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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20840
PRESIDENT CASINOS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0341200
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
802 North First Street, St. Louis, Missouri 63102
----------------------------------------------------
Address of principal executive offices-Zip Code
314-622-3000
----------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, $.06 par value,
5,032,965 shares outstanding as of July 12, 1999.
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PRESIDENT CASINOS, INC.
INDEX TO FORM 10-Q
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
as of May 31 and February 28, 1999..................................1
Condensed Consolidated Statements of Operations (Unaudited)
for the Three Months Ended May 31, 1999 and 1998....................2
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended May 31, 1999 and 1998....................3
Notes to Condensed Consolidated Financial Statements (Unaudited)......4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................9
Part II. Other Information
Item 1. Legal Proceedings.............................................19
Item 2. Changes in Securities.........................................19
Item 3. Defaults Upon Senior Securities...............................20
Item 4. Submission of Matters to a Vote of Security Holders...........20
Item 5. Other Information.............................................20
Item 6. Exhibits and Reports on Form 8-K..............................20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....20
Signature................................................................21
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
PRESIDENT CASINOS, INC. (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands) May 31, Feb. 28,
1999 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 19,746 $ 17,110
Restricted cash................................ 3,267 3,095
Short-term investments......................... 275 275
Accounts receivable, net of allowance for
doubtful accounts of $370 and $357........... 2,338 2,588
Other current assets........................... 4,546 4,345
--------- ---------
Total current assets....................... 30,172 27,413
Property and equipment, net of accumulated
depreciation of $65,924 and $62,987............ 140,645 142,740
Other assets..................................... 2,393 2,705
--------- ---------
$173,210 $172,858
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt........... $ 1,884 $ 1,886
Other current liabilities...................... 26,141 25,337
--------- ---------
Total current liabilities.................. 28,025 27,223
Long-term debt:
Long-term debt, net of current maturities...... 135,666 135,813
Accrued loan fee............................... 4,157 3,566
--------- ---------
Total long-term liabilities................ 139,823 139,379
--------- ---------
Total liabilities.......................... 167,848 166,602
--------- ---------
Minority interest................................ 12,547 12,464
Commitments and contingencies.................... -- --
Stockholders' deficit:
Preferred Stock, none issued and outstanding... -- --
Common Stock, 5,033 shares issued
and outstanding.............................. 302 302
Additional paid-in capital..................... 101,729 101,729
Accumulated deficit............................ (109,216) (108,239)
--------- ---------
Total stockholders' deficit................ (7,185) (6,208)
--------- ---------
$173,210 $172,858
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
1
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CONDENSED CONSOLIDATED STATEMENTS
PRESIDENT CASINOS, INC. OF OPERATIONS (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands, except share data) Three Months Ended May 31,
1999 1998
------ ------
<S> <C> <C>
OPERATING REVENUES:
Gaming......................................... $ 47,536 $ 42,574
Food and beverage.............................. 6,176 5,481
Hotel.......................................... 2,011 2,223
Retail and other............................... 2,997 5,033
Less promotional allowances.................... (4,365) (3,288)
--------- ---------
Net operating revenues....................... 54,355 52,023
--------- ---------
OPERATING COSTS AND EXPENSES:
Gaming and gaming cruise....................... 28,260 25,619
Food and beverage.............................. 3,894 3,798
Hotel.......................................... 726 695
Retail and other............................... 763 707
Selling, general and administrative............ 12,850 15,435
Depreciation and amortization.................. 3,664 3,520
Development costs.............................. 95 2,777
--------- ---------
Total operating costs and expenses........... 50,252 52,551
--------- ---------
OPERATING INCOME (LOSS).......................... 4,103 (528)
--------- ---------
OTHER INCOME (EXPENSE):
Interest income................................ 132 159
Interest expense............................... (4,879) (4,982)
--------- ---------
Total other income (expense)................. (4,747) (4,823)
--------- ---------
LOSS BEFORE MINORITY INTEREST.................... (644) (5,351)
Minority interest................................ 332 369
--------- ---------
NET LOSS......................................... $ (976) $ (5,720)
========= =========
Basic and diluted net loss per share............. $ (0.19) $ (1.14)
========= =========
Weighted average common and dilutive
potential shares outstanding.................... 5,033 5,033
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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CONDENSED CONSOLIDATED STATEMENTS
PRESIDENT CASINOS, INC. OF CASH FLOWS (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands) Three Months Ended May 31,
1999 1998
------ ------
<S> <C> <C>
Net cash provided by (used in)
operating activities............................ $ 4,735 $ (1,825)
--------- ---------
Cash flows from investing activities:
Expenditures for property and equipment......... (1,626) (4,114)
Change in restricted cash....................... (172) 650
Maturity of short-term investments.............. -- 2,021
Other........................................... 52 74
--------- ---------
Net cash used in investing activities....... (1,746) (1,369)
--------- ---------
Cash flows from financing activities:
Repayment of notes payable...................... (100) (100)
Payments on capital lease obligations........... (3) (6)
Minority interest payment....................... (250) --
--------- ---------
Net cash used in financing activities....... (353) (106)
--------- ---------
Net increase (decrease) in cash
and cash equivalents........................ 2,636 (3,300)
Cash and cash equivalents at beginning of period.. 17,110 19,278
--------- ---------
Cash and cash equivalents at end of period........ $ 19,746 $ 15,978
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest............................ $ 6,524 $ 7,354
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
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NOTES TO CONDENSED CONSOLIDATED
PRESIDENT CASINOS, INC. FINANCIAL STATEMENTS (UNAUDITED)
______________________________________________________________________________
(dollars in thousands)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts and operations of
President Casinos, Inc., its wholly-owned subsidiaries, a 95%-owned limited
partnership and a limited liability company in which the Company has a 100%
ownership interest and in which a wholly-owned entity of the Chairman of the
Board of the Company has preferred rights to certain cash flows (collectively,
the "Company" or "PCI"). All material intercompany balances and transactions
have been eliminated.
PCI develops, owns and operates riverboat and/or dockside gaming casinos
through its subsidiaries. The Company conducts riverboat and/or dockside
gaming operations in Davenport, Iowa; in Biloxi, Mississippi through its
wholly-owned subsidiary The President Riverboat Casino-Mississippi, Inc.
("President Mississippi"); and in St. Louis near the base of the Arch through
its wholly-owned subsidiary, President Riverboat Casino-Missouri, Inc.
("President Missouri"). The Davenport operations are managed by the Company's
wholly-owned subsidiary, President Riverboat Casino-Iowa, Inc. ("PRC Iowa"),
which is the general partner of the 95% Company-owned operating partnership,
The Connelly Group, L.P. ("TCG"). The Company also operates two nongaming
dinner cruise, excursion and sightseeing vessels on the Mississippi River in
St. Louis, Missouri. In addition, the Company owns and manages certain hotel
and ancillary facilities associated with its gaming operations in Biloxi and
Davenport. The Broadwater Property in Biloxi was acquired by the Company in
July 1997 and is owned by The President Broadwater Hotel, LLC, a limited
liability corporation in which the Company has a 100% ownership interest. The
Blackhawk Hotel in Davenport is owned by a wholly-owned subsidiary of the
Company.
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only of
normal recurring entries unless otherwise disclosed, necessary to present
fairly the Company's financial information for the interim periods presented
and have been prepared in accordance with generally accepted accounting
principles. The interim results reflected in the condensed consolidated
financial statements are not necessarily indicative of results for the full
year or other periods.
The financial statements contained herein should be read in conjunction with
the audited consolidated financial statements and accompanying notes to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the period ending February 28, 1999. Accordingly, footnote
disclosure which would substantially duplicate the disclosure in the audited
consolidated financial statements has been omitted in the accompanying
unaudited condensed consolidated financial statements.
Certain amounts for fiscal 1999 have been reclassified to conform with
fiscal 2000 financial statement presentation.
4
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2. Insurance Proceeds
On April 4, 1998 several river barges broke free of their towboat and struck
the Company's St. Louis casino, the "Admiral," resulting in the severing of
several of the vessel's mooring lines and boarding ramps. Although the
boarding ramps were lost and significant costs were incurred returning the
"Admiral" to its mooring site, the vessel sustained no hull or structural
damage and minimal damage to its bow apron. There were no reports of serious
injuries to the approximate 2,300 guests and employees aboard.
The "Admiral" was closed to the public for 26 days, reopening on April 30,
1998. During the three-month period ended May 31, 1999, the Company incurred
costs of $2,708 to repair the vessel, replace boarding ramps and prepare the
"Admiral" to reopen. Insurance deductibles relating to the hull and business
interruption claims totaled $1,120 and the Company received insurance proceeds
of $3,900. During the three-month period ended May 31, 1998, the Company
recorded $3,616 as "Retail and Other" revenue relating to its hull and
business interruption claims and for expenses incurred to repair the vessel.
The insurance claims have not been finalized and claims are being made against
the owners of the towboat to recover insurance deductibles and any damages not
covered by or in excess of the insurance. While the Company believes it has
meritorious claims against the owner, there can be no guarantee that the
Company will be successful in recovering such costs.
3. Notes Payable and Long-Term Debt
TCG, the Company's 95%-owned partnership, maintains a $2,500 line of credit
of which $249 is unused, provided by Firstar Bank, N.A. The line of credit,
collateralized by the M/V "President Riverboat Casino," the Blackhawk Hotel
and various equipment, reduces by $900 each March 31 and expires September 30,
2000.
The Company's $3,300, 8.31% term note contains certain covenants which,
among other things, require the Company to maintain a minimum tangible net
worth of $40,000. The Company received a waiver of the net worth covenant
through the period ended September 30, 2000, at which time the Company's net
worth requirement will return to $40,000. The note is collateralized by the
M/V "President Casino-Mississippi" and various equipment with a net book value
of $8,472 as of May 31, 1999. Management believes that the Company will be
able to either renegotiate the terms, pay down a portion of the note or
refinance the loan at such time as the waiver terminates.
4. Commitments And Contingent Liabilities
The Company is from time to time a party to litigation, which may or may not
be covered by insurance, arising in the ordinary course of its business. The
Company does not believe that the outcome of any such litigation will have a
material adverse effect on the Company's financial condition or results of
operations, or which would have any material adverse impact upon the gaming
licenses of the Company's subsidiaries.
5. Segment Information
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on EBITDA.
EBITDA is earnings before interest, taxes, depreciation and amortization
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expense.
EBITDA should not be construed as an alternative to operating income as an
indicator of the Company's operating performance, or as an alternative to cash
flows from operational activities as a measure of liquidity. The Company has
presented EBITDA solely as a supplemental disclosure to facilitate a more
complete analysis of the Company's financial performance. The Company
believes that this disclosure enhances the understanding of the financial
performance of a company with substantial interest, depreciation and
amortization.
The Company had no inter-segment sales and accounts for transfers of
property and inventory at its net book value at the time of such transfer.
The Company's reportable segments, other than the leasing operation, are
similar in operations, but have distinct and separate regional markets.
The Company's management reviews the results of operations and analyzes
certain assets and additions to property and equipment based on its three
geographic gaming operations and its leasing operation. The Biloxi Properties
consists of the Biloxi casino and Broadwater Property; the Davenport
Properties consists of the Davenport casino and the Blackhawk Hotel; and the
St. Louis Properties consists of the St. Louis casino and Gateway Riverboat
Cruises.
