<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1999
REGISTRATION NO. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
STATION CASINOS, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 7990 88-136443
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
2411 WEST SAHARA AVENUE, LAS VEGAS, NV 89102 (702) 367-2411
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(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
MR. GLENN C. CHRISTENSON, STATION CASINOS, INC.
2411 WEST SAHARA AVENUE, LAS VEGAS, NEVADA 89102 (702) 367-2411
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(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of agent for service)
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COPY TO:
KENNETH J. BARONSKY, ESQ.
MILBANK, TWEED, HADLEY & MCCLOY
601 S. FIGUEROA STREET, 30TH FLOOR, LOS ANGELES, CA 90017 (213) 892-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this registration statement becomes
effective.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box.[__]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Each Class of To be Price Offering Registration
Securities to be Registered Registered Per Unit Price(1) Fee(1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8 7/8% Senior Subordinated
Notes due 2008 $199,900,000 100% $199,900,000 $55,572.20
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In accordance with Rule 457(f)(2), the registration fee is calculated based
on the book value of the securities as of January 26, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission relating to these securities is effective.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
Prospectus Subject to Completion
January 26, 1999
$199,900,000
STATION CASINOS, INC.
OFFER TO EXCHANGE
8 7/8% SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING 8 7/8% SENIOR SUBORDINATED NOTES DUE 2008
Summary of the Exchange Offer
This prospectus (and accompanying letter of transmittal) relates to our proposed
offer to exchange up to $199,900,000 aggregate principal amount of new 8 7/8%
Senior Subordinated Notes due 2008 (the "New Notes"), which will be freely
transferable, for any and all outstanding 8 7/8% Senior Subordinated Notes due
2008 issued in a private offering on December 3, 1998 (the "Old Notes"), which
have certain transfer restrictions.
- The exchange offer expires 5:00 p.m., New York City time, on ______,
1999, unless extended.
- The terms of the New Notes are substantially identical to the terms of
the Old Notes, except that the New Notes will be freely transferable
and issued free of any covenants regarding exchange and registration
rights.
- All Old Notes that are validly tendered and not validly withdrawn will
be exchanged.
- Tenders of Old Notes may be withdrawn at any time prior to expiration
of the exchange offer.
- The exchange of Old Notes for New Notes should not be a taxable event
for United States Federal income tax purposes.
- Holders of Old Notes do not have any appraisal or dissenters' rights
in connection with the exchange offer. Old Notes not exchanged in the
exchange offer will remain outstanding and be entitled to the benefits
of the Indenture, but, except under certain circumstances, will have
no further exchange or registration rights under the Registration
Rights Agreement.
- "Affiliates" of Station Casinos, Inc. (within the meaning of the
Securities Act of 1933) may not participate in the exchange offer.
- All broker-dealers must comply with the registration and prospectus
delivery requirements of the Securities Act of 1933. See "Plan of
Distribution" beginning on page 107.
- We do not intend to apply for listing of the New Notes on any
securities exchange or to arrange for them to be quoted on any
quotation system.
---------------------------
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN
FACTORS YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
---------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
NONE OF THE NEVADA GAMING COMMISSION, THE NEVADA GAMING CONTROL BOARD, THE
MISSOURI GAMING COMMISSION OR ANY OTHER GAMING AUTHORITY HAS APPROVED OR
DISAPPROVED OF THESE NOTES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS.
WE MAY AMEND OR SUPPLEMENT THIS PROSPECTUS FROM TIME TO TIME BY FILING
AMENDMENTS OR SUPPLEMENTS AS REQUIRED. YOU SHOULD READ THIS ENTIRE
PROSPECTUS (AND ACCOMPANYING LETTER OF TRANSMITTAL AND RELATED DOCUMENTS) AND
ANY AMENDMENTS OR SUPPLEMENTS CAREFULLY BEFORE MAKING YOUR INVESTMENT
DECISION.
---------------------------
Our principal executive offices are located at 2411 West Sahara Avenue,
Las Vegas, NV 89102
Our telephone number is (702) 367-2411
The date of this prospectus is ___________, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C>
Where You Can Find More Information.................................................................. 2
Forward-Looking Statements........................................................................... 3
Prospectus Summary................................................................................... 4
Risk Factors......................................................................................... 17
Use of Proceeds...................................................................................... 27
Consolidated Capitalization.......................................................................... 28
Selected Consolidated Financial Information.......................................................... 29
Management's Discussion and Analysis of Financial Condition and Results of Operations................ 31
Business............................................................................................. 40
Regulation and Licensing............................................................................. 54
Management........................................................................................... 63
Principal Stockholders of SCI........................................................................ 65
Description of Certain Indebtedness and Capital Stock................................................ 66
The Exchange Offer................................................................................... 70
Description of the New Notes......................................................................... 80
Certain Federal Tax Considerations................................................................... 104
Plan of Distribution................................................................................. 107
Legal Matters........................................................................................ 107
Independent Public Accountants....................................................................... 107
Index to Consolidated Financial Statements........................................................... F-1
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
In connection with the exchange offer, we have filed with the Securities
and Exchange Commission (the "SEC") a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the New
Notes to be issued in the exchange offer. As permitted by SEC rules, this
prospectus omits certain information included in the registration statement.
For a more complete understanding of this exchange offer, you should refer to
the registration statement, including its exhibits.
