gulf Coast and within the back bays of those
cities fronting the coast. Mississippi features comparatively
liberal gaming laws by allowing gaming boats to dock 24 hours
(the regulatory system is modeled after Nevada's system), by
keeping the tax rate low (11% of gross revenues compared to 20%
in other states), and by not imposing any bet limits. As of
April, 1997, there are 12 casinos operating along the Gulf
Coast; eight of these are located within Biloxi, two are
located in Gulfport, while the balance are located further
west, in Bay St. Louis and Lakeshore. Statewide, casinos
feature more than 1.1 million square feet of gambling space,
more than any state outside Nevada. As of April, 1997, there
were 30 licensed casinos in the state.
The economic impact to the area has been tremendous. Visitation
to the state-licensed casinos averaged 13.2 million people
during each quarter in 1996. These visitors were equally
divided between the Gulf Coast and the North River County
casinos. Approximately 70% of all visitors were from out of
state. A review of some of the most recently available
statistics indicates that the tourism and recreation industry
accounted for 75,132 jobs in 1996. This represented a 7.5%
increase over the same period one year earlier. The casino
industry specifically has directly or indirectly brought over
27,000 new jobs to Mississippi. Total gaming jobs represented
36.9% of 1996 tourism and recreation employment, and hotel and
motel tax collections increased by 12.2% per year between 1993
and 1996.<5> Gross gambling revenues for 1995 reached $1.7
billion, third behind Nevada ($7.3 billion) and Atlantic City,
New Jersey ($3.3 billion).
In contrast to the economic boom the casinos have created, the
casino industry itself experienced financial difficulties soon
after its inception in the area. Although somewhat locationally
restricted, the state law allowing gaming set no limits on the
number of casino licenses that would be granted. Rather, the
legislature decided to allow market forces to determine the
appropriate number of casino operations. To the surprise of
many, these market forces had a significant impact on several
of the original casinos. In January of 1995, the Biloxi Belle
casino, one of the first to open in Biloxi and also one of the
smallest properties, ceased operation. In addition, two other
operations, the Palace Casino and Treasure Bay, are currently
[FN]
<F5>According to the Harrison County Tourism Commission, these
figures are computed on a fiscal-year basis, October through
September.
<PAGE> 12
operating under Chapter 11 bankruptcy protection. These
financial difficulties were largely a result of over-leveraging
and limited financial resources. In determining the financial
feasibility of their operations, many of the newest operators
relied on the spectacular success of the early operations and
did not consider how the influx of new competition would have a
negative effect on the amount of win per operation.
Many industry analysts and casino operators believe that the
casino industry in Mississippi is evolving. The smaller,
independent casino operations are being replaced or joined by
larger, nationally known casino operators. Virtually every
major casino company in Nevada is building or operating a
casino in Mississippi. These companies include Boomtown Inc.,
Boyd Gaming Corp., Bally Entertainment Corp., Circus Circus
Enterprises Inc., Fitzgeralds Gaming Corp., Grand Casinos Inc.,
Harrah's Entertainment Corp., Horseshoe Gaming, Imperial
Palace, Lady Luck Gaming Corp., Mirage Resorts Inc., and ITT
Corp.
Operators have realized that gaming alone is not a sufficient
attraction to support the number of vessels currently in
operation. The factors that restricted growth in the past
included a limited supply of hotel rooms, the poor quality of
the existing hotel rooms, the lack of jet service to the
Gulfport/Biloxi Regional Airport, the limited size of the
convention center, and the lack of additional nighttime
entertainment options. However, these factors are being
addressed as follows.
* Guestroom inventory (1,400 rooms total) was added in
1995 at the Grand Casino in both Biloxi and Gulfport,
as well as the Isle of Capri Casino. Additional room
inventory is being constructed with several expansions
and new casino hotel projects. Mirage Resorts held
official ground-breaking ceremonies for its new
$475-million, 1,800-room luxury resort to be named Beau
Rivage.
* Many of the existing hotel rooms were improved when
the area Holiday Inns completed major renovations.
These renovations were required by Holiday Inn and have
since allowed these properties to increase average room
rates and occupancies considerably.
* Jet service to the area has improved with the addition
of charter service, which was virtually non-existent in
1992 with 2,789 passengers; this number increased to
approximately 101,370 passengers by 1996 (enplanements
only).
<PAGE> 13
* The convention center is undergoing a major expansion
project, scheduled to open in late 1997.
* Entertainment options are increasing with the opening
of the 1,900-seat showroom at the Grand Casino Biloxi,
and the construction of the Mirage and the Imperial
Palace projects, which include entertainment options in
addition to the casinos.
In addition to the market forces driving these land-based
investments, the Mississippi State Gaming Commission enacted a
regulation in October of 1994 requiring that all casino
operators must own, or be actively planning to build, a hotel
of at least 250 rooms at the time the casino license is
renewed. The regulation also provides that if it can be
demonstrated that the market cannot support additional rooms,
then the operator is required instead to make an investment in
a land-based entertainment facility equivalent to at least 25%
of the initial casino development cost. Although this
regulation bodes well for the future of the Biloxi market as a
whole, it may have a devastating effect on marginal casino
operations during the short term.
Casino licenses must be renewed every three years. As a result,
most of the initial licenses that were granted in early 1992
have expired and are subject to the new hotel regulation. To
date, the Gaming Commission has not strictly enforced this
regulation; no operations have been forced out of the market
due to a lack of rooms. Guestrooms continue to be added to the
market to accommodate excess existing demand, not because of
the license requirement. The Copa Casino, Boomtown, Lady Luck,
and Casino Magic casinos are in the process of "actively"
developing a hotel, although ground has not been broken on
these additions.
It should be noted that the Gaming Commission currently
recognizes the relationship between the President Casino and
the Broadwater as one that satisfies the land-based investment
requirement. However, it should also be noted that if the
Broadwater were sold to a third party, this relationship would
no longer exist, and the President Casino would then be subject
to the existing regulation.
Because of the evolving establishment of the Biloxi area as a
resort destination, the recent addition of riverboat gaming to
New Orleans has had a limited effect on the area.
<PAGE> 14
AREA The Biloxi/Gulfport market area is currently in the infancy
CONCLUSION stages of its establishment as a resort destination. Although
the casino industry has quickly established itself as the
significant driving force behind the local economy, this
industry is still young, and future growth will depend on the
continued success of the Grand Casino Hotels and the Isle of
Capri Casino Hotel. Growth will also depend on the pending
success of those resorts now under construction and proposed,
particularly Beau Rivage, the Imperial Palace, and the
development of the subject property. Because each of these
developments, including the subject property, should provide
multi-faceted resort experiences, the development of the area
as a nationwide destination resort appears likely.
Fortunately, many of the casino operators, both existing and
those planning future casinos, as well as the gaming commission
itself, now realize that the only way to ensure the future
success of the Mississippi Gulf Coast gaming market is to
create a more comprehensive destination resort area offering a
variety of attractions in addition to gaming. Whether Biloxi
can undergo this transformation in a short enough period to
stave off the effects of increased competition remains to be
seen.
EXISTING Lodging demand in the Biloxi/Gulfport area can generally be
MARKET segmented into three primary demand categories: transient,
SEGMENTS group, and casino/tour. Following is a brief description of
each category.
Transient demand is generated by independent travelers seeking
accommodation in the Biloxi area primarily for leisure
purposes. However, this segment also includes the commercial
and government demand that exists in the market. The transient
segment typically is the most price-insensitive, and often
represents the highest average rate. During the peak summer
season, much of this demand, with the exception of government
demand and a limited amount of commercial demand with
pre-negotiated rates, is paying rack rates. In the case of the
subject property, this segment also represents additional room
nights generated by the President Casino that exceed the number
of blocked rooms for that day.
Group demand generally represents any room night demand
consisting of ten or more room nights booked by a common agent
for a group with a common goal. Group demand typically includes
conventions, meetings, and seminars and can be further
segmented to categorize associations, corporate meetings, and
social groups. Historically, the subject property, which
currently has the most amount of meeting space within the
Biloxi
<PAGE> 15
market and offers the largest ballroom (the Gulf Room at
8,757 square feet), has competed quite well in this segment.
However, the expansions of the Grand Casinos in Biloxi and
Gulfport include a considerable amount of meeting space; these
additions will likely affect the competitive level of the
subject property in this market segment negatively.
Casino/tour demand represents a market segment somewhat
specific to Biloxi and includes room nights that are blocked by
a casino on a long-term basis, as well as room nights that are
sold to tour operators who then package the vacation along with
transportation (typically via motor coach) and other amenities.
This segment represents the lowest-price category; however, it
is also the most readily available business in the market.
Casino blocks are typically being sold for $35 to $50 per room
night, while tour business generally falls in the lower end of
this price range. In order to maximize rooms revenue potential,
hotel operators are forced to "time manage" this business. In
other words, the optimal solution is to accommodate as much of
this business as possible without ever having to turn away a
higher-rated transient or group guest.
According to the Gulf Coast Hotel/Motel Association, there are
approximately 6,000 guestrooms located along the Mississippi
Gulf Coast, with +-3,400 situated in Biloxi, +-1,500 located in
Gulfport, and the balance scattered in other areas. The hotel
market in the Biloxi area is generally characterized by the new
Grand Casino Hotels, the new Isle of Capri Casino Hotel, and a
number of old, but renovated, Holiday Inns. The remaining
lodging facilities are worn, independently operated properties
that for many years were open only during the high-season
months extending from May to October. The vast majority of
these independently operated facilities are over 20 years old,
and as a result of the recessionary economy that existed in the
area prior to the advent of casino gaming, many of the
properties suffer from a significant amount of deferred
maintenance.