<TABLE>
<CAPTION>
Three Months Ended May 31,
1999 1998
------ ------
<S> <C> <C>
OPERATING REVENUES:
Biloxi Properties...................... $ 15,342 $ 14,382
Davenport Properties................... 20,935 21,373
St. Louis Properties................... 16,650 16,268
--------- ---------
Gaming and ancillary operations....... 52,927 52,023
Leasing Operation...................... 1,428 --
--------- ---------
Net operating revenues............. $ 54,355 $ 52,023
========= =========
</TABLE>
6
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<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended May 31,
1999 1998
------ ------
EBITDA (before development and
impairment expenses and gain/loss
on sale of property and equipment):
Biloxi Properties...................... $ 1,971 $ 1,587
Davenport Properties................... 3,517 4,736
St. Louis Properties................... 2,114 695
--------- ---------
Gaming and ancillary operations....... 7,602 7,018
Leasing Operation...................... 1,257 (58)
--------- ---------
Operations EBITDA.................. 8,859 6,960
OTHER COSTS AND EXPENSES:
Corporate expense...................... 992 1,158
Development expense.................... 95 2,777
Depreciation and amortization.......... 3,664 3,520
Loss on sale of assets................. 5 33
Other expense, net..................... 4,747 4,823
--------- ---------
Total other costs and expenses....... 9,503 12,311
--------- ---------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST................. (644) (5,351)
Minority interest...................... 332 369
--------- ---------
NET LOSS............................... $ (976) $ (5,720)
========= =========
</TABLE>
<TABLE>
<CAPTION>
May 31, Feb. 28,
1999 1999
------ ------
<S> <C> <C>
Property and Equipment
Biloxi Properties..................... $ 49,532 $ 49,251
Davenport Properties.................. 23,300 24,239
St. Louis Properties.................. 38,315 39,624
--------- ---------
Gaming and ancillary operations.... 111,147 113,114
Leasing Operations.................... 28,161 28,572
--------- ---------
Operations' Assets.................. 139,308 141,686
Corporate Assets...................... 86 88
Development Assets.................... 1,251 966
--------- ---------
Net Property and Equipment........ $140,645 $142,740
========= =========
</TABLE>
7
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<TABLE>
<CAPTION>
Three Months Ended May 31,
1999 1998
------ ------
<S> <C> <C>
Additions to Property and Equipment:
Biloxi Properties..................... $ 1,020 $ 822
Davenport Properties.................. 175 560
St. Louis Properties.................. 148 999
--------- ---------
Gaming and ancillary operations.... 1,343 2,381
Leasing Operations.................... (10) 274
--------- ---------
Operations' Assets.................. 1,333 2,655
Corporate Assets...................... 8 2
Development Assets.................... 285 1,457
--------- ---------
$ 1,626 $ 4,114
========= =========
</TABLE>
6. Subsequent Event
In February 1995, a non-guarantor subsidiary of the Company, President
Mississippi Charter Corporation ("Charter Corp.") entered into an operating
lease agreement (the "Subcharter Agreement") with PRC-Mississippi to lease a
fully equipped dockside casino, the "Biloxi Barge." The lease period under
the Subcharter Agreement commenced on June 15, 1995, concurrent with an
agreement (the "Initial Charter Agreement") the Charter Corp. had with
American Gaming & Entertainment, Ltd. ("AGEL"). Under the initial terms of
the Subcharter Agreement, the rent consisted of monthly payments of $458
through July 1997 and $329 through June 2000.
On April 11,1997, AGEL filed an action against Charter Corp. and the Company
with respect to certain disputed charter payments which the Company withheld
under the Charter Agreement. In October of 1998, this action was dismissed
with prejudice pursuant to a settlement. Pursuant to the settlement, the
Company made a lump sum payment of $3,890 and agreed to ongoing payments of
$215 per month through April 15, 2000. The Company was also required to pay
for all improvements and bear the cost of all taxes, fees and repairs up until
the settlement. The amended charter period is from December 1, 1997 until
April 15, 2000 and was subject to certain purchase options.
AGEL's primary asset, the "Biloxi Barge," is the subject of bankruptcy
proceedings involving several companies and the unsecured creditors of
companies previously affiliated with AGEL. On July 2, 1999, the Company
entered into an agreement with AGEL, and other parties involved in the above
proceedings, to purchase the "Biloxi Barge," subject to approval of the
bankruptcy courts and gaming commission approvals. Under the terms of the
agreement, the Company will purchase the "Biloxi Barge" for $5,000 plus any
remaining amounts from the current charter. In addition, various lawsuits
related to the barge will be dismissed. The Company will pay $1,000 at
closing and $290, inclusive of the remaining charter, monthly through April
15, 2000, at which time the balance of the purchase price will be due.
Concurrently with the original charter of the "Biloxi Barge," the Company
entered into a capital lease with the barge lessor for certain slot machines.
Subsequently, the Company and the lessors renegotiated the payments providing
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for the forgiveness of future lease payments for a lump sum payment of $900.
A question as to the ownership of these machines was raised by the
manufacturer. The Company has withheld any additional payments awaiting
resolution. The July agreement discussed above also addressed and resolves
the ownership of the slot machines and upon the closing of the purchase of the
barge, the Company will pay $900 to purchase the slot machines and lawsuits
related to slot machines will be dismissed.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and the notes thereto included elsewhere in
the report.
Overview
The Company's operating results are affected by a number of factors,
including competitive pressures, changes in regulations governing the
Company's activities, the results of pursuing various development
opportunities and general weather conditions. Consequently, the Company's
operating results may fluctuate from period to period and the results for any
period may not be indicative of results for future periods. The Company's
operating results are not significantly effected by seasonality.
--Competition
Intensified competition for patrons continues to occur at each of the
Company's properties.
Since gaming began in Biloxi in August 1992, there has been steadily
increasing competition along the Mississippi Gulf Coast and in nearby New
Orleans and elsewhere in Louisiana and Mississippi. Several large
hotel/casino complexes have been built in recent years with the largest single
resort in the area opening in March 1999. There are currently twelve casinos
operating on the Mississippi Gulf Coast. See "Potential Growth Opportunities"
regarding a master plan for a destination resort the Company is developing in
Biloxi, Mississippi.
Within a 45-mile radius of the Quad Cities, the Company's Davenport
operation competes with three other casino operations, one of which is located
directly across the Mississippi River in Illinois. Expansion and increased
marketing by these competitors continues to escalate, resulting in increased
promotional and marketing costs for the Company's Davenport operation.
Competition is intense in the St. Louis market area. There are presently
five other casino companies operating eight casinos in the market area. Two
of these are Illinois casino companies operating single casino vessels on the
Mississippi River, one directly across the Mississippi from the "Admiral" and
the second 20 miles upriver. There are three Missouri casino companies, each
of which operates two casino vessels approximately 20 miles west of St. Louis
on the Missouri River, one in the City of St. Charles, Missouri and two in
Maryland Heights, Missouri. The two in Maryland Heights opened in March 1997.
The June 1999 enactment of an Illinois law eliminating cruising requirements
for Illinois riverboat casinos is anticipated to adversely impact the
Company's Davenport, Iowa and St. Louis, Missouri operations. See "Regulatory
Matters" below.
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<PAGE> 12
--Regulatory Matters
Differences in gaming regulations in the St. Louis market between Illinois
and Missouri operators have given competitive advantages/disadvantages to the
various operators. While Missouri regulations do not require the vessels to
actually cruise, simulated cruising requirements are imposed which restrict
entry to a vessel to a 45-minute period every two hours. Those competitors
having two casino vessels can alternate hourly boarding times and provide
virtually continuous boarding for their guests. Thus, they have a distinct
competitive advantage over the Company, which has only one vessel, the
"Admiral." Illinois casino vessels have been required to cruise, thereby
limiting ingress and egress to their casinos. On June 25, 1999, legislation
was enacted eliminating the Illinois boarding restrictions and the
requirements to cruise. On May 27, 1999, the Missouri Gaming Commission
announced its plan to abolish boarding restrictions by the Fall of 1999.
Management believes that the elimination of the Illinois cruising and boarding
requirements will have a negative impact on its St. Louis operations until the
Missouri boarding restrictions are lifted.
Other Missouri regulations limit the loss per cruise per passenger by
limiting the amount of chips or tokens a guest may purchase during each two-
hour gaming session to $500. The lack of a statutory loss limit on Illinois
casinos allows them to attract higher stake gamblers; additionally, their
guests are not burdened with the administrative requirements related to the
loss limits. Any easing of the loss limits or the boarding requirements in
Missouri would have a positive impact on the Company's St. Louis operation.
In Iowa, an excursion gambling boat must operate at least one excursion each
day for 100 days during the excursion season from April 1 through October 31.
Excursions must last a minimum of two hours. While an excursion gaming boat
is docked, passengers may embark or disembark at any time. As stated above,
Illinois boats were required to cruise until the June 1999 change in the law.
The elimination of cruising requirements in Illinois could have a negative
impact on the Davenport operations since the competitor directly across the
Mississippi River in Illinois is no longer required to cruise.
In July 1996, a law was enacted by the U.S. Congress establishing a National
Gaming Impact and Policy Commission to conduct a comprehensive study of the
social and economic impacts of gambling in the United States and make
recommendations for changes to the policies governing gambling that the
Commission may deem appropriate. A report was issued by the Commission in
June 1999 making 13 specific recommendations. While it is too early to
predict the effect of the Commission's report on the Company, the addition of
a federal level of regulation and taxes, or state laws implementing the
report's recommendations, could have a material adverse impact on the
Company's future results of operations.
--Weather Conditions
The Company's operating results are susceptible to the effects of floods and
adverse weather conditions. On various occasions, the Company has temporarily
suspended operations as a result of such adversities. Although the Company
was not forced to suspend its St. Louis operations during either of the three-
month periods ending May 31, 1999 or 1998 as a result of adverse weather
conditions, high waters caused reduced parking and a general public perception
of diminished access to the casino which combined to negatively impact revenue
during the periods.
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<PAGE> 13
--St. Louis Barge Accident
On April 4, 1998, the "Admiral" was struck by runaway river barges which
resulted in the severing of several of the vessel's mooring lines and boarding
ramps. Although the boarding ramps were lost and significant costs were
incurred returning the "Admiral" to its mooring site, the vessel sustained no
hull or structural damage and minimal damage to its bow apron. There were no
reports of serious injuries to the approximately 2,300 guests and employees
aboard. The "Admiral" was closed to the public for 26 days, reopening on
April 30, 1998. The Company maintains property, liability and business
interruption insurance which minimized the financial impact of the accident.
The deductible that applied against these policies was $1.1 million. The
Company, in conjunction with its various insurance carriers, is pursuing the
owners of the towboat that were involved in the accident to recover any
uninsured losses.
--Potential Growth Opportunities
Biloxi, Mississippi
On July 24, 1997, the Company, through a newly created subsidiary, President
Broadwater Hotel, LLC ("PBLLC"), purchased for $40.5 million certain real
estate and improvements located on the Gulf Coast in Biloxi, Mississippi from
an entity which was wholly-owned by John E. Connelly, Chairman, Chief
Executive Officer and principal stockholder of the Company. The property
comprises approximately 260 acres and includes two hotels, a 138-slip marina
and the adjacent 18-hole Sun Golf Course (collectively, the "Broadwater
Property"). The marina is currently the site of the Company's casino
operations in Biloxi and was formerly leased by the Company under a long-term
lease agreement. The Company invested $5.0 million in PBLLC. PBLLC financed
the purchase with $30.0 million of outside financing and issued a $10.0
million membership interest to the seller. Such financing is non-recourse to
the Company.