We also file annual, quarterly, and special reports, proxy statements
and other information with the SEC. You may read and copy the registration
statement and any other document we file at the Public Reference Room of the
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. You may also obtain copies of such material from the SEC
by mail at prescribed rates. You should direct requests to the SEC's Public
Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the SEC maintains a website
(http:/www.sec.gov) that contains reports, proxy statements and other
information filed by us.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. These incorporated documents contain
important business and financial information about us that is not included in
or delivered with this prospectus. The information incorporated by reference
is considered to be part of this prospectus, and later information filed with
the SEC will update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), prior to __________, 1999, the date
the exchange offer expires:
- Annual Report on Form 10-K for the fiscal year ended March 31, 1998;
- Quarterly Reports on Form 10-Q for the quarters ended June 30 and
September 30, 1998; and
- Current Reports on Form 8-K dated June 15, 1998, August 7, 1998,
August 28, 1998, September 25, 1998, October 27, 1998, November 6,
1998 and January 21, 1999.
THESE FILINGS ARE AVAILABLE WITHOUT CHARGE TO THE HOLDERS OF OLD NOTES.
YOU MAY REQUEST A COPY OF THESE FILINGS BY WRITING OR TELEPHONING US AT THE
FOLLOWING ADDRESS: ATTENTION: INVESTOR RELATIONS
STATION CASINOS, INC.
2411 WEST SAHARA AVENUE
LAS VEGAS, NV 89102
TEL: (702) 367-2411
OR HTTP://WWW.STATIONCASINOS.COM/
TO OBTAIN TIMELY DELIVERY OF ANY COPIES OF FILINGS REQUESTED FROM US,
PLEASE WRITE OR TELEPHONE US NO LATER THAN _______, 1999.
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FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference forward-looking
statements. We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to risks, uncertainties, and assumptions about us and our
subsidiaries, including, among other things, factors discussed in our filings
with the SEC and the following:
- competition from other gaming operations;
- leverage;
- construction risks;
- the inherent uncertainty and costs associated with litigation; and
- licensing and other regulatory risks.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
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PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus, but
does not contain all information that is important to you. This prospectus
includes specific terms of the exchange offer. We encourage you to read the
detailed information and consolidated financial statements and the notes
thereto appearing elsewhere in this prospectus in their entirety. As used in
this prospectus, unless the context indicates otherwise, (1) all references
to "SCI" refer to Station Casinos, Inc. and all references to "Station," the
"Company," "we," "our," "ours" and "us" refer to SCI and its consolidated
subsidiaries and (2) "Notes" means both the Old Notes and the New Notes.
THE COMPANY
We are a multi-jurisdictional gaming company that owns and operates six
distinctly themed casino properties. Four of our properties are located in
Las Vegas, Nevada, one is located in Kansas City, Missouri and one is located
in St. Charles, Missouri. In Las Vegas, we own and operate the Palace Station
Hotel & Casino ("Palace Station"), Boulder Station Hotel & Casino ("Boulder
Station"), Texas Station Gambling Hall & Hotel (Texas Station") and Sunset
Station Hotel & Casino ("Sunset Station"). In Kansas City, we own and operate
Station Casino Kansas City, an historic Missouri riverboat-themed dockside
gaming and entertainment complex. In St. Charles, we own and operate Station
Casino St. Charles, an historically-themed riverboat and dockside gaming and
entertainment complex. SCI is organized as a holding company and we conduct
our operations through nine wholly-owned subsidiaries.
Our operating strategy emphasizes attracting and retaining customers
primarily from the local and repeat visitor markets. Our casino properties
attract customers through:
- innovative, frequent and high-profile promotional programs directed
toward local markets;
- focused marketing efforts and convenient locations; and
- aggressive marketing of the repeat visitor market and the development
of strong relationships with specifically targeted travel wholesalers.
Because we target the repeat customer, we are committed to providing a
high-value entertainment experience for our customers in our restaurants,
hotels and casinos. We believe the value offered by restaurants at each of
our casino properties is a major factor in attracting local gaming customers
and that our focus on slot and video poker machine play with higher than
average payout rates and attentive customer service attracts the frequent
gaming patron. See "Business-Operating Strategy."
Our growth strategy includes implementation of our master-planned
expansion programs of our existing gaming facilities and the evaluation and
pursuit of additional development opportunities where we can realize distinct
competitive advantages by focusing on the local and repeat visitor markets.
To accomplish this, we evaluate strategic development locations that:
- provide easy access to high volume traffic;
- are in major metropolitan or rapidly growing areas;
- provide flexibility for future expansion;
- allow for ample parking; and
- are surrounded by potential customers with a strong demographic
profile.
We believe that these factors are enhanced by our expertise in the
locals and repeat visitors market and on our
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reputation as a provider of a high-quality, affordable gaming and
entertainment experience. See "Business-Expansion Strategy."
LAS VEGAS CASINO PROPERTIES
We are a leading Las Vegas hotel/casino operator catering primarily to
local residents and repeat visitors. We believe our Las Vegas properties are
well positioned to continue to benefit from the business and population
growth in Las Vegas and its surrounding areas. We have implemented our
long-term Las Vegas business strategy by developing the Las Vegas properties
as integrated entertainment destinations in key population centers in each
quadrant of the Las Vegas market. We have master-planned each of our Las
Vegas properties for future expansion to capitalize on Las Vegas' expected
population growth.