The following chart graphically depicts the historical areawide
occupancy levels for the greater Gulf Coast area as compiled by
the Gulf Coast Hotel/Motel Association.
<PAGE> 16
<TABLE>
=======================================================================================
Figure 1 Historical Annual Areawide Occupancy Levels
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year 1982 1983 1984 1985 1986 1987 1988 1989
Hotel
Occupancy 59.9% 56.6% 52.2% 55.8% 49.1% 53.1% 44.8% 49.1%
Year 1990 1991 1992 1993 1994 1995 1996
Hotel
Occupancy 53.0% 50.8% 55.9% 69.1% 74.0% 71.0% 68.0%
Source: Gulf Coast Hotel Motel Association of Mississippi
- ---------------------------------------------------------------------------------------
</TABLE>
As can be seen, prior to the passage of casino gaming, the
local hotel market experienced a substantial decline in
occupancy levels, and between 1982 and 1992, the market never
operated at an occupancy level greater than 60%. Occupancy
declined in 1995 and 1996, attributable primarily to the
addition of over 1,400 rooms to the market; this addition may
have adversely affected the occupancies of the older,
independent properties by accommodating much of their typical
demand in the short-term. Although statistics for average rate
are not compiled by the association, our research has found
that this is a price-sensitive market.
Smith Travel Research (STR) has compiled historical supply and
demand data for the subject property and its competitors. In
addition to the subject property, the reporting set includes
the following properties: Isle of Capri, Comfort Suites Biloxi,
Ramada Limited Gulfport, Days Inn Biloxi, Hampton Inn Gulfport,
Treasure Bay Resort Hotel, Broadwater Beach Resort, Shoney's
Inn Gulfport, Quality Emerald Beach, Holiday Inn Express
Biloxi, and the Holiday Inn Gulfport Beachfront. We note that
several larger casino hotels do not report to Smith Travel
Research (specifically, the Grand Casino properties); however,
the trends illustrated are nonetheless indicative of trends in
lodging demand in the local market area. This information is
presented in the following table.
<PAGE> 17
<TABLE>
===============================================================================================================================
TABLE 2 HISTORICAL SUPPLY AND DEMAND TRENDS, SMITH TRAVEL RESEARCH
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Avg. Annual Year to Date, February
Change ------------------------
1991 1992 1993 1994 1995 1996 (1991-1996) 1996 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Rooms 1,818 1,960 1,960 2,013 2,234 2,476 2,476 2,476
Annual Guestroom Supply 663,630 715,400 715,400 734,745 815,410 903,740 146,084 146,084
Percent Change --- 7.8 % 0.0 % 2.7 % 11.0 % 10.8 % 6.4 % --- 0.0 %
Room Night Demand 393,533 438,540 564,451 570,162 542,248 612,736 94,078 94,370
Percent Change --- 11.4 % 28.7 % 1.0 % (4.9)% 13.0 % 9.3 % --- 0.3 %
Occupancy 59.3 % 61.3 % 78.9 % 77.6 % 66.5 % 67.8 % 64.4 % 64.6 %
Percent Change --- 3.4 % 28.7 % (1.6)% (14.3)% 2.0 % 2.7 % --- 0.3 %
Average Rate $46.61 $47.37 $53.57 $59.67 $58.59 $58.06 $48.02 $54.13
Percent Change --- 1.6 % 13.1 % 11.4 % (1.8)% (0.9)% 4.5 % --- 12.7 %
RevPAR $27.64 $29.04 $42.27 $46.30 $38.96 $39.36 $30.92 $34.97
Percent Chqange --- 5.1 % 45.6 % 9.6 % (15.9)% 1.0 % 7.3 % --- 13.1 %
Source: Smith Travel Research
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
The metamorphosis in the Biloxi hotel market, as explained in
the previous Market Area Analysis subsection, manifested itself
in significant average rate and occupancy changes among the
competitors between 1991 and 1996. Prior to 1995, the market
was characterized by older hotel properties; however, in 1995,
the market brought drastic change to the quality of competitive
room product in the Biloxi area market. Renovations were
undertaken at the Holiday Inns in accordance with the
nationwide core modernization program required of all Holiday
Inns. The Isle of Capri, the Grand Casino Biloxi, and the Grand
Casino Gulfport opened, adding a combined total of roundly
1,400 brand new rooms to the market. Because the Grand
properties do not report to STR, these properties extracted
demand from the competitive set, particularly in their 1995
opening year. Demand growth accordingly recovered in 1996, with
a 13% increase.
The remaining properties that did not upgrade, inclusive of the
Treasure Bay, the Broadwater Inn, and the subject property,
have been adversely affected. It is important to note that the
subject property offers a greater variety of extra amenities
(such as volleyball, swimming pools, and golf) than do the
other competitive properties; this fact places even greater
importance on the needed improvement of the guestroom product
at the subject property.
In addition to the much-improved areawide guestroom product,
changes in subject property management and changes in this
management's accompanying vision have not allowed the subject
property to adequately compete in the evolving Biloxi casino
hotel market. New, nationally based casino hotels have
converged on the area with well-planned marketing strategies
and proven marketing techniques; the subject property has not
been able to benefit from similar practices.
PROPOSED As of April, 1997, over 7,200 guestrooms were either proposed
COMPETITION or under construction along the Gulf Coast. Approximately
4,200, or 58%, of these rooms are currently under construction.
This massive development is being fueled by a number of
factors, including the following.
1. Mississippi's attractive gaming regulations are
considered less burdensome than the casino
development and operation regulations of most other
states.
2. The beach and area historical sites help contribute
to the development of the area as a nationwide
destination resort. Lyle Berman, Chairman
<PAGE> 19
of Grand Casinos, states, "It's got everything
you need for a destination resort, beaches, the
ocean, excellent weather, and a fine airport.
Everything."<F6>
3. The success of the Grand Casinos and Isle of Capri,
the renovated Holiday Inns, and some of the other
newer products that have entered the market in the
last year bodes well for the area.
The following table details those rooms either under
construction or considered likely to come to fruition.
<TABLE>
============================================================================================================================
TABLE 3 PROPERTIES UNDER CONSTRUCTION AND PROPOSED AS OF APRIL, 1997
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NUMBER
NAME OF PROJECT LOCATION OF ROOMS STATUS
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Grand Casino Expansion Biloxi 500 Opening Spring 1998
Grand Casino Expansion Gulfport 500 Opening Fourth Quarter 1998
Casino Magic Biloxi 375 Opening February 1998
Imperial Palace Biloxi 1,034 Opening July 1997 (Partial)
Beau Rivage (Mirage Resorts) Biloxi 1,800 Opening Late 1998
-------
Total Under Construction 4,209
Circus Circus Bay St. Louis 1,400 Proposed Project
Lady Luck Biloxi 300 Proposed Expansion
Casino World Biloxi 450 Proposed Project
Boomtown Biloxi 400 Proposed Expansion
Palace Casino Biloxi 400 Proposed Expansion
Goldshore<F*> Biloxi NA Proposed Project
-------
2,950
Total Proposed and Under Construction 7,159
<FN>
<F*> Land assemblage reportedly underway; size and scope of project has no yet been announced
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
As can be seen, within the subject property's immediate market
area, a total of 4,209 rooms are under construction, while
another 2,950 are proposed for the area. While the remaining
rooms may or may not come to fruition, the opening of the Beau
Rivage and the Imperial Palace and the continued success of the
Grand Casinos and the Isle of Capri will likely fuel more
casino room growth in the local market. One example of this
continued growth
[FN]
<F6> "New Money in Ol' Miss," Dave Palermo, Las Vegas
Review-Journal, Las Vegas, NV, May 19, 1996, p. 1.
<PAGE> 20
includes a rumored land assemblage at the site of the old
Goldshore casino; an announcement of what will become of this
assemblage is expected in the near-term future.
It is important to note that the rooms currently under
construction represent two types of hotel products. While the
Grands, Isle of Capri, and the proposed Imperial Palace market
towards what can be considered a "price sensitive" casino
customer, we speculate that the addition of the Beau Rivage
product to the market will add a different segment to the local
casino market. Mirage is typically known for its extravagance,
and its "spare no expense" entertainment experiences. With this
concept, its room product is a more luxurious quality, and its
casino customers are typically higher-rated players. The
addition of this product to the market will attract a different
kind of casino customer, one who is accustomed to gaming at
tables with higher bet limits, playing at slot machines with
larger monetary denominations, paying higher average checks at
five-star restaurants, and in turn paying higher average room
rates (casino room rates are also typically higher). It is
expected that the Beau Rivage product (once stabilized) would
not be directly competitive with a Grand Casino product or the
subject property. Rather, the addition of the hotel will
increase the visibility of the area as a gaming destination;
more players who cannot afford or do not wish to pay the higher
room rates typically found at a Mirage product but who wish to
experience the Beau Rivage will stay in local area casino
hotels (including the subject property). Therefore, we expect
the addition of this hotel to benefit the subject property
indirectly by creating more demand for the Biloxi destination
as a whole.
While the Beau Rivage may benefit the subject property by
creating excess demand for the market, the new products
entering the market (i.e., the Grand Casino expansions and the
proposed Imperial Palace) will be able to offer room rates that
are subsidized by the casino, and will compete directly with
the Broadwater.