In conjunction with the purchase of the Broadwater Property, PBLLC borrowed
the sum of $30.0 million from a third party lender, evidenced by a non-
recourse promissory note (the "Indebtedness"). Except as set forth in the
promissory note and related security documents, PBLLC's obligations under the
Indebtedness are nonrecourse and are secured by the Broadwater Property, its
improvements and leases thereon. The Indebtedness bears interest at a
variable rate per annum equal to the greater of (i) 8.75%, or (ii) 4% plus the
LIBOR 30-day rate. The membership interest grows at the same rate. The
accrued balance of the membership account and unpaid growth at May 31, 1999
was $11.7 million and is included in minority interest.
PBLLC 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. In addition, PBLLC is obligated to pay to the lender a loan
fee in the amount of $7.0 million which will be fully earned and nonrefundable
when the Indebtedness is repaid. As of May 31, 1999, the accrued loan fee of
$4.2 million is included in the Company's long-term liabilities.
The Company is currently developing a master plan for the Broadwater
Property and believes that this site is ideal for the development of
"Destination Broadwater," a full-scale luxury destination resort offering an
array of entertainment attractions in addition to gaming. Destination
Broadwater is planned to be an integrated entertainment resort situated in a
village setting surrounded by water. The resort will feature a village
11
<PAGE> 14
including a cluster of casinos, hotels, restaurants, theaters and other
entertainment attractions. Management believes that with its beachfront
location and contiguous golf course, the property is the prime site for such a
development in the rapidly growing Gulf Coast market.
In January 1999, the Company received the approval of the Mississippi
Department of Marine Resources ("DMR") for development of a full-scale
destination resort. This is the first of three permit approvals required of
the Joint Permit Application submitted in August 1998 to the DMR, the U.S.
Army Corps of Engineers and the Mississippi Department of Environment Quality.
In March 1999, to facilitate its proposed master plan development, the
Company entered into contracts with the State of Mississippi and the owners of
Deer Island to purchase for $15.0 million and convey title to the island to
the State of Mississippi. Deer Island encompasses approximately 500 acres and
is located just offshore of Biloxi, Mississippi. It is primarily a wilderness
which the state would preserve for use by the people of Mississippi. This
transaction completes another essential step towards securing the necessary
agreements and approvals from the State of Mississippi for the Company's
"Destination Broadwater" development plans. The purchase and conveyance of
the title are contingent on the occurrence of various events, including the
issuance to the Company of all required federal, state and local permits and
the issuance by the State of Mississippi of the tidelands and fast lands
leases and casino license necessary for development of Destination Broadwater.
New York City, New York
The Company pursued a gaming license for a "cruise-to-nowhere" operation in
New York City utilizing "President Casino New Yorker." In January 1998, the
Company submitted a gaming application to the New York City Gambling
Commission and in April 1998 received notification that the Commission was not
prepared to issue a provisional license which would have allowed the Company
to start operations. The Company incurred $2.1 million in costs pursuing a
New York City license during the three-month period ending May 31, 1998.
Results of Operations
Three-Month Period Ended May 31, 1999 Compared to the
Three-Month Period Ended May 31, 1998
The results of operations for three-month periods ended May 31, 1999 and
1998 include the gaming results for the Company's operations in Davenport,
Iowa, Biloxi, Mississippi and St. Louis, Missouri and of much lesser
significance, the non-gaming operations for Davenport (The Blackhawk Hotel),
Biloxi (the Broadwater Property) and St. Louis (Gateway Riverboat Cruises).
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<PAGE> 15
The following table highlights the results of the Company's operations.
Three Months Ended May 31,
1999 1998
------ ------
(in millions)
Davenport, Iowa Operations
Operating revenues $ 20.9 $ 21.4
Operating income $ 2.4 $ 3.6
Biloxi, Mississippi Operations
Operating revenues $ 15.4 $ 14.4
Operating income $ 1.2 $ 0.9
St. Louis, Missouri Operations
Operating revenues $ 16.7 $ 16.2
Operating income (loss) $ 0.7 $ (0.7)
Corporate Leasing Operations
Operating revenues $ 1.4 $ --
Operating income (loss) $ 0.9 $ (0.4)
Corporate Administrative
and Development
Operating loss $ (1.1) $ (3.9)
The following table highlights certain supplemental measures of the
Company's financial performance.
Three Months Ended May 31,
1999 1998
------ ------
(numbers in millions)
Davenport, Iowa Operations
EBITDA $ 3.5 $ 4.7
EBITDA margin 16.7% 22.0%
Biloxi, Mississippi Operations
EBITDA $ 2.0 $ 1.6
EBITDA margin 13.0% 11.1%
St. Louis, Missouri Operations
EBITDA $ 2.1 $ 0.7
EBITDA margin 12.6% 4.3%
Corporate Leasing Operations
EBITDA $ 1.2 $ (0.1)
Corporate Administrative
and Development
EBITDA $ (1.0) $ (3.9)
"EBITDA" consists of earnings from operations before interest, income taxes,
depreciation and amortization. For the purposes of this presentation, EBITDA
margin is calculated as EBITDA divided by operating revenue.
EBITDA and EBITDA margin are not determined in accordance with generally
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<PAGE> 16
accepted accounting principles. Since not all companies calculate these
measures in the same manner, the Company's EBITDA measures may not be
comparable to similarly titled measures reported by other companies.
EBITDA should not be construed as an alternative to operating income as an
indicator of the Company's operating performance, or as an alternative to cash
flows from operational activities as a measure of liquidity. The Company has
presented EBITDA solely as a supplemental disclosure to facilitate a more
complete analysis of the Company's financial performance. The Company
believes that this disclosure enhances the understanding of the financial
performance of a company with substantial interest, depreciation and
amortization.
Operating revenues. The Company generated consolidated operating revenues
of $54.4 million during the three-month period ended May 31, 1999 compared to
$52.0 million during the three-month period ended May 31, 1998, an increase of
$2.4 million or 4.6%.
The Company's Biloxi and St. Louis operations each experienced increases in
revenue, partially offset by the Company's Davenport operation which
experienced a decrease. Biloxi's revenue increased to $15.4 million from
$14.4 million, an increase of $1.0 million, or 6.9%. Such increase was
primarily attributable to an overall increase in the Gulf Coast market. St.
Louis's revenue increased to $16.7 million from $16.2 million, an increase of
$0.5 million, or 3.1%. Such increase in St. Louis is primarily attributable
to the barge accident in April 1998, which resulted in the St. Louis riverboat
casino being closed to the public for 26 days. Davenport's revenue decreased
to $20.9 million from $21.4 million, a decrease of $0.5 million or 2.3%. This
decrease is primarily attributable to the expansion of a competing casino
which added gaming space, a new hotel and other amenities in September 1998.
The Company's revenues from food and beverage, hotel, retail, charter and
other non-gaming activities (net of promotional allowances) decreased to $6.8
million during the three-month period ended May 31, 1999, from $9.4 million
during the three-month period ended May 31, 1998, a decrease of $2.6 million,
or 27.7%. The decrease was primarily attributable to the inclusion of $3.6
million in insurance proceeds resulting from the St. Louis barge accident
during the three-month period ended May 31, 1998, offset by the inclusion of
$1.4 million of charter revenue during the three-month period ended May 31,
1999.
Operating costs and expenses. The Company's consolidated gaming and gaming
cruise operating costs and expenses were $28.3 million during the three-month
period ended May 31, 1999, compared to $25.6 million during the three-month
period ended May 31, 1998, an increase of $2.7 million or 10.5%. The increase
is primarily attributable to (i) the variable costs related to the increased
revenues in Biloxi and St. Louis and (ii) increased promotional and slot club
costs in Davenport along with the introduction of wide area progressive slot
machines and their related rental costs. As a percentage of gaming revenues,
gaming and gaming cruise costs decreased to 59.4% during the three-month
period ended May 31, 1999 from 60.2% during the three-month period ended May
31, 1998.
The Company's consolidated selling, general and administrative expenses were
$12.9 million during the three-month period ended May 31, 1999, compared to
$15.4 million for the three-month period ended May 31, 1998, a decrease of
$2.5 million or 16.2%. The St. Louis operations contributed to a $2.2 million
decrease primarily due to the "Admiral" barge accident. As a percentage of
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<PAGE> 17
consolidated revenues, selling, general and administrative expenses decreased
to 23.6% during the three-month period ended May 31, 1999 from 29.7% during
the three-month period ended May 31, 1998. The decrease in selling, general
and administrative expenses as a percent of revenue is primarily attributable
to the increased revenue during the current year compounded by the hull repair
costs and the continuing fixed costs at the St. Louis operations during the
26-day temporary suspension of operations included in the prior year.
Depreciation and amortization expenses were $3.7 million during the three-
month period ended May 31, 1999, compared to $3.5 million during the three-
month period ended May 31, 1998, an increase of $0.2 million, or 5.7%.
Development costs during the three-month period ended May 31, 1999 were $0.1
million compared to $2.8 million during the three-month period ended May 31,
1998, a decrease of $2.7 million. The decrease was primarily related to $2.1
million the Company incurred pursuing a gaming license in New York City.
Operating income. As a result of the foregoing items, the Company had
operating income of $4.1 million during the three-month period ended May 31,
1999, compared to an operating loss of $0.5 million during the three-month
period ended May 31, 1998.
Interest expense, net. The Company incurred net interest expense of $4.7
million during the three-month period ended May 31, 1999, compared to $4.8
million during the three-month period ended May 31, 1998.
Minority interest expense. The Company incurred $0.3 million minority
interest expense for the three-month period ended May 31, 1999, compared to a
$0.4 million expense for the three-month period ended May 31, 1998.
Net loss. The Company incurred a net loss of $1.0 million during the three-
month period ended May 31, 1999, compared to a net loss of $5.7 million during
the three-month period ended May 31, 1998.
Liquidity and Capital Resources
The Company meets its working capital requirements from a combination of
internally generated sources including cash from operations and the sale or
charter of assets no longer utilized in the Company's operations.
The Company requires approximately $7.0 million of cash in order to fund
daily operations. As of May 31, 1999, the Company had approximately $12.7
million in cash and cash equivalents in excess of the required $7.0 million.
The Company is heavily dependant on cash generated from operations to continue
to operate as planned in its existing jurisdictions and fund capital
expenditures. The Company anticipates that its existing available cash and
cash equivalents and its anticipated cash generated from operations will be
sufficient to fund all of its ongoing operations. To the extent cash
generated from operations is less than anticipated, the Company may be
required to curtail certain planned fiscal 2000 expenditures or seek other
sources of financing. The Company may be limited in its ability to raise cash
through additional financing.
The Company experienced a net cash decrease from investing activities of
$2.0 million during the three-month period ended May 31, 1999 compared to a
decrease of $1.0 million during the three-month period ended May 31, 1998.
The net cash decrease from investing activities during both periods resulted
primarily from expenditures on property and equipment. During the three-month
15
<PAGE> 18
period ended May 31, 1999, the Company spent approximately $1.0 million, $0.2
million and $0.2 million at the Company's Biloxi, St. Louis and Davenport
operations. Additionally, the Company spent $0.2 million on the "Destination
Broadwater" development.