PALACE STATION
Palace Station is located on approximately 39 acres strategically
located at the intersection of Sahara Avenue and Interstate 15, one of Las
Vegas' most heavily traveled areas. Palace Station is a short distance from
McCarran International Airport and from major attractions on the Las Vegas
Strip and downtown Las Vegas. Palace Station's ample parking and convenient
location assure customers easy access to the hotel and casino, a factor that
we believe is particularly important in attracting and retaining our
customers. Palace Station has the following features and amenities:
- approximately 287,000 square feet of main facility area with a
turn-of-the-20th-century railroad station theme;
- a 1,028-room hotel and approximately 3,700 parking spaces, including
1,900 spaces in two multi-level parking structures;
- an approximately 84,000-square foot casino with approximately 2,070
slot and video poker machines, 40 gaming tables, a keno lounge, a
poker room, a bingo parlor and a race and sports book; and
- non-casino amenities including two swimming pools, five full-service
restaurants, two fast food outlets, a 24-hour gift shop and a
nongaming video arcade.
BOULDER STATION
Boulder Station, which opened in August 1994, is located on
approximately 45 acres strategically located on the opposite side of Las
Vegas from Palace Station. Patrons enjoy convenient access to Boulder Station
which is located on the Boulder Highway immediately adjacent to the
Interstate 515 interchange. Interstate 515 and the Boulder Highway are the
major thoroughfares into Las Vegas for visitors from Arizona. We believe that
this highly visible location at this well-traveled intersection offers a
competitive advantage relative to existing hotels and casinos located on the
Boulder Highway. Boulder Station is located approximately four miles east of
the Las Vegas Strip and approximately four miles southeast of downtown Las
Vegas. Boulder Station the following features and amenities:
- approximately 337,000 square feet of main facility area with a
turn-of-the-20th-century railroad station theme;
- a 300-room hotel and approximately 4,350 parking spaces, including a
1,900 space multi-level parking structure;
- an approximately 89,000-square foot casino with approximately 3,065
slot and video poker machines, 38 gaming tables, a keno lounge, a
poker room, a bingo parlor and a race and sports book; and
- non-casino amenities including a swimming pool, five full service
restaurants and several fast food outlets, a gift shop, a non-gaming
video arcade, a 280-seat lounge and eight additional bars, an
11-screen
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theater complex and a child-care facility.
TEXAS STATION
Texas Station, which opened in July 1995, is located on approximately 47
acres strategically located at the corner of Lake Mead Boulevard and Tonopah
Highway in North Las Vegas. Texas Station has the following features and
amenities:
- approximately 258,000 square feet of main facility area in a low rise
complex with a friendly "down-home" Texas atmosphere, highlighted by
distinctive early Texas architecture;
- a six story, 200-room hotel tower and approximately 4,000 parking
spaces, including a 1,500-space multi-level parking structure;
- an approximately 85,000-square foot casino with approximately 2,025
slot and video poker machines, 34 gaming tables, a keno lounge, a
poker room, a bingo parlor and a race and sports book; and
- non-casino amenities including a swimming pool, five full service
restaurants and several fast food outlets and franchises, a gift shop,
a non-gaming video arcade, a 132-seat entertainment lounge, seven
additional bars and a 12-screen theater complex operated by Act III
Theatres.
In May 1998, we began construction of the next phase of our master plan
at Texas Station. This phase is designed to enhance Texas Station's
reputation for quality entertainment and will include a 2,000-space covered
parking garage, an additional approximately 21,000 square feet of casino
space with 850 additional slot and video poker machines, a 10,000-square foot
Kid's Quest child-care facility, a food court area, an expanded arcade,
additional "stadium-style" movie screens and a new bar and lounge with a
Texas theme. We anticipate that, excluding net construction period interest,
the total cost of the expansion project will be $51.0 million. We expect the
project will be completed in the first quarter of calendar 1999.
SUNSET STATION
Sunset Station, which opened in June 1997, is located on an
approximately 105-acre parcel at the intersection of Interstate 515 and
Sunset Road. Multiple access points provide customers convenient access to
the gaming complex and parking areas. Situated in the path of development
along Interstate 515, the major thoroughfare into Las Vegas from Boulder City
and Arizona, Sunset Station has prominent visibility from the freeway and the
Sunset commercial corridor. Sunset Station is located approximately nine
miles east of McCarran International Airport and eight miles southeast of
Boulder Station. Sunset Station had the following features and amenities
prior to the expansion described below:
- approximately 350,000 square feet of main facility area with interior
and exterior Spanish/Mediterranean-style architecture;
- a 20-story, 467-room hotel tower and approximately 4,200 parking
spaces;
- an approximately 80,000-square foot casino with approximately 2,750
slot and video poker machines, 49 gaming tables, a keno lounge, a
poker room, a bingo parlor and a race and sports book; and
- non-casino amenities including an outdoor swimming pool, six full
service restaurants (and tenant lease space for additional
restaurants) and several fast food outlets and franchises, a gift
shop, a non-gaming video arcade, an entertainment lounge and an
amphitheater, additional bars and a microbrewery, a 13-screen theater
complex operated by Act III Theatres and a child-care facility.
In November 1998, we completed construction of the next phase of our
master-planned expansion at Sunset Station. This phase of the master plan is
designed to enhance Sunset Station's reputation for quality entertainment and
includes a covered parking garage, an additional 14,000 square feet of casino
space, a new steakhouse, a food court
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area and improved conference facilities. The new casino space offers an
additional 250 slot and video poker machines. Excluding net construction
period interest, the total cost of the expansion project is expected to be
$34.0 million.