Given the previously illustrated statistics, and the expansions
of the Grand Casinos currently underway, it does appear that
there is sufficient unaccommodated demand to support the
proposed hotels. The meeting space being added at these
properties will also induce a considerable amount of demand
into this market. Overall, we do not anticipate that the new
competition will result in a significant decline in occupancy
in the competitive set.
<PAGE> 21
Currently, the existing Grands and Isle of Capri are leading
the market in performance; we expect this to continue. We
anticipate that the Holiday Inns, now fully renovated, will
achieve the next highest average rates and occupancies by
attracting the most overflow demand from these larger and newer
properties. As the newer hotels and the renovated Holiday Inns
are expected to continue to attract much of the newly expanding
customer base, the Broadwater will have to cater to the more
price-sensitive transient guest and accommodate more of the
lower-rated tour and casino business. The weakest properties in
the market - namely, the smaller, independent properties that
are in poor physical condition - will be the most significantly
affected as the properties that now represent the
highest-quality product begin to compete for the lower-rated
business. In essence, the new hotels are creating a new
competitive level and are significantly altering the existing
competitive market structure.
HIGHEST AND The Appraisal Institute defines highest and best use as:
BEST USE
The reasonably probable and legal use of vacant land or
improved property, which is physically possible,
appropriately supported, financially feasible, and that
results in the highest value.<F7>
Based on our analysis of the subject site, location, zoning,
surrounding land-use patterns, and the existing lease
encumbering the property's dock space, it is our opinion that
the highest and best use of the property, both as vacant and as
improved, is its current use as a transient lodging, marina,
golf, and casino facility.
Furthermore, as will be noted later in the report, our findings
indicate that were the subject property not encumbered by a
27-year lease for its casino mooring space, the highest and
best use of the property would be as a mixed-use destination
resort, including a casino, a hotel, and other entertainment
and recreational components. It should also be noted that at
present, land-based gaming is not permitted within Biloxi.
Should land-based gaming become permissible, our highest and
best use conclusion for the subject property may be altered.
[FN]
<F7>"The Appraisal of Real Estate - 10th Edition", Appraisal
Institute, Chicago, IL, 1992, p. 45.
<PAGE> 22
APPROACHES In developing this updated summary appraisal, we have
TO VALUE considered the three standard approaches to value: cost, sales
comparison, and income capitalization. Given the subject
property's development history, the age of the facilities, and
the amount of functional obsolescence, the cost approach was
deemed inappropriate in reaching a final value conclusion.
SALES The sales comparison approach estimates the value of a property
COMPARISON by comparing it to similar properties recently sold in the open
APPROACH market. Through an analysis of this data, the appraiser may
extract indications of value based on the per-room prices paid
for similar hotels. The comparable sales utilized in this
analysis are presented below.
Hotel Sale #1
-------------
Property: Broadwater Beach Resort
Location: 2110 Beach Boulevard, Biloxi
Number of Rooms: 354
Date of Sale: June, 1992
Grantor: Joe W. and Dorothy Dorsett Brown
Foundation
Grantee: BH Acquisition Corporation
Consideration: $19,980,000 (not including
renovation)
Cost to Renovate: $4,023,000
Price Per Room: $56,441 (prior to renovation)
$67,805 (including cost to renovate)
Comments: This represents the sale of the subject property to
its current owners. Included in the transaction were the
resort, two golf courses, and the marina. The sale price
reflects the purchaser's ability to lease the dock space to a
casino operation. As discussed previously, this lease currently
generates a net lease payment of $2.725 million per year.
Assuming a market value of approximately $15.6 million for this
leasehold interest, the resort and additional facilities would
be valued at roundly $4.4 million, or $12,429 per guestroom,
prior to the renovation, and $8.403 million, or $23,737 per
room, including the renovation.
Reportedly, the Pratt Company originally had negotiated a
contract to lease this property. However, one day after the
contract had expired, BH Acquisition was able to acquire the
property, despite a threat of a lawsuit by Pratt.
<PAGE> 23
Hotel Sale #2
-------------
Property: Grand Biloxi Beach Resort
(Broadwater Towers)
Location: 2060 Beach Boulevard, Biloxi
Number of Rooms: 284
Date of Sale: March, 1993
Grantor: Equitable
Grantee: BH Acquisition Corporation
Consideration: $6,436,079 (not including
renovation)
Cost to Renovate: $628,000
Price Per Room: $22,662 (prior to renovation)
$24,874 (including cost to renovate)
Comments: This represents the sale of the Tower property to its
current owners. The sale was an all-cash transaction, and
although the property was purchased out of foreclosure, this is
considered a market sale. At the time of sale, BH Acquisition
was reportedly managing the property for Equitable. According
to the current owners, no other parties bid on the hotel.
Hotel Sale #3
-------------
Property: Seaview Resorts
(Broadwater Inn)
Location: Beach Boulevard, Biloxi
Number of Rooms: 218
Date of Sale: March, 1993
Grantor: Resolution Trust Company acting as
receiver for Independence Federal
Bank
Grantee: BH Acquisition Corporation
Consideration: $4,036,549 (not including
renovation)
Cost to Renovate: $943,484
Price Per Room: $18,516 (prior to renovation)
$22,844 (including cost to renovate)
Comments: This represents the sale of the Inn to its current
owners. The sale was an all-cash transaction, and although the
property was purchased out of foreclosure, this is considered a
market sale.
<PAGE> 24
Hotel Sale #4
-------------
Property: Royal D'Iberville (Treasure Bay)
Sale also included Royal Golf Hills
Golf Course and Motel
Location: 1980 Beach Boulevard, Biloxi
Number of Rooms: 264
Date of Sale: July, 1993
Grantor: H.S. Stanley, Bankruptcy Trustee
Grantee: Miller Resorts, Inc.
Consideration: $13,750,000
$10,000,000 allocated to Royal
D'Iberville
$3,750,000 allocated to golf course
and motel
Price Per Room: $37,879
Comments: This property is located directly across from the
Treasure Bay Casino and was purchased by the owners of the
casino. We believe the consideration represents an above-market
value considering the needs of the buyer.
Hotel Sale #5
-------------
Property: Sahara Inn
Location: 530 E. Beach Boulevard, Gulfport
Number of Rooms: 38
Date of Sale: December, 1993
Grantor: Bhakta
Grantee: Lee/Dao
Consideration: $1,350,000
Price Per Room: $35,526
Comments: This is a one-story motel constructed circa 1974. At
the time of sale, this property was in fair condition and had a
budget price point market orientation.
<PAGE> 25
Hotel Sale #6
-------------
Property: Hampton Inn
Location: Highway 98, Hattiesburg
Number of Rooms: 116
Date of Sale: April, 1995
Grantor: Carlisle Properties
Grantee: PFS Partnership
Consideration: $5,500,000
Price Per Room: $47,414
Comments: This property consists of a two-story motel in two
buildings, totaling approximately 40,637 square feet, and a
pool. At the time of sale, average rate was reported to be $51
with occupancy averaging 89%.
Hotel Sale #7
-------------
Property: Quality Inn
Location: 103 NW Interchange, Diamondhead
Number of Rooms: 154
Date of Sale: March, 1996
Grantor: Hotel Corporation of Mississippi
Grantee: Roger Lee Jones, T. Joe & Ouida
Calloway
Consideration: $5,100,000
Price Per Room: $33,117
Comments: This property was purchased by the seller from
Hancock Bank in 1989 for $3.5 million. The complex was built in
1987. Amenities include a swimming pool, a whirlpool, a
restaurant, a lounge, an exercise facility, and meeting rooms.
<PAGE> 26
Hotel Sale #8
-------------
Property: Sleep Inn
Location: 7412 Tucker Road, Ocean Springs
Number of Rooms: 78
Grantor: Ocean Springs Hotel Corporation
Grantee: CrossHost Incorporated
Date of Sale: September, 1996
Consideration: $3,550,000
Price Per Room: $45,512
Comments: This hotel opened in 1995 and features a wood frame
structure with stucco siding. Units are accessed via interior
hallways. The hotel also contains a reception area, a small
swimming pool, and a small meeting room.
Hotel Sale #9
-------------
Property: Bay House Inn
Location: U.S. 90 and Drinkwater Road, Bay
St. Louis
Number of Rooms: 128
Grantor: Jean Johnson
Grantee: Sun Suites
Date of Sale: January, 1997
Consideration: $2,650,000
Price Per Room: $20,703
Comments: This sale represents a motel complex built in 1994.
Rooms feature kitchenettes. The new owners plan to operate the
property as an extended-stay facility under the Sun Suites
franchise.
<PAGE> 27
Hotel Sale #10
--------------
Property: Broadwater Beach Resort
Location: 2110 Beach Boulevard, Biloxi
Number of Rooms: 617 (333-room Resort and 284-room
Resort East)
Date of Sale: Under contract
Grantor: BH Acquisition Corporation
Grantee: President Casinos, Inc.