The Company has a $3.3 million outstanding term note payable that is
collateralized by "President Casino-Mississippi" and various equipment with a
net book value of $8.5 million. The Company made $0.1 million of principal
payments during both three-month periods ended May 31, 1999 and 1998 on the
term note. The note contains a covenant whereby the Company is required to
maintain a minimum net worth of $40.0 million. Although the Company's net
worth is currently below $40.0 million, the Company received a waiver of the
covenant through September 30, 2000. Management believes that the Company
will be able to either renegotiate the terms, pay down a portion of the note
or refinance the loan at such time as the waiver terminates.
TCG, the Company's 95%-owned partnership, maintains a $2.5 million line of
credit of which $0.2 million is unused, provided by Firstar Bank, N.A. The
line of credit reduces by $0.9 million each March 31 and expires September 30,
2000. The line of credit is available exclusively to TCG. Distributions from
TCG to its general partner are limited by its partnership agreement. During
the three-month period ended May 31, 1999, the Company paid minority interest
of $0.3 million and had no comparable payments in the prior year.
The Company's Biloxi property leases the "Biloxi Barge" from American Gaming
& Entertainment, Ltd. ("AGEL"). The Company and AGEL have in the past
disputed certain terms of the lease. AGEL's primary asset, the "Biloxi
Barge," is the subject of bankruptcy proceedings involving several companies
and the unsecured creditors of companies previously affiliated with AGEL. On
July 2, 1999, the Company entered into an agreement with AGEL, and other
parties involved in the above proceedings, to purchase the "Biloxi Barge,"
subject to approval of the bankruptcy courts and gaming commission approval.
Under the terms of the agreement, the Company will purchase the "Biloxi Barge"
for $5.0 million plus any remaining amounts from the current charter. In
addition, various lawsuits related to the barge will be dismissed. The
Company will pay $1.0 million at closing and $0.3 million inclusive of the
remaining charter, monthly through April 15, 2000, at which time the balance
of the purchase price will be due.
Concurrently with the original charter of the "Biloxi Barge," the Company
entered into a capital lease with the barge lessor for certain slot machines.
Subsequently, the Company and the lessors renegotiated the payments providing
for the forgiveness of future lease payments for a lump sum payment of $0.9
million. A question as to the ownership of these machines was raised by the
manufacturer. The Company has withheld any additional payments awaiting
resolution. The July agreement discussed above also addressed and resolves
the ownership of the slot machines and upon the closing of the purchase of the
barge, the Company will pay $900 to purchase the slot machines and lawsuits
related to the slot machines would be dismissed.
The Company currently anticipates it will be able to fund both the barge and
slot machine purchases from either bank financing or a combination of its
existing cash and future cash flows.
Project financing will be required for any potential growth opportunity.
Capital investments may include all or some of the following: acquisition and
development of land; acquisition of vessels and lease options on land and
other facilities; and construction of vessels and other facilities in
16
<PAGE> 19
anticipation of the approval of gaming operations in potential new
jurisdictions. In connection with development activities relating to
potential jurisdictions, the Company also makes expenditures for professional
services which are expensed as incurred. The Company's financing requirements
would depend upon actual development costs, the amounts and timing of such
expenditures, the amount of available cash flow from operations and the
availability of other financing arrangements.
In such case, the Company could pursue a number of alternatives to avail
itself of additional capital, including borrowing additional funds either
directly or on a stand-alone project basis, financing through lease
agreements, selling equity securities and selling assets which are not
currently generating revenues. The Company may also consider strategic
combinations or alliances. Although there can be no assurance that the
Company can effectuate any of the financing strategies discussed above, the
Company believes that if it determines to seek any additional licenses to
operate gaming in other potential jurisdictions it will be able to raise
sufficient capital to pursue its strategic plan.
Year 2000
Background
In the past, many computer software programs were written using two digits
rather than four to define the applicable year. As a result, information
technology ("IT") such as date-sensitive computer software as well as non-IT
systems, such as equipment containing micro-controllers or other embedded
technology may recognize a date using "00" as the year 1900 rather than the
year 2000. This is generally referred to as the Year 2000 issue. If this
situation occurs, the potential exists for computer system failures or
miscalculations by computer programs, which could disrupt operations.
Risk Factors
Date-sensitive IT and non-IT systems and equipment are utilized throughout
the Company's properties. As such, the Company is exposed to the risk that
Year 2000 problems could disrupt operations at the affected properties and
have a material adverse impact upon the Company's operating results.
The Company is also exposed to the risk of possible failure of IT and non-IT
systems external to the Company's operations. These External Risk Factors
arise from the fact that the Company's operations, like most businesses,
depend upon numerous other private, public and governmental entities. While
these External Risk Factors are not the Company's responsibility and the
remediation of these factors is beyond the Company's control, the Company is
attempting to monitor these risks and form such contingency plans as the
Company deems necessary. As a result of these External Risk Factors, the
Company may be materially and adversely impacted even if the Company's own IT
and non-IT systems and equipment are Year 2000 compliant. The most
significant of these External Risk Factors are as follows:
*One or more of the Company's suppliers could experience Year 2000 problems
that impact the ability of the suppliers to provide goods and services
required in the operation of the Company's properties. The Company believes
that the impact of such a potential disruption would be limited due to the
availability of alternative suppliers, but the Company cannot be sure that
such a disruption would not have an adverse impact on the Company's
operations.
17
<PAGE> 20
*One or more of the Company's utility providers (including electric, natural
gas, water, sewer, garbage collection and similar services) could experience
Year 2000 problems that impact the ability of the utility to provide the
service. Furthermore, the Company could be adversely impacted if disruption
of utility services occurred in any of the Company's key customer markets, as
this could impact the customary flow of visitors from the affected market.
*The possible disruption of banking services due to Year 2000 problems could
impair the Company's daily banking operations including the deposit of monies
and processing of checks. Furthermore, customer's credit card processing and
access to cash via automated teller machines could also be disrupted.
The Company is not in the position to determine whether the External Risk
Factors will have a material adverse impact on the Company's operating
results. While the Company is developing contingency plans with respect to
identified risk factors, the nature of many External Risk Factors is such that
the Company does not believe a viable alternative would be available.
Consequently, the occurrence of any of the previously listed disruptions
could, depending upon the severity and duration of the disruption, have a
material adverse impact on the Company's operating results.
Approach
The Company has established a task force to coordinate the Company's
response to the Year 2000. This task force reports to the Company's Executive
Vice President and Chief Financial Officer. The Company is implementing a
Year 2000 compliance program at the Company's properties. The program
consists of the following phases:
Phase 1. Compilation of an inventory of IT and non-IT systems that may be
sensitive to the Year 2000 problem.
Phase 2. Identification and prioritization of the critical systems from the
systems inventory compiled in Phase 1 and inquiries of third parties with whom
the Company does significant business (i.e. vendors and suppliers) as to the
state of their Year 2000 readiness.
Phase 3. Analysis of critical systems to determine which systems are not
Year 2000 compliant and evaluation of the costs to repair or replace those
systems.
Phase 4. Repair or replace noncompliant systems and testing of those
systems for which a representation as to Year 2000 compliance has not been
received or for which a representation was received but has not been
confirmed.
Status
Phase 1, 2 and 3 are substantially complete, though the Company has not
received all responses to inquiries of significant third parties as to their
Year 2000 readiness. Phase 4 is ongoing and will continue through August
1999. Based upon the analysis conducted to date, the Company believes all of
the major critical systems at the Company's properties are currently compliant
or will be compliant by mid-1999. The only significant aspect of the
Company's Year 2000 compliance which has been identified to date is the need
to replace older computers and software packages whose systems are not Year
2000 compatible.
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<PAGE> 21
Costs
The total cost to the Company of making the Company's systems Year 2000
compliant is currently estimated to be approximately $0.3 million. Of that
amount the Company has incurred approximately $0.2 million as of February 28,
1999. Given that the Company's Year 2000 process is ongoing and given the
Company's reliance on third-party vendors, the actual cost of making the
Company's systems Year 2000 compliant may be materially greater than the
amount the Company currently estimates. The majority of this cost relates to
the acquisition of new computer hardware to replace the systems noted above
and the purchase of new software to replace non-compliant software. These
costs will be capitalized and depreciated over their expected useful life. To
the extent existing hardware or software is replaced, the Company will
recognize a loss currently for the undepreciated balance. This loss is
included in the above cost estimate. Furthermore, all costs related to
software modification, as well as all costs associated with the Company's
administration of the Company's Year 2000 project, are being expensed as
incurred and are likewise included in the cost estimated above.
Quantitative and Qualitative Disclosures About Market Risk
Although the majority of debt carries a fixed interest rate, the Company is
exposed to interest rate risk in respect to the variable-rate debt maintained.
Forward Looking Statements
The statements contained herein include forward-looking statements based on
management's current expectations of the Company's future performance.
Predictions relating to future performance are inherently uncertain and
subject to a number of risks. Consequently, the Company's actual results
could differ materially from the expectations expressed in the preceding
paragraphs. Factors that could cause the Company's actual results to differ
materially from the expected results include, among other things: the
intensely competitive nature of the riverboat and dockside casino gaming
industry; increases in the number of competitors in the markets in which the
Company operates; the susceptibility of the Company's operating results to
floods, adverse weather conditions and natural disasters; the risk that
jurisdictions in which the Company proposes to operate do not enact
legislation permitting riverboat or dockside casino gaming or do not enact
such legislation in a timely manner; changes in governmental regulations
governing the Company's activities and other risks detailed in the Company's
filings with the Securities and Exchange Commission.
Part II. Other Information
Item 1. Legal Proceedings
Information with respect to legal proceedings to which the Company is a
party is disclosed in Note 4 of Notes to Condensed Consolidated Financial
Statements included in Part I of this report and is incorporated herein by
reference.
Item 2. Changes in Securities
Not applicable.
19
<PAGE> 22
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits filed as part of this report are listed on Index to
Exhibits accompanying this report.
(b) Reports on Form 8-K
Not applicable.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Although the majority of debt carries a fixed interest rate, the Company is
exposed to interest rate risk in respect to the variable-rate debt maintained.
20
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SIGNATURE
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.
President Casinos, Inc.
-----------------------------
(Registrant)
Date: July 12, 1999 /s/ James A. Zweifel
-----------------------------
James A. Zweifel
Duly Authorized Officer and
Principal Financial Officer
21
<PAGE> 24
INDEX TO EXHIBITS
-----------------
EXHIBIT NO.
10.1 Sale and Purchase of Real Estate Agreement dated March 30, 1999, by
and among R. David Sanders, James W. Sanders, Julia Sheila Sanders
and June Sanders Clement and President Casinos, Inc.
10.2 Deer Island Agreement dated March 30, 1999, by and between Eric
Clark and President Casinos, Inc.
27 Financial Data Schedule for the three-months ended May 31, 1999,
as required under EDGAR.
22
EXHIBIT 10.1
AGREEMENT FOR THE SALE AND PURCHASE OF REAL ESTATE
This Agreement made and entered into on this the 30th day of March, 1999, by
and among R. DAVID SANDERS, Stockholders' Agent for Robert David Sanders, Jr.,
James W. Sanders, Julia Sheila Sanders (formerly Sheila Sanders Lively) and
June Sanders Clement, the former Stockholders of Aponaug Development Company,
a Mississippi corporation, pursuant to the authority granted under that
certain Power of Attorney dated August 9, 1989 of record in Book at Page
of the land records of the office of the Chancery Clerk for the Second
Judicial District of Harrison County, Mississippi (hereinafter known as
"Sanders"),
AND
PRESIDENT CASINOS, INC., a Delaware corporation (hereinafter known as
"President").