We have developed only approximately 70 acres of Sunset Station's
approximately 105 acres. We are currently evaluating potential development
plans for the undeveloped property. Uses for the land could include a
life-style entertainment retail center and the development of several pads
for various build-to-suit retail, restaurant and entertainment concepts. We
have not yet determined timing and definitive plans for such a development.
MISSOURI CASINO PROPERTIES
STATION CASINO KANSAS CITY
Station Casino Kansas City opened in January 1997. Station Casino Kansas
City is strategically located to attract customers from the greater Kansas
City area and tourists from outside the region. We believe the Station Casino
Kansas City facility offers Las Vegas-style gaming experience in the Midwest.
Station Casino Kansas City is located seven miles east of downtown Kansas
City on a 171-acre site immediately east of the Interstate 435 bridge, which
supports traffic flow of approximately 71,000 cars per day. Station Casino
Kansas City's marketing programs are specifically designed to effectively
target and capture repeat customer demand from the local customer base and
also emphasize the strong visitor and overnight markets. We believe that
Station Casino Kansas City has specific advantages relative to other
riverboat facilities in the region. Station Casino Kansas City has the
following features and amenities:
- two continuously docked gaming vessels situated in a man-made
protective basin with an approximately 140,000 square-foot gaming
space with approximately 3,145 slot and video poker machines, 162
gaming tables and a poker room;
- a land-based 200-room hotel and 5,000 parking spaces; and
- a land-based entertainment center with seven full service restaurants
and several fast food outlets, 11 bars and lounges, a 1,400-seat Grand
Pavilion, a Kid's Quest child-care facility, an 18-screen movie
complex operated by Act III Theatres, a 5,700-square foot non-gaming
video arcade operated by Sega GameWorks and a gift shop.
STATION CASINO ST. CHARLES
Station Casino St. Charles opened in May 1994. Station Casino St.
Charles is located immediately north of the Interstate 70 bridge in St.
Charles on approximately 52 acres. The Station Casino St. Charles complex is
strategically located to attract customers from the St. Charles and greater
St. Louis area and tourists from outside the region. The site is adjacent to
the Interstate 70 bridge. Interstate 70 is a 10-lane, east-west expressway
offering quick and easy accessibility to and direct visibility of the Station
Casino St. Charles site. Station Casino St. Charles has the following
features and amenities:
- two gaming vessels-a 292-foot by 74-foot wide gaming riverboat known
as "The Station Casino Belle" and a floating two-story, 105,000 square
foot gaming and entertainment facility with an approximately 47,000
square-foot gaming area with a capacity for 4,000 gaming customers,
approximately 1,890 slot and video poker machines and 75 gaming
tables; and
- non-casino amenities including two full service restaurants and a fast
food court, seven bars, an entertainment lounge, a gift shop and a
lobby and ticketing facility.
In furtherance of the Station Casino St. Charles master plan, we
completed construction of a new elevated roadway and a 4,000-space five-story
parking structure in May 1996. This project includes a turn-around deck and
porte-cochere. The parking facility is constructed above the existing flood
plain and provides the infrastructure for the current facilities. The
elevated roadway and parking structure provide improved access to the current
and new gaming facilities and significantly diminish Station Casino St.
Charles' susceptibility to closure during the spring flooding
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season.
In the fall of 1996, we began an expansion project at Station Casino St.
Charles which included the building of a backwater basin containing two new
gaming vessels and a proposed retail and entertainment complex. The basin
has been constructed, but since March 31, 1998, construction on the Station
Casino St. Charles expansion project has been halted.
We currently believe the Station Casino St. Charles expansion project as
originally contemplated fulfills a strategic need in the St. Louis, Missouri
market. While we desire to complete and operate these new facilities,
circumstances may arise in the future, including the lack of available
financing, a downturn in the demand for gaming facilities, increased
regulatory requirements unique to the state of Missouri and more attractive
uses of available capital, which may prevent the expansion project from being
completed as originally designed, if at all. In this event, certain costs
incurred to date may be deemed to possess little or no value necessitating
the recognition of an impairment loss in the period such a determination is
made. The impairment loss could include substantially all of the amount
invested by us in the Station Casino St. Charles expansion project.
As of September 30, 1998, we had invested approximately $169.0 million
related to the Station Casino St. Charles expansion project. We do not
anticipate that any major construction activity on the Station Casino St.
Charles expansion project will resume in the near term.
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SUMMARY OF THE EXCHANGE OFFER
The form and terms of the New Notes will be substantially identical to
those of the Old Notes except that the New Notes will have been registered
under the Securities Act. Therefore, the New Notes will not be subject to
certain transfer restrictions, registration rights and related liquidated
damages provisions applicable to the Old Notes.
The Exchange Offer . . . . . . We are offering to exchange an aggregate of
$199,900,000 principal amount of New Notes for
$199,900,000 of Old Notes. Old Notes may only
be exchanged in multiples of $1,000 principal
amount. To be exchanged, an Old Note must be
properly tendered and accepted. All outstanding
Old Notes that are validly tendered and not
validly withdrawn will be exchanged for New
Notes issued on or promptly after the expiration
date of the exchange offer.