Consideration: $41,500,000 for the resort;
$15,000,000 for the leasehold
interest in the operation of the
President Casino (Combined price:
$56,500,000)
Price Per Room: $67,261
<TABLE>
=================================================================================================================================
TABLE 4 SUMMARY OF COMPARABLE SALES
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Sale Price
Date of Number Including Price
Property Name Location Sale of Rooms Renovation per Room
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Broadwater Beach Resort 2110 Beach Blvd., Biloxi June, 1992 354 $ 8,403,000<F*> $23,737
Grand Biloxi Beach Resort 2060 Beach Blvd., Biloxi March, 1993 284 7,064,079 24,874
Seaview Resort (Broadwater Inn) Beach Blvd., Biloxi March, 1993 218 4,980,033 22,844
Royal D'lberville (Treasure Bay) 1980 Beach Blvd., Biloxi July, 1993 264 10,000,000 37,879
Sahara Inn 530 E. Beach Blvd., Gulfport December, 1993 38 1,350,000 35,526
Hampton Inn Highway 98, Hattiesburg April, 1995 116 5,500,000 47,414
Quality Inn 103 NW Interchange, Diamondhead March, 1996 154 5,100,000 33,117
Sleep Inn 7412 Tucker Road, Ocean Springs September, 1996 78 3,550,000 45,513
Bay House Inn U.S. 90 and Drinkwater Rd, Bay St. Louis January, 1997 128 2,650,000 20,703
Broadwater Beach Resort 2110 Beach Blvd., Biloxi Under Contract 617 41,500,000 67,261
<FN>
<F*> Sale price allocates $15.6 million to purchase of dock space
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SALES The preceding table indicates that the sale prices range from
COMPARISON $20,703 to $67,261 on a per-room basis. Because of their size,
APPROACH the Sleep Inn and Sahara Inn sales are not considered to be
CONCLUSION true comparables to the subject property. The sale of the Royal
D'Iberville is considered to be above market because it was
purchased by the owners of the Treasure Bay casino, which is
located directly across the street from the property. Excluding
the pending sale of the subject property, the remaining sales
indicate prices ranging from $20,703 per room to $47,414 per
room, or a rounded value range of $12,800,000 to $29,300,000
for the 617-room subject property.
<PAGE> 28
INCOME The income capitalization approach is based on the principle
CAPITALIZATION that the value of a property is indicated by the net return to
APPROACH the going concern, or what is also known as the present worth
of future benefits. The future benefits of income-producing
properties, such as hotels and motels, are net income before
debt service and depreciation (as estimated by a forecast of
income and expense) and any anticipated reversionary proceeds
from a sale. These future benefits can then be converted into
an indication of the market value through a capitalization
process and discounted cash flow analysis.
Using the income capitalization approach, the subject property
has been valued by analyzing the local market for transient
accommodations, examining existing and proposed competition,
reviewing the hotel's historical performance, and developing a
forecast of income and expense that reflects current and future
anticipated income trends, as well as area cost components, up
through a stabilized year of operation.
REVIEW OF The following income and expense statements were provided by
OPERATING the hotel owners and are unaudited. Presented in the following
HISTORY tables are statements covering the subject property's operating
performance for 1995 and 1996. Where applicable, we have
reorganized the statements in accordance with the "Uniform
System of Accounts for Hotels".
It should be noted that the subject property is currently
operated as an 835-room complex, which includes the 218-room
Broadwater Inn. Although the property's financial statements do
allow for the separation of each of the entities - including
the Resort, the Tower, and the Inn - it is obvious that a
majority of the undistributed operating costs, including
administrative and general and marketing expenses, are
primarily posted as charges to the Resort. The operating
statements on the following pages reflect those revenues and
expenses posted to the Resort, the Tower, the Sun golf course,
and the marina. Although the statements do not include revenues
or expenses posted to the Inn, certain expense categories for
the Resort do include expenses associated with the operation of
the Inn. Note that the departmental expense ratios are
expressed as a percentage of departmental revenues.
<PAGE> 29
<TABLE>
========================================================================================================================
TABLE 5 HISTORICAL OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995
Rooms Available: 617 617
Occupied Rooms: 128,616 137,207
Complimentary Rooms: 3,606 4,830
Days Open: 365 365
Occupancy: 57.1% Amount per Amount per 60.9% Amount per Amount per
Average Rate: $61.64 Percentage Available Occupied $61.24 Percentage Available Occupied
(+000) of Revenue Room Room (+000) of Revenue Room Room
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rooms $ 7,928 61.7 % $14,441 $61.64 $8,402 61.8 % $14,582 $61.24
Food 1,767 13.8 3,219 13.74 1,841 13.5 3,195 13.42
Beverage 267 2.1 486 2.07 397 2.9 688 2.89
Telephone 375 2.9 683 2.91 409 3.0 710 2.98
Marina 965 7.5 1,758 7.50 1,085 8.0 1,883 7.91
Golf 1,431 11.1 2,607 11.13 1,337 9.8 2,320 9.74
Other Income 107 0.8 3,713 15.85 135 1.0 234 0.98
Total 12,840 99.9 23,388 99.83 13,605 100.0 23,612 99.16
- ------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL EXPENSES<F*>
Rooms 2,039 25.7 3,713 15.85 2,105 25.1 3,653 15.34
Food & Beverage 1,931 94.9 3,517 15.01 2,183 97.6 3,789 15.91
Telephone 322 86.0 587 2.51 287 70.2 498 2.09
Marina 773 80.1 1,408 6.01 938 86.5 1,629 6.84
Golf 715 50.0 1,303 5.56 670 50.1 1,163 4.88
Other Income 5 4.5 9 0.04 29 21.8 51 0.21
Total 5,785 45.1 10,537 44.98 6,213 45.7 10,782 45.28
- ------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL INCOME 7,055 54.8 12,851 54.86 7,392 54.3 12,830 53.88
- ------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Administrative & General 2,054 16.0 3,741 15.97 2,285 16.8 3,965 16.65
Marketing 1,157 9.0 2,107 8.99 1,363 10.0 2,366 9.93
Property Oper. & Maint. 1,506 11.7 2,743 11.71 1,649 12.1 2,861 12.02
Energy 1,286 10.0 2,342 10.00 1,086 8.0 1,884 7.91
Total 6,002 46.7 10,933 46.67 6,382 46.9 11,077 46.52
- ------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT 1,053 8.1 1,918 8.19 1,010 7.4 1,753 7.36
- ------------------------------------------------------------------------------------------------------------------------
FIXED EXPENSES
Property Taxes 421 3.3 767 3.27 492 3.6 854 3.59
Insurance 530 4.1 965 4.12 754 5.5 1,308 5.49
Total 950 7.4 1,731 7.39 1,246 9.1 2,162 9.08
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $103 0.7 % $187 $0.80 ($236) (1.7)% ($409) ($1.72)
========================================================================================================================
<FN>
<F*>Departmental expense ratios are expressed as a percentage of departmental revenues.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
In order to use the subject property's historical statements as
a basis for forecasting future operations, a number of
adjustments are necessary. According to historical financial
statements, room nights in the transient, package, and
complimentary categories have declined over the past several
years. Group, casino, and tour room nights have increased. In
1996, declines were registered in all room night categories
except the group category. The group segment continued to
increase considerably. Regarding occupancy projections for the
future, we have assumed that the subject property will be
positioned as a low-cost alternative in the marketplace and
will continue to cater to the casino and group markets. Hence,
the current trend of accommodating more casino and group room
nights is forecast to continue, along with moderate growth in
the tour segment. We expect shrinkage in the remaining segments
to stabilize and recover over the short term.
Average rate in the package and casino category has increased
in the recent past, while the transient, group, and tour
segment room rates have declined. Our projections follow the
assumption that losses in segment room rates will be minimized
in the short-term and accordingly will be adjusted to
inflationary levels. We expect rate growth in the package and
casino category to remain relatively strong in the short term,
before stabilizing at an inflationary growth rate (assumed to
by 3.5% annually).
This market orientation towards the tour and travel market is
seen as an effective avenue towards increasing hotel occupancy,
while the assumed renovation should allow average rate
stabilization. The tour and travel segment is typically room
rate sensitive; hence, only moderate increases in average rate
were forecast.
According to our discussions with the property's current
management, the property was poorly managed historically from a
cost-control perspective. Current management has stated that a
number of cost-cutting and control measures have been
implemented over the past two years. The property's operating
statements clearly substantiate these measures. Historically,
rooms expense was reportedly above 30%; management has been
able to decrease this cost to roundly 25% of rooms revenue in
1995 and 1996. Also, marina expense has declined from 86.5% in
1995 to 80.1% in 1996. In formulating our projections, we have
reviewed the operating statements of comparable, yet more
competently managed properties, and have adjusted the subject
property's statements accordingly.
<PAGE> 31
More efficient management in the food and beverage department
has resulted in an increasingly efficient lower departmental
expense; in 1996, this expense was 94.9%, while the previous
year's expense level registered 97.6%. Given the amount of
banquet business that the subject property accommodates, we
have forecasted that this department could be operated at an
even more efficient level, resulting in a larger profit margin.
The property's administrative and general expense is
inordinately high when compared to other, comparable
operations. Although this is in part attributable to the
posting of expenses associated with the Inn to the Resort
account, it is largely a result of extremely high payroll
costs, and a number of other direct expenses that are
substantially higher than normal. We have assumed that a
competent management team will be able to substantially reduce
this department's expenses.
For 1996, the subject property's marketing expense was $1.16
million. Given that a considerable number of the property's
room nights historically came directly from the President
Casino and, as such, necessitated little to no sales effort,
this expense is considered abnormally high. Based on our
assumption that the subject property's market mix will move
more toward the casino and group guests - and that group guests
will be primarily accommodated in conjunction with marketing
efforts of the proximate convention center - these two market
segments should require substantially less marketing effort. We
have forecasted that the property's marketing expense will
decline as a percentage of total revenue.