W I T N E S S E T H:
WHEREAS, the parties to this Agreement hereby agree as follows:
1. Purchase and Sale: Subject to the terms and conditions of this Agreement,
Sanders hereby agrees to sell and President hereby agrees to pay the
consideration for the purchase of all the real property owned by Sanders
situated on the island commonly known as Deer Island, said Island being
situated in the Second Judicial District of Harrison County, Mississippi,
together with all appurtenances and improvements located thereon, (hereinafter
referred to as the "Property"), and more particularly described in Exhibit
"A"attached hereto, made a part hereof, and incorporated herein by reference.
A summary recital of the title to the Property is attached hereto as Exhibit
"B" and made a part hereof. Without limiting the conditions to Closing set
forth elsewhere in this Agreement, Sanders acknowledges and agrees that
Sanders shall cause to be conveyed the Property to the State of Mississippi
(the "State") contemporaneously with the consummation of the transactions
contemplated hereby and that President shall have no obligation to proceed
with Closing hereunder unless and until State agrees to close on the
conveyance of the Property to State. A fully executed copy of the Agreement
between the President and State is attached hereto to as Exhibit "C" and made
a part hereof.
2. Purchase Price: The Purchase Price for the Property shall be payable in
guaranteed funds at Closing as follows:
A. 15,000,000.00 if all conditions precedent are met on or before the
First Anniversary Date of this Agreement, and closing occurs as specified in
paragraph 3 of this Agreement.
B. $15,500.000.00 if all conditions precedent are met on or before the
Second Anniversary Date of this Agreement, and closing occurs as specified in
paragraph 4 of this Agreement.
C. $16,000,000.00 if all conditions precedent are met on or before the
Third Anniversary Date of this Agreement, and closing occurs as specified in
paragraph 5 of this Agreement.
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<PAGE> 26
3. Initial Down Payments and Consideration: As additional consideration for
this Agreement, President shall pay to Sanders the amount of THREE THOUSAND
AND NO/100 DOLLARS ($3,000.00) (hereinafter "Down Payment") upon execution of
this Agreement, the receipt of which is hereby acknowledged by Sanders.
Additionally, within five (5) days from the date Sanders receives written
notice from President and/or State that it has accepted the Property in
accordance with paragraph 11, President shall make an additional down payment
to Sanders in the amount of ONE HUNDRED THOUSAND AND NO/100 DOLLARS
($100,000.00). Both Down Payments shall be applied and credited to the
Purchase Price due at the Closing, provided that the Closing occurs on or
before the date which is one year after the date first set forth above (the
"First Anniversary Date"). If the Closing does not occur on or before the
First Anniversary Date, and this Agreement is not extended in accordance with
paragraphs 4 and 5 herein, the Down Payments shall be forfeited to Sanders,
unless the Closing does not occur because of a termination of this Agreement
pursuant to paragraph 14 or an action taken by Sanders after President and/or
State has given its acceptance in accordance with paragraph 11.E, in which
event the Down Payments shall be returned by Sanders to President, and the
parties shall be released from any further liability to each other hereunder.
If this Agreement is extended in accordance with paragraphs 4 and 5 herein,
the Down Payments shall be applied to the Purchase Price due at Closing.
Notwithstanding the foregoing, the Down Payments shall not be forfeited and
shall be applied to the Purchase Price if all conditions precedent specified
in paragraph 6 have been complied with on or prior to the First Anniversary
Date and the Closing occurs within one hundred eighty (180) days thereafter.
4. First Extension: Upon expiration of the First Anniversary Date, President
shall then have until thirty (30) days after said First Anniversary Date to
make an additional payment to Sanders in the amount of ONE HUNDRED FIFTY
THOUSAND AND NO/100 DOLLARS ($150,000.00), which payment (the "First Extension
Payment") shall extend the Agreement for one additional year, until the date
which is two (2) years after the date first set forth above (the "Second
Anniversary Date"). If President does not make the First Extension Payment
within thirty (30) days after the First Anniversary Date of this Agreement,
then this Agreement shall terminate and Sanders shall keep the Down Payments
as its sole remedy, in which event the parties shall be released from any
further liability to each other hereunder. The Down Payments and the First
Extension Payment shall be applied and credited to the Purchase Price due at
the Closing, provided that the Closing occurs on or before the Second
Anniversary Date. If the Closing does not occur on or before the Second
Anniversary Date, and this Agreement is not extended in accordance with
paragraph 5 herein, the Down Payments and the First Extension Payment shall be
forfeited to Sanders, unless the Closing does not occur because of a
termination of this Agreement pursuant to paragraph 14 or an action taken by
Sanders after President and/or State has given its acceptance in accordance
with paragraph 11.E, in which event the Down Payments and the First Extension
Payment shall be returned by Sanders to President, and the parties shall be
released from any further liability to each other hereunder. If this
Agreement is extended in accordance with paragraph 5 herein, the Down Payments
and the First Extension Payment shall be applied to the Purchase Price due at
Closing. Notwithstanding the foregoing, the Down Payments and the First
Extension Payment shall not be forfeited and shall be applied to the Purchase
Price if all conditions precedent specified in paragraph 6 have been complied
with on or prior to the Second Anniversary Date and the Closing occurs within
one hundred eighty (180) days thereafter.
5. Second Extension: Upon expiration of the Second Anniversary Date,
President shall then have until thirty (30) days after the Second Anniversary
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<PAGE> 27
Date to make an additional payment to Sanders in the amount of TWO HUNDRED
THOUSAND AND NO/100 DOLLARS ($200,000.00), which payment (the "Second
Extension Payment") shall extend the Agreement for one (1) additional year,
until the date which is three (3) years after the date first set forth above
(the "Third Anniversary Date"). If President does not make the Second
Extension Payment within thirty (30) days after the Second Anniversary Date,
then this Agreement shall terminate and Sanders shall keep the Down Payments
and the First Extension Payment as its sole remedy, in which event the parties
shall be released from any further liability to each other hereunder. The
Down Payments, the First Extension Payment, and the Second Extension Payment
shall be applied and credited to the Purchase Price due at the Closing,
provided that the Closing occurs on or before the Third Anniversary Date.
Notwithstanding the foregoing, the Down Payments, the First Extension Payment
and the Second Extension Payment shall not be forfeited and shall be applied
to the Purchase Price if all conditions precedent specified in paragraph 6
have been complied with on or prior to the Third Anniversary Date and the
Closing occurs within one hundred eighty (180) days thereafter. If the
conditions precedent specified in paragraph 6 have not been complied with by
the Third Anniversary Date, this Agreement shall terminate and shall result in
the forfeiture of all Down Payments, the First Extension Payment and the
Second Extension Payment.
6. Requirements for Closing: (i) Subject to paragraph 6(ii) and paragraph 7,
Closing shall occur within one hundred eighty (180) days after the following
listed permits, certifications, and licenses have been issued to President,
its affiliate or its assignee, for its Destination Broadwater Project located
in Biloxi, Mississippi Mississippi Permit Permit and Coastal Zone
consistency certification from the Department of Marine Resources;
A. Mississippi Permit Water Quality Certification from Department of
Environmental Quality, Office of Pollution Control;
B. Mississippi Department of Transportation Air Rights License for
clearance over and under Highway 90;
C. Mississippi Department of Transportation Right of Way Approval;
D. Building Permit from Biloxi Site Plan Review Board;
E. Master Plan Amendment Approval from Biloxi City Council;
F. Federal Permit Section 10 Rivers and Harbors Act (fill in navigable
waters);
G. Federal Permit Section 404 Clean Water Act;
H. Federal Permit Conditional Letter of Map Revision from the Federal
Emergency Management Agency; and
I. All other mandated federal, state and local authorizations,
documentations, permits, certifications and licenses required or necessary for
President Casino to receive funding for the Destination Broadwater Project.
(ii) Mississippi Secretary of State, Eric Clark, issued a letter, dated April
6, 1998, to John S. Aylsworth, president of President, listing eleven (11)
conditions that must be satisfied prior to the granting of a Tidelands lease
for President's Destination Broadwater Project. A true copy of said letter is
attached hereto as Exhibit "D" and made a part of this Agreement the same as
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though fully copied herein. Also, attached as Exhibit "E" hereto is a true
copy of Mississippi Secretary of State, Eric Clark's letter, dated December 9,
1998, to Glade Wood of the Mississippi Department of Marine Resources, which
more particularly defines the conditions set forth in the April 6, 1998
letter. Closing shall not occur until all conditions specified in both
letters have been met to the satisfaction of the Secretary of State and until
other regulatory agencies issue the necessary permits recited above.
7. Tidelands and Casino Lease: It is agreed by the parties that the Closing
provided for herein is further conditioned upon President or its assignee and
State executing a mutually acceptable Tidelands and Casino Lease for
President's Destination Broadwater Project.
8. Closing Costs: Sanders will pay for the costs of a title search, title
opinion, title insurance commitment, title insurance premium and all document
preparation fees. Sanders will also pay the funds necessary to satisfy all
mortgages, liens, encumbrances or special assessments levied against the
Property. The title opinion will be signed by an attorney on the approved
attorneys list of one or more major title insurance companies licensed to do
business in the State of Mississippi. Sanders shall pay all brokerage fees
due its brokers. President will pay all reasonable costs for any survey,
inspections and tests and all other due diligence investigations pursuant to
paragraph 11 hereof. President will further pay all of its fees and costs
arising out of any financing that it requires to complete this transaction.
9. Term: Should the Agreement terminate because President fails to satisfy
the conditions precedent specified in paragraph 6 of this Agreement within the
time allowed herein, Sanders shall retain the Down Payments and Extension
Payments made or due and any other moneys paid to Sanders by President as its
sole remedy, provided that Sanders is not in default under this Agreement. If
Sanders is in default under this Agreement and after twenty (20) days written
notice to Sanders such default is not cured, or if termination is made
pursuant to paragraph 14 of this Agreement for an action taken by or against
Sanders after President and/or State has given its acceptance in accordance
with paragraph 11.E, the Down Payments, the First Extension Payment, the
Second Extension Payment and all other moneys paid to Sanders shall be
promptly repaid to President, and Sanders shall release President from any
liability under this Agreement.
10. Risk of Loss and Insurance: At all times prior to Closing, the risk of
loss shall be borne by Sanders. Sanders shall maintain, in addition to any
insurance it currently maintains, comprehensive general liability insurance
covering the Property at all times prior to closing in an amount not less than
$1,000,000.00, which insurance policy shall name State and President as
additional insureds as their interests may appear.
11. Condition of Property and Due Diligence Inspections:
A. "As Is, Where Is": If all conditions of this Agreement are met and
the State agrees to accept the property, President agrees to pay the
consideration for the purchase of the Property in its "as is, where is"
condition as at the time of the time of the surveys, test, inspection,
investigations, audits and assessments provided for in paragraph 11.B and 11.C
below. Sanders makes no representations of any kind or nature as to the
physical condition of the Property.
B. Due Diligence Inspections: Sanders hereby grants to President and
State for a period of one hundred twenty (120) days commencing with the full
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execution of this Agreement and during any extension of said one hundred
twenty (120) day period, the right of complete access to the Property for
inspection thereof by agents and experts including, but not limited to,
engineers, inspectors, contractors, and architects, to inspect the Property
for any conditions as to matters concerning, but not limited to, survey,
topography, geology, mineral rights, environmental hazards, toxic substances
and all other conditions. Sanders shall not be responsible for the cost and
expense of such experts. President agrees with Sanders to require each of its
foregoing "inspectors" to maintain and provide evidence of general liability
insurance in an amount of $1,000,000, if possible, covering claims for injury,
damages or losses arising out of their entry onto and inspection of the
Property.