Currently, there is $199.9 million principal
amount of Old Notes outstanding and no New Notes
outstanding.
We will issue New Notes promptly after the
expiration of the exchange offer. See "The
Exchange Offer."
Issuance of the Old. . . . . . The Old Notes were issued and sold in a private
Notes; Registration Rights offering to Merrill Lynch, Pierce, Fenner &
Smith, Inc., NationsBank Montgomery Securities
LLC, Wasserstein Perella Securities, Inc., Bear,
Stearns & Co., Inc., CIBC Oppenheimer
Corporation and SG Cowen Securities Corp. as the
initial purchasers on December 3, 1998. In
connection with that sale, we executed and
delivered the Registration Rights Agreement for
the benefit of the noteholders. In the
Registration Rights Agreement, we agreed to
either:
- commence an exchange offer under which
the New Notes, registered under the
Securities Act with terms substantially
identical to those of the Old Notes,
will be exchanged for the Old Notes
pursuant to an effective registration
statement; or
- cause the Old Notes to be registered
under the Securities Act pursuant to a
resale shelf registration statement.
If we do not comply with our obligations under
the Registration Rights Agreement, we will be
required to pay certain liquidated damages that
will be payable twice yearly. See "The Exchange
Offer - Purpose of the Exchange Offer;
Registration Rights."
Expiration Date. . . . . . . . The exchange offer will expire at 5:00 p.m., New
York City time, on _____________, 1999, unless
extended, in which case the term "expiration
date" shall mean the latest date and time to
which the exchange offer is extended.
Conditions to the. . . . . . . We are not required to consummate the exchange
Exchange Offer offer if there is any pending or threatened
action or proceeding or proposed or effective
legislation or other law or rule that would make
the exchange offer illegal, cause us to have to
pay damages as a result of the exchange offer or
delay
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or otherwise make it inadvisable to consummate
the exchange offer. See "The Exchange Offer -
Certain Conditions to the Exchange Offer." The
exchange offer is not conditioned upon any
minimum aggregate principal amount of Old Notes
being tendered for exchange.
Procedures for . . . . . . . . If you want to tender your Old Notes in the
Tendering Old Notes exchange offer, you must complete and sign a
letter of transmittal and send it, together with
the Old Notes or a notice of guaranteed delivery
and any other required documents, to First Union
National Bank, as exchange agent, in compliance
with the procedures for guaranteed delivery
contained in the letter of transmittal. The
letter of transmittal must be sent to the
exchange agent prior to 5 p.m. on the expiration
date of the exchange offer. If your Old Notes
are registered in the name of a nominee and you
wish to tender your Old Notes in the exchange
offer, you should instruct your nominee to
promptly tender your Old Notes on your behalf.
Guaranteed Delivery. . . . . . If you wish to tender your Old Notes and:
Procedures
- your Old Notes are not immediately
available; or
- you cannot deliver your Old Notes or any
of the other documents required by the
letter of transmittal to the exchange
agent prior to the expiration date of
the exchange offer; or
- you cannot complete the procedure for
book-entry transfer on a timely basis;
you may tender your Old Notes according to the
guaranteed delivery procedures detailed in the
letter of transmittal. See "The Exchange Offer
- Guaranteed Delivery Procedures."
Withdrawal Rights. . . . . . . You may withdraw the tender of your Old Notes
at any time prior to the expiration date of the
exchange offer. See "The Exchange Offer -
Withdrawal Rights."
Acceptance of the Old. . . . . We will accept for exchange any and all Old
Notes and Delivery of Notes which you properly tender in the exchange
the New Notes offer prior to the expiration date of the
exchange offer. We will issue and deliver the
New Notes promptly following the expiration date
of the exchange offer. See "The Exchange Offer
- Terms of the Exchange Offer."
Resales of the New . . . . . . We believe, based on an interpretation by the
Notes staff of the SEC contained in no-action letters
issued to third parties, that you may offer to
sell, sell or otherwise transfer the New Notes
issued to you in this exchange offer without
complying with the registration and prospectus
delivery requirements of the Securities Act,
provided that:
- you are not an "affiliate" of ours
within the meaning of Rule 405 under the
Securities Act; and
- you acquire the New Notes in the
ordinary course of business and you have
no arrangement or understanding with any
person to participate in the
distribution of the New Notes.
10
<PAGE>
If you are a broker-dealer and you receive New
Notes for your own account in exchange for Old
Notes, you must acknowledge that you will
deliver a prospectus if you decide to resell
your New Notes. See "Plan of Distribution."
Consequences of. . . . . . . . If you do not exchange your Old Notes for the
Failure to Exchange New Notes pursuant to the exchange offer you
will still be subject to the restrictions on
transfer of your Old Notes as contained in the
legend on the Old Notes. In general, you may not
offer to sell or sell the Old Notes, except
pursuant to a registration statement under the
Securities Act or any exemption from
registration thereunder and in compliance with
applicable state securities laws.
Certain U.S. Federal . . . . . The exchange of Notes will not be a taxable
Income Tax Considerations event for United States federal income tax
purposes. You will not recognize any taxable
gain or loss or any interest income as a result
of the exchange.
Registration Rights. . . . . . The exchange offer is intended to satisfy your
Agreement registration rights under the Registration
Rights Agreement. Those rights will terminate
upon completion of the exchange offer.