According to the current management, property operations and
maintenance for the subject property is abnormally high because
of the ongoing renovation of the property. We have adjusted
this expense to be more in line with industry standards and
other, comparable properties.
Given the age and current condition of the subject property, we
have forecast a reserve for replacement of 4.5% of total
revenues throughout the projection period. Furthermore, we
have assumed that additional reserve amounts of approximately
$1,250,000 in the first projection period and $850,000 in the
second projection period will be required for upgrades to the
subject property's guestrooms; these upgrades are considered
necessary for the subject property to maintain its forecasted
competitive level. If these funds were not included, the
performance indicated by our projections would need to be
adjusted downwards considerably. The total funds of $2.1
million equate to roundly $3,400 per room.
<PAGE> 32
Based on the market for transient accommodations in the
Biloxi/Gulfport area and the subject property's anticipated
position in the local hotel market, we have developed a
forecast of income and expense. The forecast has been prepared
on a fiscal year basis, beginning April 1, 1997. The fourth
projection year, fiscal year 2000/01, represents the subject
property's stabilized level of operation. The statements are
expressed in inflated dollars for each year.
The first of the following tables reflects a detailed
presentation of the forecast through the stabilized year, with
the revenue and expense items expressed in terms of both per
available room (PAR) and per occupied room (POR). For
comparison purposes, the first table also shows the subject
property's most recent operating history. The second table
illustrates our ten-year forecast of income and expense with
less detail. Both forecasts pertain to fiscal operating years
beginning April 1, 1997, and are expressed in inflated dollars
for each year. Note that the departmental expense ratios are
expressed as a percentage of departmental revenues.
The projections of income and expense are intended to reflect
our judgment of how a typical buyer would project the subject
property's operating results. Depending on the dynamics of the
local market, a typical buyer's projection may sometimes be
skewed upward or downward. We have factored any such influences
into these projections.
<PAGE> 33
<TABLE>
==================================================================================================================================
TABLE 6 DETAILED FORECAST OF INCOME AND EXPENSE THROUGH THE STABILIZED YEAR, BROADWATER BEACH HOTEL, BILOXI, MISSISSIPPI
(TOTAL REVENUE +000)
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Historical Operating Results
--------------------------------
Fiscal Years: 1996 1997/98 1998/99
Number of Rooms: 617 617 617
Occupancy: 57.1% 60.0% 65.0%
Average Rate: $61.64 $63.88 $67.81
Days Open: 365 365 365
Occupied Rooms: 128,616 %Gross PAR POR 135,123 %Gross PAR POR 146,383 %Gross PAR POR
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rooms $ 7,928 61.7 % $12,849 $61.64 $ 8,632 61.3 % $13,990 $ 63.88 $ 9,927 62.9 % $16,089 $ 67.82
Food 1,767 13.8 2,864 13.74 2,077 14.8 3,366 15.37 2,289 14.5 3,710 15.64
Beverage 267 2.1 432 2.07 314 2.2 509 2.32 346 2.2 561 2.36
Telephone 375 2.9 608 2.91 451 3.2 731 3.34 502 3.2 814 3.43
Marina 965 7.5 1,564 7.50 1,002 7.1 1,624 7.42 1,037 6.6 1,681 7.08
Golf 1,431 11.1 2,319 11.13 1,486 10.6 2,408 11.00 1,538 9.8 2,493 10.51
Other Income 107 0.8 174 0.83 117 0.8 190 0.87 124 0.8 201 0.85
Total Revenues 12,840 99.9 20,811 99.83 14,079 100.0 22,818 104.19 15,763 100.0 25,548 107.68
- ----------------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL EXPENSES<F*>
Rooms 2,039 25.7 3,304 15.85 2,441 28.3 3,956 18.07 2,634 26.5 4,269 17.99
Food & Beverage 1,931 94.9 3,129 15.01 2,100 87.8 3,404 15.54 2,209 83.8 3,580 15.09
Telephone 322 86.0 522 2.51 348 77.2 564 2.58 368 73.3 596 2.51
Marina 773 80.1 1,253 6.01 817 81.5 1,324 6.05 859 82.8 1,392 5.87
Golf 715 50.0 1,159 5.56 776 52.2 1,258 5.74 824 53.6 1,335 5.63
Other Income 5 4.5 8 0.04 5 4.3 8 0.04 5 4.0 8 0.03
Total Dept. Expenses 5,785 45.1 9,376 44.98 6,487 46.1 10,514 48.01 6,899 43.8 11,182 47.13
- ----------------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL INCOME 7,055 54.8 11,435 54.86 7,592 53.9 12,305 56.19 8,864 56.2 14,366 60.55
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Administrative & General 2,054 16.0 3,329 15.97 1,555 11.0 2,520 11.51 1,643 10.4 2,663 11.22
Management Fee 0 0.0 0 0.00 422 3.0 684 3.12 473 3.0 767 3.23
Marketing 1,157 9.0 1,875 8.99 1,286 9.1 2,084 9.52 1,359 8.6 2,203 9.28
Property Oper. & Maint. 1,506 11.7 2,441 11.71 1,384 9.8 2,243 10.24 1,462 9.3 2,370 9.99
Energy 1,286 10.0 2,084 10.00 1,338 9.5 2,169 9.90 1,395 8.8 2,261 9.53
Total Operating Expenses 6,002 46.7 9,728 46.67 5,985 42.4 9,700 44.29 6,332 40.1 10,263 43.26
- ----------------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT 1,053 8.1 1,707 8.19 1,607 11.5 2,605 11.89 2,532 16.1 4,104 17.30
- ----------------------------------------------------------------------------------------------------------------------------------
FIXED EXPENSES
Property Taxes 421 3.3 682 3.27 425 3.0 689 3.15 434 2.8 703 2.96
Insurance 530 4.1 858 4.12 548 3.9 888 4.06 567 3.6 919 3.87
Reserve for Replacement 0 0.0 0 0.00 1,884 13.4 3,053 13.94 1,559 9.9 2,527 10.65
Total 950 7.4 1,541 7.39 2,857 20.3 4,630 21.14 2,560 16.3 4,149 17.49
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $103 0.7 166 $0.80 ($1,250) (8.8) ($2,026) ($9.25) ($28) (0.2) ($45) ($0.19)
==================================================================================================================================
<FN>
<F*>Departmental expense ratios are expressed as a percentage of departmental revenues.
Food/Rooms 22.3% 24.1% 23.1%
Beverage/Food 15.1% 15.1% 15.1%
Telephone/Rooms 4.7% 5.2% 5.1%
Other Income/Rooms 1.4% 1.4% 1.2%
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Fiscal Years: 1999/00 Stabilized
Number of Rooms: 617 617
Occupancy: 70.0% 74.0%
Average Rate: $72.37 $76.99
Days Open: 365 365
Occupied Rooms: 157,644 %Gross PAR POR 166,652 %Gross PAR POR
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rooms $11,408 64.6 % $18.489 $ 72.37 $12,830 65.9 % $20,794 $ 76.99
Food 2,514 14.2 4,075 15.95 2,721 14.0 4,410 16.33
Beverage 380 2.2 616 2.41 411 2.1 666 2.47
Telephone 557 3.2 903 3.53 607 3.1 984 3.64
Marina 1,073 6.1 1,739 6.81 1,119 5.7 1,814 6.71
Golf 1,592 9.0 2,580 10.10 1,660 8.5 2,690 9.96
Other Income 131 0.7 212 0.83 138 0.7 224 0.83
Total Revenues 17,655 100.0 28,614 111.99 19,486 100.0 31,582 116.93
- ------------------------------------------------------------------------------------------------
DEPARTMENTAL EXPENSES<F*>
Rooms 2,811 24.6 4,556 17.83 3,001 23.4 4,864 18.01
Food & Beverage 2,333 80.6 3,781 14.80 2,471 78.9 4,005 14.83
Telephone 396 71.1 642 2.51 422 69.5 684 2.53
Marina 891 83.0 1,444 5.65 924 82.6 1,498 5.54
Golf 855 53.7 1,386 5.42 886 53.4 1,436 5.32
Other Income 5 3.8 8 0.03 6 4.3 10 0.04
Total Dept. Expenses 7,291 41.3 11,817 46.25 7,710 39.6 12,496 46.26
- ------------------------------------------------------------------------------------------------
DEPARTMENTAL INCOME 10,364 58.7 16,797 65.74 11,776 60.4 19,086 70.66
- ------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Administrative & General 1,735 9.8 2,812 11.01 1,826 9.4 2,959 10.96
Management Fee 530 3.0 859 3.36 585 3.0 948 3.51
Marketing 1,435 8.1 2,326 9.10 1,511 7.8 2,449 9.07
Property Oper. & Maint. 1,544 8.7 2,502 9.79 1,625 8.3 2,634 9.75
Energy 1,454 8.2 2,357 9.22 1,514 7.8 2,454 9.08
Total Operating Expenses 6,698 37.8 10,856 42.49 7,061 36.3 11,444 42.37
- ------------------------------------------------------------------------------------------------
HOUSE PROFIT 3,666 20.9 5,942 23.26 4,715 24.1 7,642 28.29
- ------------------------------------------------------------------------------------------------
FIXED EXPENSES
Property Taxes 449 2.5 728 2.85 465 2.4 754 2.79
Insurance 587 3.3 951 3.72 608 3.1 985 3.65
Reserve for Replacement 794 4.5 1,287 5.04 877 4.5 1,421 5.26
Total 1,830 10.3 2,966 11.61 1,950 10.0 3,160 11.70
- ------------------------------------------------------------------------------------------------
NET INCOME $1,836 10.6 $2,976 $11.65 $2,765 14.1 $4,481 $16.59
================================================================================================
<FN>
<F*>Departmental expense ratios are expressed as a percentage of departmental revenues.