C. Due Diligence Environmental Assessments: Sanders agrees that experts
and inspectors selected under paragraph 11.B above may perform a Phase I
environmental assessment covering RCRA and CERCLA regulations as well as
Mississippi Department of Environmental Quality regulations, and all other
necessary environmental testing. If a Phase II assessment covering RCRA,
CERCLA, Mississippi Department of Environmental Quality Regulations, or other
hazardous regulations is also required by State, President and State shall
also have the right to perform such Phase II testing by experts and
inspectors. Such environmental assessments and audits shall be performed
within one hundred twenty (120) days after full execution of this Agreement.
The parties may by mutual agreement extend the time for such inspections for
an additional period.
D. Sanders shall provide to President for delivery to State a title
opinion signed by an attorney listed on the approved attorney's list of one or
more major title insurance companies licensed to do business in the State of
Mississippi and a commitment for title insurance within thirty (30) days of
full execution of this Agreement in accordance with the provisions of
paragraph 14 of this Agreement.
E. Within sixty (60) days after President furnishes written results and
reports of the surveys, test, inspections, investigations, audits and
assessments preformed pursuant to paragraphs 11.B and 11.C above, President
shall provide written notice to Sanders as to whether State will accept the
Property "as is, where is," or whether State rejects the Property. If State
rejects the Property, Sanders shall have sixty (60) days after receipt of
notice of rejection to cure to State's satisfaction (or commence to cure,
provided that Sanders thereafter proceeds to complete such cure with due
diligence) such conditions as are specified in State's rejection notice. If
Sanders fails to cure such conditions or to proceed with due diligence to
complete such cure, and State does not agree to accept the Property, this
Agreement shall immediately terminate and the parties shall have no further
liability to one another in regard to any matter covered by this Agreement.
12. Disclosure:
A. Historical Data Disclosure: Within ten (10) days after request in
writing by State or President, Sanders shall disclose to President and State
any information about the Property within the knowledge of Sanders, its
employees, agents and representatives. Sanders, its employees, agents and
representatives hereby represent that, to the best of their personal
knowledge, the Property does not contain and there has been no application,
use, treatment, production, generation, discharge, disposal or storage on,
from or onto the Property of any "hazardous waste" as that term is defined in
the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive
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Environmental Resources, Compensation and Liability Act ("CERCLA"), the
regulations issued pursuant thereto by the Environmental Protection Agency
("EPA") and/or superlien statute(s) or other environmental protection
statute(s), if any, of the State of Mississippi, or any toxic substance or any
activity which could have toxic results, and, to the best of Sanders', its
employees', agents' and representatives' knowledge, there is no proceeding or
inquiry threatened or pending by any governmental body with respect thereto.
B. Third Party Non-Disclosure: Any party hereto shall be permitted to
disclose the terms of this transaction, documentary evidence supporting
satisfaction of conditions noted in paragraph 6, the results of any
investigations, or inspections or any information pertaining to the Property
or this Agreement, without further notice to the State and/or to any party as
may be required by the Securities and Exchange Commission, in addition to such
disclosures that may be required by President's investment bankers, potential
investors, auditors and accountants. Otherwise, President and Sanders shall
not disclose to any third party the terms and conditions of this Agreement, or
the results of any investigations, inspections or data gathered therein,
except as may be required by law or by court order.
13. Liens: Sanders represents that there are no mortgages, liens,
encumbrances or special assessments filed against the Property except as
disclosed in writing attached hereto as Exhibit "F", and that all mortgages,
liens, encumbrances or special assessments, if any, shall be paid in full by
Sanders or otherwise caused to be released at or prior to Closing by Sanders.
Sanders further represents that neither he nor his employees, agents and
representatives know of any mortgages, liens, encumbrances or special
assessments proposed or threatened to be placed against the Property, except
as disclosed in writing attached hereto as Exhibit "G", which mortgages,
liens, encumbrances or special assessments shall also be paid in full or
otherwise caused to be completely released by Sanders at or prior to Closing.
14. Title:
A. At Closing, Sanders shall convey good and marketable title to State or
President's nominee free and clear of all mortgages, liens, encumbrances or
special assessments.
B. Sanders shall provide to President for delivery to State a title
opinion signed by an attorney listed on the approved attorney's list of one or
more title companies licensed to do business in the State of Mississippi and a
commitment for title insurance within thirty (30) days after the full
execution of this Agreement. Sanders shall further provide a supplemental
title opinion and a supplemental commitment for title insurance at Closing
covering the period from the date of the original title commitment and opinion
to the date of Closing. Said title commitment shall contain no exceptions to
the title to the Property except the following:
(i) ad valorem taxes for the year of Closing, which taxes shall be
paid in full by Sanders at Closing;
(ii) unpaid ad valorem taxes for any previous years, if any, which
Sanders shall pay in full at Closing;
(iii) reservations or conveyances of minerals by prior owners. It is
understood and agreed that any oil, gas or other minerals of
any kind and in any form, whether of like or unlike nature
owned by Grantor shall be conveyed to President or President's
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<PAGE> 31
nominee;
(iv) deeds of trust or any other encumbrances, which shall be paid
in full or otherwise fully released at Closing;
(v) recorded rights-of-way for utilities, which do not materially
affect the title or surface rights to the Property;
(vi) easements of record which do not materially affect the title or
surface rights to the Property;
(vii) special assessments, if any, which Sanders shall pay in full at
Closing; and
(viii) Tidelands Title Exception Subject to the rights of the State
in and to all properties as may be owned by it under the Public
Trust Doctrine within the Property.
C. In the event that said title insurance commitment shows defects in
title other than those listed above which are not acceptable to State, in its
sole discretion, within thirty (30) days after receipt of such commitment,
President and/or State shall identify such defects by notice in writing to
Sanders. Sanders shall then have sixty (60) days after the receipt of such
notice to cure such defects. If Sanders fails or is unable to cure such
defects within such sixty (60) day period, the State may nevertheless elect to
take conveyance of title as it then exists, or, if the State does not agree to
take title, President may terminate this Agreement without any further
liability or obligation to Sanders under this Agreement.
15. Closing: Subject to the satisfaction of all of the terms and conditions
of this Agreement, Closing shall take place at a time, date and location
mutually agreeable to Sanders, President and State, subject to the time limits
otherwise set by this Agreement. At Closing, the fully executed deed
conveying title to the State, the fully executed tidelands and casino lease
and the purchase price of the property, as provided for in paragraph 2, shall
be delivered to an Escrow Agent selected by mutual agreement of State, Sanders
and President. Upon notification by State that it is satisfied with title to
all property, the Escrow Agent will deliver the Lease to President, the moneys
to Sanders and deeds to State. State will notify Escrow Agent of satisfaction
with title within five (5) working days after Closing. State shall have
possession of all parcels acquired for State upon delivery of deeds.
16. Form of Deed: The Property shall be conveyed by Warranty Deed to the
State. The Grantee shall be the Secretary of State and the Department of
Marine Resources for the State of Mississippi.
17. Breach of Contract: In the event of a breach of this Agreement by any
party, no party shall be liable to any other party for lost profits,
consequential damages, or punitive damages. Without limiting its remedies
under this Agreement or at law or otherwise, President shall have the remedy
of specific performance in the event of a breach of this Agreement by Sanders.
18. Possession: Possession of the Property shall be delivered, at Closing, to
the Escrow Agent who shall deliver same to the State in accordance with
paragraph 15 above.
19. Condemnation: Sanders hereby represents and warrants to President that no
notice of condemnation has been filed or threat of condemnation has been made
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by any governmental subdivision or any agency or delegatee thereof regarding
the Property. Sanders shall bear all risk of condemnation of the Property and
shall receive all rewards thereof pending the Closing of the transaction
contemplated herein. If President chooses not to close due to a condemnation
or a threat thereof, then this Agreement shall terminate and Sanders shall
keep the Down Payments and any Extension Payments as its sole remedy, in which
event President shall be released from any further liability to Sanders
hereunder.
20. Maintenance: Until the Closing is completed and possession is delivered
to the State, Sanders agrees to maintain the Property in its present
condition, subject to the consequences of erosion, avulsion, reliction or
Property inspection activities. In the event of catastrophic destruction of
the Property, President may terminate this Agreement by giving written notice
to Sanders, in which event the parties shall have no further liability to one
another under or by virtue of this Agreement.
21. Violation Notices: Sanders warrants that it has no notice, either actual
or implied, of any violations whatsoever relating to the Property from City,
County, State or Federal agencies or any other governmental agency, and that
if Sanders receives any such notice after the execution of this Agreement,
Sanders shall promptly deliver a copy of such notice to President and shall
use its best efforts to cure such violation. Sanders shall bear all risk of
any such violation pending the closing of the transaction contemplated herein.
If President chooses not to close due to any such violation, then this
Agreement shall terminate and Sanders shall refund the Down Payments, the
First Extension Payment and the Second Extension Payment to President.
22. Special Use of Property: The deed conveying title to the State shall
contain a covenant in substantially the following form: "The Property conveyed
by this deed shall become a part of the public trust. The Property shall be
used for the conservation and preservation of its natural features, in
recognition of the public benefits in protecting it as a coastal area in the
interest of present and future generations. The Property shall be used and
maintained forever as a State public natural area for the preservation,
protection, restoration and sustenance of its natural characteristics and
features, and of its ecological integrity and associated habitats. Grantee
acknowledges that the Property is being acquired for preservation and public
use purposes only. Grantee shall not directly or indirectly convey the
Property to any person or entity for use as a casino, hotel or other
commercial enterprise or non-public use. Grantee make no use of the Property
that is inconsistent with the restrictions and uses contemplated by this
covenant. The Property shall be managed and maintained in its natural state,
except for public outdoor recreational purposes consistent with the
preservation of the Property in its natural state, including, but not
necessarily limited to, the undertaking of scientific and educational
research, education and nature study, aesthetic enjoyment, ecological
management, boat landings, piers, foot bridges, foot trails, utilities and
concessions appropriate to effectuate the foregoing purposes without impairing
the essential natural character of the Property. These conditions shall run
with the land in perpetuity and the Grantor or any citizen of the State of
Mississippi shall have standing to enforce these conditions and covenants
using all remedies available at law or equity, including injunctive relief."
23. Time: Time is of the essence with respect to all aspects of this
Agreement.
24. Brokers: Each party shall be solely responsible for the payment of any
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<PAGE> 33
fees or commissions to any brokers or agents with whom such party has
contracted, and each party agrees to hold the other harmless from and against
any claims by such brokers or agents for payment of any fees or commissions.
25. Cooperation: Each party agrees to fully cooperate with and assist each
other during the term of this Agreement in order to implement any provision of
this Agreement relating to the conveyance of the State.
26. Assignment: President shall have the right to assign this Agreement at
any time upon giving written notice to Sanders.
27. Entire Agreement and Interpretation: This document constitutes the final
and entire agreement between the parties hereto and incorporates all prior
agreements, representations, warranties and covenants between the parties and
cannot be changed except by writing, signed by all parties hereto. No party
shall be bound by any terms, conditions, oral statements, warranties or
representations not set forth herein. Each party acknowledges that it has
read and understands this Agreement. The provisions of this Agreement shall
apply to and bind the heirs, executors, administrators, successors and assigns
of the respective parties hereto. When used herein, the singular includes the
plural and the masculine includes the feminine, as the context may require.