Use of Proceeds. . . . . . . . We will not receive any proceeds from the
issuance of New Notes pursuant to the exchange
offer. In consideration for issuing the New
Notes in exchange for the Old Notes as described
in this prospectus, we will receive, retire and
cancel the Old Notes. See "Use of Proceeds."
Exchange Agent . . . . . . . . First Union National Bank is the exchange agent
for the exchange offer.
11
<PAGE>
DESCRIPTION OF THE NEW NOTES
New Notes. . . . . . . . . . . $199,900,000 aggregate principal amount of
8 7/8% Senior Subordinated Notes due 2008.
Maturity . . . . . . . . . . . December 1, 2008.
Interest Payment . . . . . . . June 1 and December 1, commencing June 1, 1999.
Dates
Ranking. . . . . . . . . . . . The New Notes will:
- be unsecured senior subordinated
obligations and will be subordinated to
all of our senior indebtedness;
- rank equally with all of our senior
subordinated indebtedness and will rank
senior to all of our subordinated
indebtedness; and
- effectively rank junior to all
liabilities of our subsidiaries,
including trade and construction
payables.
Because the New Notes are subordinated, in the
event of our bankruptcy, liquidation or
dissolution, holders of the New Notes will not
receive any payment until holders of our senior
indebtedness have been paid in full.
As of September 30, 1998, on a pro forma basis
after giving effect to the offering of the
Notes, including our use of proceeds from the
sale of the Notes and the incurrence of
indebtedness under our Second Amended and
Restated Secured Reducing Revolving and Term
Loan Agreement (the "Amended Bank Facility"), we
would have had outstanding $376.2 million of
senior indebtedness, which consisted of
guarantees of indebtedness incurred by our
subsidiaries, $348.0 million of senior
subordinated indebtedness that ranked equally
with the Notes and our subsidiaries would have
had outstanding $70.3 million of other
liabilities. See "Description of Certain
Indebtedness and Capital Stock" and "Description
of the New Notes."
Optional Redemption. . . . . . We may redeem the New Notes, in whole or in
part, at any time after December 1, 2003 at the
redemption prices set forth in this prospectus,
plus accrued interest. See "Description of the
New Notes-Optional Redemption."
Special Redemption . . . . . . The New Notes are subject to redemption
requirements imposed by gaming laws and
regulations of the State of Nevada and other
gaming authorities. See "Description of the New
Notes-Mandatory Disposition Pursuant to Gaming
Laws."
Change of Control. . . . . . . Upon a Change of Control Triggering Event, you
Triggering Event may require us to repurchase all or a portion of
your New Notes at 101% of the principal amount
thereof, plus accrued interest to the repurchase
date. See "Description of the New Notes-Change
of Control and Rating Decline" for a discussion
of certain factors that could limit our ability
to effect such a repurchase.
12
<PAGE>
Certain Covenants. . . . . . . The indenture governing the Notes (the
"Indenture") contains certain covenants that,
among other things, will limit our ability and,
in certain instances, the ability of our
subsidiaries or Restricted Subsidiaries to:
- incur additional indebtedness;
- pay dividends or make other
distributions;
- redeem or repurchase our capital stock
and make certain other Restricted
Payments and restricted Investments;
- issue or sell preferred stock of the
Restricted Subsidiaries;
- engage in transactions with affiliates
and other related persons; or
- consolidate, merge or transfer all or
substantially all our assets and the
assets of our Restricted Subsidiaries on
a consolidated basis.
These covenants are subject to a number of
important qualifications and exceptions which
are described under the heading "Description of
the New Notes" in this prospectus.
Risk Factors . . . . . . . . . See "Risk Factors" for a discussion of certain
factors you should carefully consider before
deciding to invest in the Notes, including
factors affecting forward-looking statements.
Certain capitalized terms are defined in the section entitled "Description of
the New Notes-Certain Definitions."
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information presented below as of and
for our fiscal years ended March 31, 1994, 1995, 1996, 1997 and 1998 has been
derived from consolidated financial statements which, except for 1994 and
1995, are contained elsewhere in this prospectus. The selected consolidated
financial information presented below as of and for the six months ended
September 30, 1997 and 1998 is derived from unaudited consolidated financial
statements and is not necessarily indicative of the results that may be
expected for future periods, including the period ended December 31, 1998. In
our opinion, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of our financial position and results of
operations for such period have been included. The summary consolidated
financial information set forth below is qualified in its entirety by, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements, the notes thereto and other financial and statistical information
included elsewhere in this prospectus. We have decided to change our fiscal
year end from March 31 of each year to December 31 of each year. We will
report the period from April 1, 1998 to December 31, 1998 separately on a
transition report on Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
-------------------------------------------- -----------------
1994 1995 1996 1997 1998 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT (UNAUDITED)
PER SHARE AMOUNTS AND RATIOS)
INCOME STATEMENT DATA:
Net revenues........................... $169,543 $290,278 $466,857 $583,515 $769,610 $367,613 $419,698
Depreciation and amortization.......... 12,976 22,220 35,039 44,589 67,414 33,169 35,185
Preopening expenses.................... - 19,378 2,436 31,820 10,866 10,866 -
Operating income....................... 25,696 6,388 69,464 58,123 84,186 31,518 58,534
Interest expense, net.................. 9,179 19,967 30,563 36,698 78,826 35,713 44,408