Food/Rooms 22.0% 21.2%
Beverage/Food 15.1% 15.1%
Telephone/Rooms 4.9% 4.7%
Other Income/Rooms 1.1% 1.1%
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 34
<TABLE>
=================================================================================================================================
TABLE 7 TEN-YEAR FORECAST OF INCOME AND EXPENSE, BROADWATER BEACH HOTEL, BILOXI, MISSISSIPPI ($+000)
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Fiscal Years: 1997/98 1998/99 1999/90 2000/01 2001/02 2002/2003
- ---------------- --------------- --------------- --------------- --------------- --------------- ----------------
Number of Rooms: 617 617 617 617 617 617
Occupied Rooms: 135,123 146,383 157,644 166,652 166,652 166,652
Occupancy: 60.0% % of 65.0% % of 70.0% % of 74.0% % of 74.0% % of 74.0% % of
Average Rate: $63.88 Gross $67.81 Gross $72.37 Gross $76.99 Gross $79.68 Gross $82.47 Gross
- ---------------- --------------- ---------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rooms $ 8,632 61.3 % $ 9,927 62.9 % $11,408 64.6 % $12,830 65.9 % $13,279 65.9 % $13,744 65.9 %
Food 2,077 14.8 2,289 14.5 2,514 14.2 2,721 14.0 2,817 14.0 2,915 14.0
Beverage 314 2.2 346 2.2 380 2.2 411 2.1 425 2.1 440 2.1
Telephone 451 3.2 502 3.2 557 3.2 607 3.1 628 3.1 650 3.1
Marina 1,002 7.1 1,037 6.6 1,073 6.1 1,119 5.7 1,158 5.7 1,199 5.7
Golf 1,486 10.6 1,538 9.8 1,592 9.0 1,660 8.5 1,718 8.5 1,778 8.5
Other Income 117 0.8 124 0.8 131 0.7 138 0.7 143 0.7 148 0.7
Total 14,079 100.0 15,763 100.0 17,655 100.0 19,486 100.0 10,168 100.0 20,874 100.0
- ---------------- --------------- ---------------- --------------- --------------- --------------- ----------------
DEPARTMENTAL EXPENSES
Rooms 2,441 28.3 2,634 26.5 2,811 24.6 3,001 23.4 3,106 23.4 3,214 23.4
Food & Beverage 2,100 87.8 2,209 83.8 2,333 80.6 2,471 78.9 2,558 78.9 2,647 78.9
Telephone 348 77.2 368 73.3 396 71.1 422 69.5 437 69.6 452 69.5
Marina 817 81.5 859 82.8 891 83.0 924 82.6 956 82.6 990 82.6
Golf 776 52.2 824 53.6 855 53.7 886 53.4 917 53.4 949 53.4
Other Income 5 4.3 5 4.0 5 3.8 6 4.3 6 4.2 6 4.1
Total 6,487 46.1 6,899 43.8 7,291 41.3 7,710 39.6 7,980 39.6 8,258 39.6
- ---------------- --------------- ---------------- --------------- --------------- --------------- ----------------
DEPARTMENTAL INCOME 7,592 53.9 8,864 56.2 10,364 58.7 11,776 60.4 12,188 60.4 12,616 60.4
- ---------------- --------------- ---------------- --------------- --------------- --------------- ----------------
OPERATING EXPENSES
Administrative & General 1,555 11.0 1,643 10.4 1,735 9.8 1,826 9.4 1,890 9.4 1,956 9.4
Management Fee 422 3.0 473 3.0 530 3.0 585 3.0 605 3.0 626 3.0
Marketing 1,286 9.1 1,359 8.6 1,435 8.1 1,511 7.8 1,563 7.7 1,618 7.8
Property Oper. & Maint. 1,384 9.8 1,462 9.3 1,544 8.7 1,625 8.3 1,682 8.3 1,741 8.3
Energy 1,338 9.5 1,395 8.8 1,454 8.2 1,514 7.8 1,567 7.8 1,621 7.8
Total 5,985 42.4 6,332 40.1 6,698 37.8 7,061 36.3 7,307 36.2 7,562 36.3
- ---------------- --------------- ---------------- --------------- --------------- --------------- ----------------
HOUSE PROFIT 1,607 11.5 2,532 16.1 3,666 20.9 4,715 24.1 4,881 24.2 5,054 24.1
- ---------------- --------------- ---------------- --------------- --------------- --------------- ----------------
FIXED EXPENSES
Property Taxes 425 3.0 434 2.8 449 2.5 465 2.4 481 2.4 498 2.4
Insurance 548 3.9 567 3.6 587 3.3 608 3.1 629 3.1 651 3.1
Reserve for Replacement 1,884 13.4 1,559 9.9 794 4.5 877 4.5 908 4.5 939 4.5
Total 2,857 20.3 2,560 16.3 1,830 10.3 1,950 10.0 2,018 10.0 2,088 10.0
- ---------------- --------------- ---------------- --------------- --------------- --------------- ----------------
NET INCOME ($1,250) -8.8 % ($28) -0.2 % $1,836 10.6 % $2,765 14.1 % $2,863 14.2 % $2,966 14.1 %
================ =============== ================ =============== =============== =============== ================
<CAPTION>
Fiscal Years: 2003/04 2004/05 2005/06 2006/07
- ---------------- --------------- --------------- --------------- ---------------
Number of Rooms: 617 617 617 617
Occupied Rooms: 166,652 166,652 166,652 166,652
Occupancy: 74.0% % of 74.0% % of 74.0% % of 74.0% % of
Average Rate: $85.36 Gross $88.34 Gross $91.44 Gross $94.64 Gross
- ---------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rooms $14,225 65.9 % $14,723 65.9 % $15,238 65.9 % $15,771 65.9 %
Food 3,017 14.0 3,123 14.0 3,232 14.0 3,345 14.0
Beverage 456 2.1 472 2.1 488 2.1 505 2.1
Telephone 673 3.1 696 3.1 721 3.1 746 3.1
Marina 1,241 5.7 1,284 5.7 1,329 5.7 1,376 5.7
Golf 1,840 8.5 1,905 8.5 1,971 8.5 2,040 8.5
Other Income 154 0.7 159 0.7 164 0.7 170 0.7
Total 21,606 100.0 22,362 100.0 23,143 100.0 23,953 100.0
- ---------------- --------------- ---------------- --------------- ---------------
DEPARTMENTAL EXPENSES
Rooms 3,327 23.4 3,443 23.4 3,564 23.4 3,688 23.4
Food & Beverage 2,740 78.9 2,836 78.9 2,935 78.9 3,038 78.9
Telephone 468 69.5 484 69.5 502 69.5 519 69.6
Marina 1,024 82.5 1,060 82.6 1,097 82.5 1,136 82.6
Golf 983 53.4 1,017 53.4 1,053 53.4 1,089 53.4
Other Income 6 3.9 7 4.4 7 4.3 7 4.1
Total 8,548 39.6 8,847 39.6 9,158 39.6 9,477 39.6
- ---------------- --------------- ---------------- --------------- ---------------
DEPARTMENTAL INCOME 13,058 60.4 13,515 60.4 13.985 60.4 14,476 60.4
- ---------------- --------------- ---------------- --------------- ---------------
OPERATING EXPENSES
Administrative & General 2,025 9.4 2,096 9.4 2,169 9.4 2,245 9.4
Management Fee 648 3.0 671 3.0 694 3.0 719 3.0
Marketing 1,675 7.8 1,733 7.7 1,794 7.8 1,857 7.8
Property Oper. & Maint. 1,802 8.3 1,865 8.3 1,930 8.3 1,998 8.3
Energy 1,678 7.8 1.737 7.8 1,798 7.8 1,861 7.8
Total 7,828 36.3 8,102 36.2 8.385 36.3 8,680 36.3
- ---------------- --------------- ---------------- --------------- ---------------
HOUSE PROFIT 5,230 24.1 5,413 24.2 5,600 24.1 5,796 24.1
- ---------------- --------------- ---------------- --------------- ---------------
FIXED EXPENSES
Property Taxes 515 2.4 533 2.4 552 2.4 571 2.4
Insurance 674 3.1 697 3.1 722 3.1 747 3.1
Reserve for Replacement 972 4.5 1,006 4.5 1,041 4.5 1,078 4.5
Total 2,161 10.0 2,236 10.00 2,315 10.0 2,396 10.0
- ---------------- --------------- ---------------- --------------- ---------------
NET INCOME $3,069 14.1 % $3,177 14.2 % $3,285 14.1 % $3,400 14.1 %
================ =============== ================ =============== ===============
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 35
To convert the forecasted income stream into an estimate of
value, we have used a mortgage/equity analysis, whereby the
anticipated net income (before debt service and depreciation)
is allocated to the mortgage and equity components based on
market rates of return and loan-to-value ratios. The total of
the mortgage component and the equity component equals the
value of the property. The following table summarizes the
valuation variables utilized in estimating the market value of
the subject property via the income capitalization approach.