The laws of the State of Mississippi shall control all interpretations of this
Agreement and the respective rights of the parties hereto.
28. Notices: All notices and other correspondence required or permitted to be
given hereunder shall be validly given, made or served if in writing and
delivered personally or sent by certified mail, return receipt requested, or
by overnight courier delivery (e.g. Federal Express). Notice shall be deemed
given when received or refused. Notice shall be addressed as follows:
If to Sanders: R. David Sanders
2426 Eastover Drive
Jackson, MS 39211
Telephone No. (601) 981-2151
with copy to: Crane D. Kipp
Shell, Buford, Bufkin, Callicutt & Perry
920 Trustmark Building
Jackson, MS 39205
Telephone No. (601) 948-2291
If to President: John Aylsworth,
President and Chief Operating Officer
President Casinos, Inc.
802 N. First Street
St. Louis, MO 63102
Telephone No. (314) 622-3140
with copy to: Terry Wirginis, Vice President
President Casinos, Inc.
9 Station Square Dock
Pittsburgh, PA 15219
Telephone No. (412) 355-7956
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and copy to: Henry Gusky, Esquire
Blumling & Gusky, L.L.P.
1200 Koppers Building
Pittsburgh, PA 15219
Telephone No. (412) 227-2500
29. Headings: The headings of the paragraphs of this Agreement are for the
convenience of reference only and do not form a part hereof and in no way
modify, interpret or construe the meaning of the parties hereto.
30. Counterpart Execution: This Agreement may be executed simultaneously in
any number of counterparts, each of which when executed and delivered shall be
deemed an original, but all of such counterparts shall constitute one and the
same instrument.
31. Enforceability: In the event that any provision of this Agreement is
determined by a court of competent jurisdiction to be illegal, invalid or
unenforceable under any laws or regulations, such provision shall be severed
from this Agreement and the remaining provisions of this Agreement shall be
unaffected thereby.
WITNESS OUR SIGNATURES, as of the date first set forth above.
/s/ R. David Sanders
- ------------------------------------
R. DAVID SANDERS, Stockholders Agent
Executed on March 30, 1999 at 3:30 p.m.
PRESIDENT CASINOS, INC.
By: /s/ John S. Aylsworth
- ------------------------------------
John S. Aylsworth, President
Executed on March 30, 1999 at 3:31 p.m.
10
EXHIBIT 10.2
AGREEMENT
This Agreement made and entered into on this the 30th day of March, 1999, by
and between ERIC CLARK, Secretary of State of Mississippi in his capacity as
Land Commissioner (hereinafter known as "State"),
AND
PRESIDENT CASINOS, INC., a Delaware corporation (hereinafter known as
"President").
W I T N E S S E T H
WHEREAS, President desires to implement and develop that certain project
known as the Destination Broadwater Project in Biloxi, Mississippi, as further
described in Exhibit "A" attached hereto (the "Project"); and
WHEREAS, the Project requires leasing of Mississippi's Public Trust
Tidelands, and State in letters dated April 6, 1998, and December 9, 1998, has
set forth certain requirements that must be met prior to executing the
tidelands lease. State's April 6, 1998, letter to President is attached
hereto and made a part of this agreement as Exhibit "B" (the "April 6
Letter"), and State's December 9, 1998, letter to Glade Woods, Executive
Director of the Mississippi Department of Marine Resources is attached hereto
and made a part of this agreement as Exhibit "C" (the "December 9 Letter");
and
WHEREAS, to enhance the conservation and preservation objectives of the
Mississippi Public Trust for Tidelands, and to mitigate the impacts of the
Project, in accordance with item 11 of the April 6 Letter, President desires
to acquire for State certain property in order to provide State additional
assets of major significance for the Mississippi Public Trust for Tidelands
and for the trust beneficiaries, the people of the State of Mississippi;
NOW, THEREFORE, State and President hereby agree as follows:
1. Tidelands Lease: Subject to the terms and conditions herein set forth,
State and President agree to negotiate in good faith for a mutually acceptable
Tidelands Lease (the "Lease") for the Project.
2. Enhancement of Mississippi Public Trust for Tidelands: Provided that (i)
the conditions for Closing set forth in paragraph 3 of this Agreement are
satisfied, (ii) State agrees to accept the Property (as hereinafter defined)
upon completion of the Due Diligence Period in accordance with paragraph 4 of
this Agreement, (iii) State accepts the condition of title to the Property in
accordance with paragraph 6 of this Agreement, and (iv) State and President
successfully negotiate and obtain the fully executed tidelands Lease on
mutually acceptable terms, then at Closing, State shall deliver the Lease, and
President shall cause to be delivered deeds conveying to State certain
properties including the real property currently owned by R. David Sanders,
Jr., Stockholders' Agent for Robert David Sanders, Jr., James W. Sanders,
Julia Sheila Sanders (formerly Sheila Sanders Lively) and June Sanders
Clement, the former Stockholders of Aponaug Development Company, a Mississippi
corporation, property owners, pursuant to the authority granted under that
certain Power of Attorney dated August 9, 1989, of record in Book at Page
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<PAGE> 36
of the land records of the office of the Chancery Clerk for the Second
Judicial District of Harrison County, Mississippi, which real property is
located on Deer Island, said Island being situated in the Second Judicial
District of Harrison County, Mississippi, together with all appurtenances and
improvements located thereon, and more particularly described in Exhibit "D"
attached hereto (the "Property"). A summary recital of the title to the
Property is attached hereto as Exhibit "E".
3. Conditions for Closing: Closing shall occur within one hundred eighty
(180) days after the following conditions for Closing are satisfied:
A. The following permits, certifications, and licenses have been issued
to President, its affiliate or its assignee, for the Project:
(i) Mississippi Permit Permit and Coastal Zone consistency
certification from the Department of Marine Resources;
(ii) Mississippi Permit Water Quality Certification from
Department of Environmental Quality, Office of Pollution
Control;
(iii) Mississippi Department of Transportation Air Rights License for
clearance over and under Highway 90;
(iv) Mississippi Department of Transportation Right of Way Approval;
(v) Biloxi Building Permit from Site Plan Review Board;
(vi) Biloxi Master Plan Amendment Approval from City Council;
(vii) Federal Permit Section 10 Rivers and Harbors Act (fill in
navigable waters);
(viii) Federal Permit Section 404 Clean Water Act;
(ix) Federal Permit Conditional Letter of Map Revision from the
Federal Emergency Management Agency; and
(x) All other mandated Federal, State and Local authorizations,
documentations, permits, certifications and licenses required
or necessary for the Project.
B. All conditions set forth in the April 6 Letter and the December 9
Letter shall be met to the satisfaction of the Secretary of State prior to
Closing. Determination of whether any one or all of the conditions specified
in said letters have been satisfied shall be within the sole discretion of the
Secretary of State, and State shall not be liable to President for any direct
or indirect consequences or damages arising out of or in any way connected
with the exercise of his discretion.
C. President recognizes that State may require the acquisition of lands
in addition to the Property in satisfaction of item 11 of the April 6 Letter.
However, in the event that the Secretary of State, in his sole discretion,
should elect to execute the Lease before all privately owned parcels on Deer
Island are acquired, then President agrees to make annual contributions to a
private trust created for the sole purpose of the preservation, maintenance
and improvement of Deer Island for purposes consistent with permitted uses set
forth in paragraph 6 B of this agreement. The first annual payment shall be
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<PAGE> 37
due at Closing, and the amount of such payment shall be equal to the fair
market value of all unacquired private parcels. Like payments shall
thereafter be made on each anniversary of the Closing date and shall be equal
to the fair market value of any remaining unacquired privately owned parcels
on the date the payment is due. Both the principal and income of this private
trust may be expended for trust purposes. The private trust shall terminate
upon exhaustion of its assets. If at the time of Closing, condemnation
proceedings are pending on the unacquired, privately owned parcels on Deer
Island, then the Secretary of State may waive all or a portion of the required
payments to said private trust.
D. President shall have sole responsibility for the satisfaction of all
items and conditions contained in the April 6 Letter and December 9 Letter and
shall submit credible documentary evidence in support thereof. State may, but
shall not be required to, conduct its own investigation into the status of any
of the conditions contained in said letters. In the event State does elect to
conduct investigations into the status of any of the conditions contained in
said letters, State may retain outside counsel or expert advice, and President
shall pay the reasonable costs thereof. State shall not retain outside
counsel or expert advice without first advising President and furnishing
estimates of the cost of such services. As each condition has been resolved to
State's satisfaction, State will promptly notify President in writing. No
condition shall be deemed waived or satisfied unless or until State
affirmatively so indicates in writing. After State has given written notice
of the satisfaction of any condition contained in said letters, the Secretary
of State may, by written notice, withdraw a prior notice of satisfaction if
any permit or license expires or is revoked, withdrawn or otherwise determined
to be invalid or if any other evidence submitted by President is determined to
be misleading or inaccurate where such evidence was material to the original
decision on the satisfaction of a condition.
E. If the foregoing conditions to Closing are not satisfied within three
(3) years after March 30, 1999, this Agreement shall terminate, in which event
State and President shall be released from any further liability to each other
hereunder.
4. Condition of Property and Due Diligence Inspections:
A. President represents that it has acquired the right of complete access
to the Property for inspection thereof by agents and experts including, but
not limited to, engineers, contractors, inspectors, and architects, to inspect
the Property for any conditions as to matters concerning, but not limited to,
survey, topography, geology, mineral rights, environmental hazards, toxic
substances and all other conditions. The experts and inspectors shall perform
Phase I and, if necessary, Phase II environmental assessments covering RCRA
and CERCLA regulations as well as Mississippi Department of Environmental
Quality regulations, and all other necessary environmental testing as may be
required by State. President shall select, subject to approval by State, such
agents, experts, engineers, contractors, inspectors, and architects to be used
in performing such surveys, tests, inspections, investigations, audits, and
assessments. All such surveys, tests, inspections, investigations, audits and
assessments shall be contracted for and paid for by President. In the event
that President refuses to contract for or pay for any such surveys, tests,
inspections, investigations, audits, and assessments as may be required by
State, then State may contract for such services at its own expense, or State
in its sole discretion may immediately terminate this Agreement without
further obligation or liability to President.
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<PAGE> 38
B. The surveys, tests, inspections, investigations, audits, and
assessments provided for in paragraph 4 A above shall be performed within one
hundred twenty (120) days commencing with the full execution of this agreement
(the "Due Diligence Period"). If President, after using its best efforts, is
unable to complete the surveys, tests, inspections, investigations, audits,
and assessments provided for in paragraph 4 A above within one-hundred twenty
(120) days from the full execution of this agreement, then President and State
may by mutual agreement extend the Due Diligence Period for an additional
time.
C. Within sixty (60) days after President furnishes written results and
reports of the surveys, tests, inspections, investigations, audits, and
assessments provided for in paragraph 4.A. above, State shall provide written
notice to President whether it will accept the Property "as is, where is," or
whether it will reject the Property. If requested by State, President shall
make available to State, all agents, experts, engineers, contractors and
architects for consultations concerning matters pertaining to the
investigations and inspections which they conducted and concerning matters
contained in their written reports. President shall pay the reasonable cost
of such consultations with State. If State accepts the Property, such
acceptance shall be binding on the parties. If State rejects the Property, it
shall specify in writing the reasons for the rejection. President shall then
have sixty (60) days after the receipt of such notice to remedy to State's
satisfaction such objections (or to commence to remedy such objections,
provided that President thereafter proceeds to complete such remedy with due
diligence).