Lease income, net...................... 3,071 - - - - - -
Income (loss) before income taxes...... 18,709 (11,419) 40,051 21,378 (4,120) (9,191) 10,618
Net income (loss)...................... 9,417 (7,942) 25,472 13,763 (5,196) (5,933) 6,143
Preferred stock dividends.............. - - 53 7,245 7,245 3,622 3,622
Net income (loss)
Applicable to common stock....... 9,417 (7,942) 25,419 6,518 (12,441) (9,555) 2,521
Pro forma net income (unaudited)(1).... 12,309 - - - - - -
Earnings (loss) per share.............. - (0.26) 0.75 0.18 (0.35) (0.27) 0.07
Pro forma earnings per share
(unaudited)(1)................... 0.42 - - - - - -
OTHER DATA(2):
Number of hotel rooms.................. 1,028 1,328 1,528 1,728 2,195 2,195 2,395
Average daily occupancy rate........... 97% 95% 94% 96% 93% 95% 91%
Casino square footage.................. 84,000 206,000 278,000 432,000 521,000 521,000 532,000
Number of slot machines(3)............. 3,323 7,020 9,555 13,008 16,237 16,362 16,096
Capital expenditures(4)................ $102,687 $163,884 $307,745 $506,096 $134,385 $103,561 $47,650
EBITDA(5).............................. 41,743 47,986 106,939 136,548 162,466 75,553 93,719
Cash flows provided by (used in):
Operating activities............. 23,685 48,494 77,953 111,803 104,955 54,644 47,162
Investing activities............. (111,072) (157,585) (266,935) (479,008) (219,407) (182,958) (46,015)
Financing activities............. 92,073 109,893 286,889 294,859 122,088 129,715 (903)
Ratio of earnings to fixed charges(6).. 2.01x 0.38x 1.87x 1.00x 0.82x 0.61x 1.22x
Pro forma ratio of earnings to fixed
charges (unaudited)................. 0.82x 1.23x
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
14
<PAGE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
AS
ACTUAL ADJUSTED(7)
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $50,402 $46,537
Total assets.............................................. 1,314,287 1,305,663
Long-term debt, including current portion................. 908,841 921,254
Stockholders' equity...................................... 289,690 276,016
</TABLE>
- ----------------------
(1) Reflects provisions for federal income taxes (assuming a 34% effective tax
rate) as if we had not been treated as an S corporation during this period.
(2) Other Data relating to the number of hotel rooms, the casino square footage
and the number of slot machines represent end of period data.
(3) Includes video poker machines.
(4) Capital expenditures for the fiscal year ended March 31, 1994 included
$52.8 million related to the development of Station Casino St. Charles and
$31.9 million related to the development of Boulder Station. Capital
expenditures for the fiscal year ended March 31, 1995 include $52.9 million
related to the development of Station Casino St. Charles and $90.7 million
related to the development of Boulder Station. Capital expenditures for the
fiscal year ended March 31, 1996 included $84.9 million related to the
acquisition and completion of Texas Station, $25.0 million related to the
parking garage and entertainment complex at Boulder Station, $62.8 million
related to the development and construction of Station Casino Kansas City,
$29.7 million related to the development and construction of Sunset Station
and $39.4 million related to the expansion of Station Casino St. Charles
including an elevated roadway, a parking structure and restaurant
facilities. Capital expenditures for the fiscal year ended March 31, 1997
included $211.1 million related to the development and construction of
Station Casino Kansas City, $112.8 million related to the development and
construction of Sunset Station and $99.6 million related to the development
and construction of the Station Casino St. Charles expansion project.
Capital expenditures for the fiscal year ended March 31, 1998 included
$43.5 million related to the development and construction of Sunset Station
and $31.9 million related to the development and construction of the
Station Casino St. Charles expansion project. Capital expenditures for the
six months ended September 30, 1998 included $17.9 million for the Sunset
Station master-planned expansion project and $12.1 million for the Texas
Station master-planned expansion project.
(5) EBITDA consists of operating income, plus depreciation, amortization,
preopening expenses and a one-time restructuring charge in fiscal 1997 of
$2.0 million primarily related to employee severance payments and, in the
case of Station Casino St. Charles, lease income in fiscal 1994 of
$3.1 million relating to the lease of Station Casino St. Charles riverboat.
We believe that in addition to cash flows and net income, EBITDA is a
useful financial performance measurement for assessing our operating
performance. Together with net income and cash flows, EBITDA provides
investors with an additional basis to evaluate our ability to incur and
service debt and incur capital expenditures. You should consider the
components of EBITDA to evaluate EBITDA and the trends it depicts. The
impact of interest, taxes, depreciation and amortization, preopening
expenses, a one-time restructuring charge and lease income, each of which
can significantly affect our results of operations and liquidity, and
should be considered in evaluating our operating performance, cannot be
determined from EBITDA. Further, EBITDA does not represent net income or
cash flows from operating, financing and investing activities as defined
by generally accepted accounting principles and does not necessarily
indicate cash flows will be sufficient to fund cash needs.
15
<PAGE>
EBITDA should not be considered as an alternative to net income, as an
indicator of our operating performance or to cash flows as a measure of
liquidity. In addition, you should note that not all gaming companies
that report EBITDA or adjustments to such measures may calculate EBITDA or
such adjustments in the same manner as we do, and therefore, our measure of
EBITDA may not be comparable to similarly titled measures used by other
gaming companies.