<TABLE>
===================================================================================
TABLE 8 SUMMARY OF VALUATION VARIABLES
-----------------------------------------------------------------------------------
<S> <C> <C>
Annual Net Income NI See Ten-Year Forecast
Loan-To-Value Ratio M 70.0%
Interest Rate 9.50%
Amortization in years 25
Term in years 10
Debt Service Constant f 0.104844
Equity Yield Ye 20.0%
Brokerage and Legal Fees b 3.0%
Annual Constant Required to
Amortize the Loan in Ten Years fp 0.155277
Terminal Capitalization Rate Rr 11.0%
Total Property Yield 15.0%
-----------------------------------------------------------------------------------
</TABLE>
The valuation of the mortgage and equity components is
accomplished through an algebraic equation that calculates the
exact amount of debt and equity that the hotel will be able to
support, based on the anticipated cash flow derived from the
forecast of income and expense and the specific return
requirements demanded by the mortgage lender (interest) and the
equity investor (equity yield). Utilizing this equation and the
above- summarized variables, we have estimated the value of the
subject property via the income capitalization approach to be
roundly $16,000,000.
VALUATION OF As previously discussed, the subject property currently leases
SANDWICH certain dock areas, related tidelands and fastlands, 21 hotel
LEASE POSITION units, and the right to use approximately 685 parking spaces on
a non-exclusive basis and 400 parking spaces on an exclusive
basis to President Casinos, Inc. The initial term of the lease
was for three years and expired on July 14, 1995. There are
nine additional three-year renewal options; one such renewal
was extended and will expire in 1998. The annual rental amount
during this period is $2,725,000 net to BH Acquisition
Corporation. President Casinos, Inc. is responsible for
<PAGE> 36
all real estate taxes, maintenance, utilities, and other
charges, including the annual rental payment of $295,000 to
fulfill the Public Trust Tidelands lease.
In determining an appropriate capitalization rate for this
income stream, we have reviewed several transactions where
casino operators put together a land assemblage with a
combination of purchasing and leasing real estate. From these
transactions, an appropriate capitalization rate can be
extracted. We have also surveyed several appraisers and
investors in the market area to determine what the current
yield requirement are for these transfers.
We have considered the financial strength of the new casino
hotels, which are experiencing strong occupancies and expanding
room supply. With the likely development of the area into a
leisure destination, the threat of the expansion of gaming to
other areas, most notably the expected opening of land-based
gaming in New Orleans, will have less of an effect on the
area's gaming and hotel demand. Together with the expansion of
the Grand Casinos, the strength of the Isle of Capri Casino,
and the development of the Imperial Palace and Mirage
properties, the area is quickly establishing itself as a casino
destination market.
We have also considered a possible scenario where President
Casinos, Inc. chooses not to renew the terms of the lease.
Normally, an upward adjustment to the capitalization rate would
be considered given the possible threat of the loss of this
$2.725-million annual stream of income. However, a review of
local land sales associated with the development of hotels with
adjoining casino rights shows that these parcels have
considerable value (please refer to following table). These
sales indicate that the value of land with appropriate
potential for casino development is high enough that the
subject property, with its potential for a casino destination
resort development, could sell easily. Hence, the risk
associated with the loss of the President Casino lease is
minimized, as the owner could use the site or sell the site for
the development of a destination resort, a type of development
characterized in this particular market.
<PAGE> 37
<TABLE>
==================================================================================================================================
TABLE 9 SUMMARY OF LOCAL LAND SALES ASSOCIATED WITH CASINO RESORT DEVELOPMENT
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Square Sale Price per Price
Parcel Name Property Location Date of Sale Acres Footage Price Square Foot per Acre
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Casino One South side of U.S. 90 March 1992 1.86 81,022 $2,880,000 $35.55 $1,548,387
Casino One South side of U.S. 90 October 1992 1.89 82,400 2,500,000 30.34 1,321,602
Assemblage of Six
Casino One Lots:
Fink North side of U.S. 90 March 1992 0.07 3,049 70,000 22.96 1,000,000
Halat North side of U.S. 90 March 1992 0.72 31,363 250,000 7.97 347,222
Marinovich North side of U.S. 90 March 1992 0.46 20,038 1,000,000 49.91 2,173,913
Hire North side of U.S. 90 March 1992 0.20 8,712 80,000 9.18 400,000
Yen Ly North side of U.S. 90 March 1992 0.65 28,314 2,000,000 70.64 3,076,923
Moschella North side of U.S. 90 March 1992 0.14 6,098 100,000 16.40 714,286
---- ----- ------- ----- -------
2.24 97,574 $3,500,000 $35.87 1,562,500
Casino Magic U.S. 90 and Cedar Street March 1993 1.37 59,677 $4,450,000 $74.57 3,248,175
Bally's 227 Beach Boulevard April 1993 2.50 108,965 9,000,000 82.60 3,600,000
Lady Luck<*> Holt Lot April 1993 0.67 29,250 198,000 6.77 294,868
Lady Luck South Side of U.S. 90 June 1993 0.52 22,808 3,122,000 136.88 5,962,571
Lady Luck<*> Sinopoli Lot September 1993 0.49 21,256 213,000 10.02 436,502
Lady Luck<*> Peoples Bank Lot September 1993 0.56 24,188 100,000 4.13 180,089
Lady Luck<*> Mladanich Lot September 1993 2.70 117,600 180,000 1.53 66,673
Treasure Bay U.S. 90 and Camelia Street September 1993 3.20 139,392 3,200,000 22.96 1,000,000
Isle of Capri South Side of U.S. 90 Early 1994 6.25 272,250 5,000,000 18.37 800,000
Treasure Bay 1951 Beach Boulevard March 1994 1.51 65,776 4,680,329 71.16 3,099,537
Treasure Bay 1951 Beach Boulevard February 1995 1.51 65,776 3,677,596 55.91 2,435,479
Golden Nugget South Side of U.S. 90 Late 1995 20.87 908,996 27,000,000 29.70 1,293,723
<FN>
<*> These four Lady Luck sites did not feature beach frontage and are currently
improved with parking lots.
Indicated Price per Acre: $1,300,000
Acreage of Subject Property (less Sun Golf Course): 65.67
Indicated Land Value of Subject Property: $85,371,000
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 38
The preceding information indicates a sale price of $1,300,000
per acre; by applying this price to the 65.67 acres in the
resort (less the Sun Golf Course), a sales price of roundly $85
million is indicated. The additional value of the golf course
would then need to be added to this indicated land value. In
conclusion, the value indicated by this sales comparison
approach is well in excess of the combined value of the hotel
component and the sandwich lease value as determined by
applying an appropriate capitalization rate to the lease
payment income stream.
Based on this analysis, we have determined that an appropriate
capitalization rate for this income stream would be 10%.
Capitalizing the annual lease payment of $2.725 million by 10%
yields an estimated market value of the sandwich leasehold
position of approximately $27,300,000.
RECONCILIATION The reconciliation is the last step in the appraisal process in
OF VALUE which the final value is estimated from the various indications
INDICATIONS developed by the cost, sales comparison, and income
capitalization approaches. The relative significance,
applicability, and defensibility of each indicated value are
analyzed, with the greatest weight given to that approach
deemed most appropriate for the property being appraised. Based
on the preceding data and analyses set forth in this report,
the following value indications were developed.
<TABLE>
<S> <C>
Approach Valuation Indication
-------- --------------------
Fee Simple Interest in Subject Real Estate
------------------------------------------
Cost Not Applicable
Sales Comparison $12,800,000 to $29,300,000
Income Capitalization (Market Value) $16,000,000
Sandwich Leasehold Interest
---------------------------
Cost Not Applicable
Sales Comparison Not Applicable
Income Capitalization (Market Value) $27,300,000
</TABLE>
Careful consideration has been given to the strengths and
weaknesses of the three approaches to value discussed above. We
have given primary weight to the value indicated by the income
capitalization approach and have made some subjective and
judgmental upward and downward adjustments based on the sales
comparison approach. We have also factored
<PAGE> 39
into the analysis our extensive experience in the hospitality
industry valuing thousands of hotels.
It is our opinion that the market value of the fee simple
interest in the subject property described in this report,
including the sandwich lease interest in the dock space
currently leased from the State of Mississippi and leased to
President Casinos, Inc., as of April 1, 1997, is not less than:
$41,500,000
FORTY-ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
The estimate of market value for the fee simple interest
includes the land and improvements, and the furniture,
fixtures, and equipment. The appraisal assumes that the hotel
is an open and operating facility. The estimate of value
assumes a marketing period of up to one year.
Very truly yours,
HOSPITALITY VALUATION SERVICES
Division of Hotel Consulting Services, Inc.
/s/ Rodney G. Clough
Consulting and Valuation Analyst
/s/ Frank P. Dougherty
Senior Vice President
/s/ Anne R. Lloyd-Jones, CRE
Senior Vice President
/s/ Stephen Rushmore
President
RGC: FPD: ARL-J: SR: scl
<PAGE> 40
STATEMENT OF 1. this is a summary appraisal report, which is intended
ASSUMPTIONS to comply with the reporting requirements set forth
AND LIMITING under Standard Rule 2-2(b) of the Uniform Standards
CONDITIONS of Professional Appraisal Practice for a summary
appraisal report. As such, it might not include full
discussions of the data, reasoning, and analyses
that were used in the appraisal process to develop
the appraisers' opinion of value. Supporting
documentation concerning the data, reasoning, and
analyses is retained in the appraisers' file. The
information contained in this report is specific to
the needs of the client and for the intended use
stated in this report. The appraisers are not
responsible for unauthorized use of this report.