D. If State agrees to accept the Property, the Property shall be conveyed
to State at Closing in its "as is, where is" condition as of the time of the
surveys, tests, inspections, investigations, audits, and assessments provided
for in paragraph 4.A. above. President makes no representations of any kind
or nature as to the physical condition of the Property.
E. In the event of catastrophic destruction of the Property after State
has given notice of acceptability under paragraph 3 C above, State may
terminate this agreement by giving written notice to President, and State
shall have no further liability to President under this Agreement,
5. Disclosure:
A. Historical Data Disclosure: Within fifteen (15) days after request in
writing by State, President shall cause the property owners to disclose to
State any information about the Property within the knowledge of the property
owners and its employees, agents and representatives.
B. Third Party Disclosure: Any party hereto shall be permitted to
disclose as necessary the terms of this transaction, documentary evidence
supporting satisfaction of conditions noted in paragraph 3, the results of any
investigations, or inspections or any information pertaining to the Property
or this Agreement, without further notice to any party.
6. Title:
A. If State agrees to accept title to the Property and Closing occurs,
President shall convey or cause to be conveyed to State good and marketable
title to the Property by Warranty Deed free and clear of all mortgages, liens,
encumbrances or special assessments. The grant in the Warranty Deed shall be
in substantially the following form: "to the Secretary of State and the
4
<PAGE> 39
Department of Marine Resources in trust for the State of Mississippi."
Immediately after the description of the properties conveyed, the Warranty
Deed shall contain in substantially the following form language: "Management
of said land for the State of Mississippi shall be under the Mississippi
Coastal Preserves Program pursuant to MISS. CODE ANN. Sections 49-27-3 and 49-
27-65(c) and successor programs."
B. The deed conveying title to State shall contain a covenant in
substantially the following form: "The Property shall be used for the
conservation and preservation of its natural features, in recognition of the
public benefits in protecting it as a coastal area in the interest of present
and future generations. The Property shall be used and maintained forever as
a State public natural area for the preservation, protection, restoration and
sustenance of its natural characteristics and features, and of its ecological
integrity and associated habitats. Grantee acknowledges that the Property is
being acquired for preservation and public use purposes only. Grantee shall
not directly or indirectly convey the Property to any person or entity for use
as a casino, hotel or other commercial enterprise or non-public use. Grantee
shall make no use of the Property that is inconsistent with the restrictions
and uses contemplated by this covenant. The Property shall be managed and
maintained in its natural state, except for public outdoor recreational
purposes consistent with the preservation of the Property in its natural
state, including, but not necessarily limited to, the undertaking of
scientific and educational research, education and nature study, aesthetic
enjoyment, ecological management, boat landings, piers, foot bridges, foot
trails, utilities and concessions appropriate to effectuate the foregoing
purposes without impairing the essential natural character of the Property.
These conditions shall run with the land in perpetuity and the Grantor or any
citizen of the State of Mississippi shall have standing to enforce these
conditions and covenants using all remedies available at law or equity,
including injunctive relief."
C. President shall cause to be provided to State a title opinion signed
by an attorney listed on the approved attorney's list of one or more title
insurance companies licensed to do business in the State of Mississippi and a
commitment for title insurance within thirty (30) days after the full
execution of this Agreement. President shall further cause to be provided a
supplemental title opinion and a supplemental commitment for title insurance
at Closing covering the period from the date of the original title commitment
and opinion to the date of Closing. Ninety (90) days prior to Closing,
President will provide State with a survey of all parcels to be acquired for
State. President shall be responsible for the cost of the State' counsel for
Closing, survey, title search, title opinion, title insurance commitment,
title insurance premium, and document preparation fees, filing fees and all
other closing costs. The title commitment shall contain no exceptions to the
title to the Property except the following:
(i) ad valorem taxes for the year of Closing, which taxes President
shall cause to be paid in full at Closing;
(ii) unpaid ad valorem taxes for any previous years, if any, which
President shall cause to be paid in full at Closing;
(iii) reservations or conveyances of minerals by prior owners. It is
understood and agreed that any oil, gas or other minerals owned
by the Grantor of any kind and in any form, whether of like or
unlike nature, shall be conveyed to State;
5
<PAGE> 40
(iv) deeds of trust or any other encumbrances which shall be paid in
full or otherwise fully released at Closing;
(v) recorded rights-of-way for utilities which do not materially
affect the title or surface rights to the Property;
(vi) easements of record which do not materially affect the title or
surface rights to the Property;
(vii) special assessments, if any, which President shall cause to be
paid in full at Closing; and
(viii) Tidelands Title Exception Subject to the rights of the State
in and to all properties as may be owned by it under the Public
Trust for Tidelands Doctrine within the Property.
In the event that said title insurance commitment shows defects in title
other than those listed above which are not acceptable to State, President
shall have sixty (60) days to cure such defects. If President fails or is
unable to cure such defects within such sixty (60) day period, State may
nevertheless elect to take conveyance of title as it then exists, which
election shall be made in writing. If State elects to take conveyance of
title subject to such defects, such election shall be binding upon the
parties. If State elects not to accept title subject to any uncured defects,
then this agreement will immediately terminate, and State shall have no
further liability or obligation to President.
D. At Closing, the fully executed Lease and all deeds conveying title to
parcels acquired for the state shall be delivered to an Escrow Agent selected
by mutual agreement of State and President. Upon notification by State that
it is satisfied with title to all parcels acquired by President for State's
benefit, the Escrow Agent will deliver the Lease to President and deeds to
State. State will notify Escrow Agent of Satisfaction with title within five
(5) working days after Closing. State shall have possession of all parcels
acquired for State upon delivery of deeds.
7. Closing: Subject to the satisfaction of all of the terms and conditions
of this Agreement, Closing shall take place at a time, date and location
mutually agreeable to State and President, provided such Closing date is
within the time limits set by this Agreement or within any agreed extensions
of such time limits. President shall pay the reasonable attorney's fees and
costs incurred by State should State desire representation by outside counsel
in connection with the Closing.
8. Breach of Contract: In the event of a breach of this Agreement by any
party, no party shall be liable to any other party for lost profits,
consequential damages or punitive damages.
9. Time: Time is of the essence with respect to all aspects of this
Agreement.
10. Assignment: President shall not assign this Agreement in whole or in part
without the prior written consent of State. Any proposed assignee shall hold
a valid Mississippi gaming license or shall be qualified to hold such a gaming
license. No assignment will become effective until President has furnished to
State a true and correct, fully executed counterpart of such assignment and
until President has fully disclosed the terms and conditions of the
transaction between itself and its assignee. Notwithstanding a full or
6
<PAGE> 41
partial assignment of this Agreement, President shall remain liable to fulfill
all obligations of this Agreement in the same manner as though no assignment
was made unless State by writing, signed by the Secretary of State, releases
President, in whole or in part, from such liability and obligations. No
assignment shall be permitted which does not further the development of the
Project or which is attempted for the purpose of delay, termination or
expiration of this Agreement. If President at any time prior to the
conveyance of the Property to State accepts, agrees to accept or receives
cash, credit, or other economic benefit from any person, entity, competitor or
potential competitor for the alteration, abandonment, partial abandonment or
delay of the Project, President agrees that it will immediately pay all sums
due for the purchase of the Property and cause the Property to be conveyed to
State subject to State's right to accept or reject the Property after
inspection and evaluation as provided herein.
11. Entire Agreement and Interpretation: This document constitutes the final
and entire agreement between the parties hereto and incorporates all prior
agreements, representations, warranties and covenants between the parties and
cannot be changed except by writing, signed by all parties hereto. No party
shall be bound by any terms, conditions, oral statements, warranties or
representations not set forth herein. Each party acknowledges that it has
read and understands this Agreement. The provisions of this Agreement shall
apply to and bind the heirs, executors, administrators, successors and assigns
of the respective parties hereto. When used herein, the singular includes the
plural and the masculine includes the feminine, as the context may require.
The laws of the State of Mississippi shall control all interpretations of this
Agreement and the respective rights of the parties hereto.
12. Notices: All notices and other correspondence required or permitted to be
given hereunder shall be validly given, made or served if in writing and
delivered personally or sent by certified mail, return receipt requested, or
by overnight courier delivery (e.g. Federal Express). Notice shall be deemed
given when received or refused. Notice shall be addressed as follows:
If to State: Eric Clark, Secretary of State
401 Mississippi Street
Jackson, MS 39205
Telephone No. (601) 359-1350
with copy to: Gerald McWhorter, Asst. Secretary of State
401 Mississippi Street
Jackson, MS 39205
Telephone No. (601) 359-6374
If to President: John Aylsworth,
President and Chief Operating Officer
President Casinos, Inc.
802 N. First Street
St. Louis, MO 63102
Telephone No. (314) 622-3140
with copy to: Terry Wirginis, Vice President
President Casinos, Inc.
9 Station Square Dock
Pittsburgh, PA 15219
Telephone No. (412) 355-7956
7
<PAGE> 42
and copy to: Henry Gusky, Esquire
Blumling & Gusky, L.L.P.
1200 Koppers Building
Pittsburgh, PA 15219
Telephone No. (412) 227-2500
13. Headings: The headings of the paragraphs of this Agreement are for the
convenience of reference only and do not form a part hereof and in no way
modify, interpret or construe the meaning of the parties hereto.
14. Enforceability: In the event that any provision of this Agreement is
determined by a court of competent jurisdiction to be illegal, invalid or
unenforceable under any laws or regulations, such provision shall be severed
from this Agreement and the remaining provisions of this Agreement shall be
unaffected thereby except that any determination by a court of competent
jurisdiction that the State may not acquire or hold the Property as provided
in this Agreement shall void the entire agreement.
15. Contracts for Services: Where under any provision of this Agreement
surveys, inspections or evaluations by agents or experts may be required, or
where State may obtain or require expert advice or counsel, legal or
otherwise, President agrees to contract for and bear all reasonable costs and
expenses thereof. For such services, President will contract only with firms
or individuals designated by State. The scope and control of services under
any such contract shall be subject only to the direction and control of State.
If President fails or refuses to contract for services requested by State,
State may in its sole discretion either contract for such services at its
expense or State may terminate this Agreement, in which event President shall
not have any claim against State as a result of such termination.
WITNESS OUR SIGNATURES, on this the 30th day of March, 1999.
MISSISSIPPI SECRETARY OF STATE
AS LAND COMMISSIONER
By: /s/ Eric Clark
- ------------------------------------
Eric Clark, Secretary of State
PRESIDENT CASINOS, INC.
By: /s/ John S. Aylsworth
- ------------------------------------
John S. Aylsworth, President and Chief
Operating Officer
8
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT
OF INCOME OF PRESIDENT CASINOS INC. FILED AS A PART OF THE QUARTERLY REPORT ON
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY
REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-END> MAY-31-1999
<CASH> 23013
<SECURITIES> 275
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<ALLOWANCES> 370
<INVENTORY> 1862
<CURRENT-ASSETS> 20172
<PP&E> 206569
<DEPRECIATION> 65924
<TOTAL-ASSETS> 173210
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<BONDS> 101510
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<INCOME-PRETAX> (976)
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