2. This report is to be used in whole and not in part.
3. No responsibility is assumed for matters of a legal
nature, nor do we render any opinion as to title,
which is assumed to be marketable and free of any
deed restrictions and easements. The property is
valued as though free and clear unless otherwise
stated.
4. It is assumed that there are no hidden or unapparent
conditions of the property, sub-soil, or structures,
such as underground storage tanks, that would render
it more or less valuable. No responsibility is
assumed for these conditions or any engineering that
may be required to discover them.
5. We have not considered the existence of potentially
hazardous materials used in the construction or
maintenance of the building, such as asbestos, urea
formaldehyde foam insulation, or PCBs, nor have we
considered the presence of any form of toxic waste.
Furthermore, we have also not considered
polychlorinated biphengyls, pesticides, and lead-based
paints. The appraisers are not qualified to detect any
hazardous substances and urge the client to retain an
expert in this field, if desired.
<PAGE> 41
6. The Americans with Disabilities Act (ADA) became
effective on January 26, 1992. We have conducted no
specific compliance survey to determine whether the
subject property is in conformity with the various
detailed requirements of the ADA. It is possible
that the property does not comply with the
requirements of the act, and this could have an
unfavorable effect on the property value. Because we
have no direct evidence regarding this issue, our
estimate of value does not consider possible
non-compliance with the ADA.
7. We have made no survey of the property, and assume no
responsibility in connection with such matters.
Sketches, photographs, maps, and other exhibits are
included to assist the reader in visualizing the
property. It is assumed that the use of the land and
improvements is within the boundaries of the property
described, and that there is no encroachment or
trespass unless noted.
8. All information, financial operating statements,
estimates, and opinions obtained from parties not
employed by Hospitality Valuation Services are
assumed to be true and correct. We can assume no
liability resulting from misinformation.
9. Unless noted, we assume that there are no
encroachments, zoning violations, or building
violations encumbering the subject property.
10. The property is assumed to be in full compliance
with all applicable federal, state, local, and
private codes, laws, consents, licenses, and
regulations (including a liquor license where
appropriate), and that all licenses, permits,
certificates, franchises, and so forth can be freely
renewed or transferred to a purchaser.
11. All mortgages, liens, encumbrances, leases, and
servitudes have been disregarded unless specified
otherwise.
12. No portions of this report may be reproduced in any
form without our permission, and the report cannot
be disseminated to the public through advertising,
public relations, news, sales, or other media.
13. We are not required to give testimony or attendance
in court by reason of this analysis without previous
arrangements, and only when our standard per diem
fees and travel costs are paid prior to the
appearance.
<PAGE> 42
14. If the reader is making a fiduciary or individual
investment decision and has any questions concerning
the material presented in this report, it is
recommended that the reader contact us.
15. We take no responsibility for any events or
circumstances that take place subsequent to either
the date of value or the date of our field
inspection, whichever occurs first.
16. The quality of a lodging facility's on-site
management has a direct effect on a property's
economic viability and value. The financial
forecasts presented in this analysis assume
responsible ownership and competent management. Any
variance from this assumption may have a significant
impact on the projected operating results and value
estimate.
17. The estimated operating results presented in this
report are based on an evaluation of the overall
economy, and neither take into account nor make
provision for the effect of any sharp rise or
decline in local or national economic conditions. To
the extent that wages and other operating expenses
may advance during the economic life of the
property, we expect that the prices of rooms, food,
beverages, and services will be adjusted to at least
offset these advances. We do not warrant that the
estimates will be attained, but they have been
prepared on the basis of information obtained during
the course of this study and are intended to reflect
the expectations of a typical hotel buyer.
18. This analysis assumes continuation of all Internal
Revenue Service tax code provisions as stated or
interpreted on either the date of value or the date
of our field inspection, whichever occurs first.
19. Many of the figures presented in this report were
generated using sophisticated computer models that
make calculations based on numbers carried out to
three or more decimal places. In the interest of
simplicity, most numbers have been rounded to the
nearest tenth of a percent. Thus, these figures may
be subject to small rounding errors.
20. It is agreed that our liability to the client is
limited to the amount of the fee paid as liquidated
damages. Our responsibility is limited to the
client, and use of this report by third parties
shall be solely at the risk of the client and/or
third parties.
<PAGE> 43
21. Appraising hotels is both a science and an art.
Although this analysis employs various mathematical
calculations to provide value indications, the final
estimate is subjective and may be influenced by our
experience and other factors not specifically set
forth in this report.
22. Any distribution of the total value between the land
and improvements or between partial ownership
interests applies only under the stated use.
Moreover, separate allocations between components
are not valid if this report is used in conjunction
with any other analysis.
23. This study was prepared by Hospitality Valuation
Services, a division of Hotel Consulting Services,
Inc. All opinions, recommendations, and conclusions
expressed during this assignment have been rendered
by the staff of Hotel Consulting Services, Inc.
acting solely as employees and not as individuals.
We hereby certify that we have no undisclosed
interest in the property, and our employment and
compensation are not contingent upon our findings
and valuation.
<PAGE> 44
CERTIFICATION We, the undersigned appraisers, hereby certify:
1. that the statements and opinions presented in this
report, subject to the limiting conditions set
forth, are correct to the best of our knowledge and
belief;
2. that Rodney G. Clough and Frank P. Dougherty
personally inspected the property described in this
report; Anne R. Lloyd-Jones and Stephen Rushmore
participated in the analysis and reviewed the
findings, but did not inspect the property;
3. that we have no current or contemplated interests in
the real estate that is the subject of this report;
4. that we have no personal interest or bias with
respect to the subject matter of this report or the
parties involved;
5. that this report sets forth all of the limiting
conditions (imposed by the terms of this assignment)
affecting the analyses, opinions, and conclusions
presented herein;
6. that the fee paid for the preparation of this report
is not contingent upon the amount of the value
estimate;
7. that this report has been prepared in accordance with
and is subject to the requirements of the Code of
Professional Ethics and Standards of Professional
Appraisal Practice of the Appraisal Institute;
8. that the use of this report is subject to the
requirements of the Appraisal Institute relating to
review by its duly authorized representatives;
9. that this report has been prepared in accordance with
the Uniform Standards of Professional Appraisal
Practice (as adopted by the Appraisal Foundation);
10. that no one other than the undersigned prepared the
analyses, conclusions, and opinions concerning real
estate that are set forth in this appraisal report;
11. that as of the date of this report, Stephen Rushmore
has completed the requirements of the continuing
education program of the Appraisal Institute;
<PAGE> 45
12. that this appraisal is not based on a requested
minimum value, a specific value, or the approval of
a loan.
/s/ Rodney G. Clough
----------------------------------------
Rodney G. Clough
Consulting and Valuation Analyst
Hotel Consulting Services, Inc.
/s/ Frank P. Dougherty
----------------------------------------
Frank P. Dougherty
Senior Vice President
Hotel Consulting Services, Inc.
/s/ Anne R. Lloyd-Jones
----------------------------------------
Anne R. Lloyd-Jones, CRE
Senior Vice President
Hotel Consulting Services, Inc.
/s/ Stephen Rushmore
----------------------------------------
Stephen Rushmore, CRE, MAI, CHA
President
Hotel Consulting Services, Inc.
RGC: FPD: ARL-J: SR: scl
EXHIBIT 99.2
CONTACT: James A. Zweifel
President Casinos, Inc.
314-622-3018
FOR IMMEDIATE RELEASE
PRESIDENT CASINOS, INC. COMPLETES THE ACQUISITION OF
REAL ESTATE AND IMPROVEMENTS
IN BILOXI, MISSISSIPPI
St. Louis, Missouri, July 24, 1997 -- President Casinos, Inc. (NASDAQ: PREZ)
announced today that it has completed the acquisition of certain real estate
and improvements located on the Gulf Coast in Biloxi, Mississippi from J.
Edward Connelly Associates, Inc. ("JECA", successor to BH Acquisition) for
approximately $40.5 million. The property comprises approximately 260 acres
and includes the Broadwater Resort and Broadwater Tower, two hotels with over
500 rooms, the 138-slip Broadwater Marina, and the adjacent 18-hole Sun Golf
Course. The Broadwater Marina is currently the site of President's casino
operations in Biloxi and is leased by President from JECA under a long-term
lease agreement. JECA is wholly owned by John E. Connelly, the Chairman and
principal stockholder of President.
President has invested $5.0 million in a newly formed subsidiary, President
Broadwater Hotel, LLC which has purchased the Broadwater properties. In
addition, this subsidiary has financed the purchase with $30.0 million of
outside financing and $10.0 million of purchase money preferred equity from
JECA. Such financing is non-recourse to President Casinos, Inc.
John S. Aylsworth, Executive Vice President and Chief Operating Officer of
President Casinos, Inc. commented: "This is a tremendous site for development
of a full-scale luxury destination resort offering an array of entertainment
attractions in addition to gaming. With its beachfront location and
contiguous 18-hole golf course, this is certainly the best site for such a
development in this rapidly growing market. It is also uniquely qualified to
be a multi-casino facility. We intend to seek a joint venture partner to
develop this site."
President Casinos, Inc. owns and operates riverboat and dockside gaming
facilities in Davenport, Iowa, Biloxi, Mississippi and downtown St. Louis,
Missouri near the base of the Gateway Arch.
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