(6) For the fiscal year ended March 31, 1995, earnings were inadequate to cover
fixed charges by $17.4 million. For the fiscal year ended March 31, 1998
and the six months ended September 30, 1997, earnings were inadequate to
cover fixed charges by $16.9 million and $18.3 million, respectively.
(7) As Adjusted amounts reflect the repayment of our bank facility in November
1998, repayment of the $80.0 million supplemental loan facility and the
extraordinary charges related to the write-off of the unamortized debt
discount and premium to redeem our 9 5/8% Senior Subordinated Notes due
2003 that were redeemed with the net proceeds from the sale of the Old
Notes and amounts borrowed under our Amended Bank Facility and the
unamortized loan costs for our 9 5/8% Senior Subordinated Notes due 2003,
our bank facility and supplemental loan facility.
16
<PAGE>
RISK FACTORS
You should carefully consider the following factors and the other
information in this prospectus before making an investment in the New Notes.
RESTRICTIONS UPON TRANSFER OF AND LIMITED TRADING MARKET FOR OLD NOTES
We will issue New Notes in exchange for the Old Notes only after the
exchange agent receives tender of your Old Notes. Therefore, you should
allow sufficient time to ensure timely delivery of your Old Notes. Neither
the exchange agent nor Station is under any duty to give notification of
defects or irregularities with respect to your tender of the Old Notes for
exchange. If you do not tender your Old Notes, or if you do tender your Old
Notes and they are not accepted, your Old Notes will continue to be subject
to the existing restrictions upon their transfer. Accordingly, after the
completion of the exchange offer, you will only be able to offer for sale,
sell or otherwise transfer untendered Old Notes as follows:
- to SCI;
- pursuant to a registration statement that has been declared effective
under the Securities Act;
- for so long as the Old Notes are eligible for resale pursuant to Rule
144A under the Securities Act, to a person you reasonably believe is a
qualified institutional buyer ("QIB") within the meaning of Rule 144A,
that purchases for its own account or for the account of a QIB to whom
notice is given that the transfer is being made in reliance on the
exemption from the registration requirements of the Securities Act
provided by Rule 144A;
- pursuant to offers and sales that occur outside the United States to
foreign persons in transactions complying with the provisions of
Regulation S under the Securities Act;
- to an "accredited investor" within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act that is an institutional investor
(an "Institutional Accredited Investor") purchasing for its own
account or for the account of such an Institutional Accredited
Investor, in each case in a minimum principal amount of the Old Notes
of $250,000; or
- pursuant to any other available exemption from the registration
requirements of the Securities Act.
To the extent that Old Notes are tendered and accepted in the exchange offer,
the liquidity of the trading market for untendered Old Notes could be
adversely affected. See "The Exchange Offer."
In addition, any holder of the Old Notes who tenders in the exchange
offer for the purpose of participating in a distribution of the New Notes
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer who receives New Notes for its own account in exchange
for the Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or any other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale
of such New Notes. See "Plan of Distribution."
THE GAMING INDUSTRY IS A HIGHLY COMPETITIVE INDUSTRY
There is intense competition among companies in the gaming industry. We
have numerous competitors, including land-based casinos, dockside casinos,
riverboat casinos, casinos located on Indian reservations and other forms of
legalized gaming. Many of our competitors have greater resources than we do.
Certain states have recently legalized, and several other states are
currently considering legalizing, casino gaming in designated areas.
Legalized casino gaming in these states and on Indian reservations will
increase competition and could adversely affect our operations, particularly
to the extent that such gaming is conducted in areas close to our operations.
Proposition 5, a California ballot initiative passed by voters in California
on November 3, 1998, permits Indian tribes who enter into agreements with the
state of California to conduct gaming activities including horse race
wagering, gaming devices
17
<PAGE>
(including slot machines), banked card games, and lotteries. Various
opposition factions have challenged the implementation of Proposition 5 by
filing an action in the Supreme Court of California. On December 2, 1998,
the California Supreme Court granted a stay on the implementation of
Proposition 5 pending consideration of arguments on constitutionality
grounds. The California Supreme Court's decision is not expected until the
spring of 1999. We are not certain when Proposition 5 will become effective
or how it will affect us; however, because visitors from California make up
Nevada's largest visitor market, if Proposition 5 is implemented, increased
competition from Indian gaming may cause a decline in our revenues and may
have a negative impact on our business.
LAS VEGAS CASINOS
Our Las Vegas casinos compete with other casinos and hotels in the Las
Vegas area, including with each other, and, to a lesser extent, with other
legalized forms of gaming and gaming operations in other parts of the State
of Nevada, on Indian reservations and in other parts of the United States and
in other parts of the world.
Our Las Vegas casino properties face more direct competition from ten
hotel/casinos targeted primarily towards local residents and repeat visitors
and numerous non-hotel gaming facilities targeted towards local residents.
Some of these competitors have completed expansion projects. Existing
competitors and new entrants into these markets are in the planning stages or
under construction on other projects. Other gaming operators own undeveloped
properties on which they could develop gaming facilities in the immediate
vicinity of Texas Station and Sunset Station. We understand that one operator
will open a facility competing with Texas Station in 1999 and at least one
operator is exploring development opportunities in the immediate vicinity of
Sunset Station. Although we have competed strongly in these marketplaces,
additional gaming capacity may have a negative impact on our business.
STATION CASINO KANSAS CITY
Station Casino Kansas City competes primarily with other gaming
operations in and around Kansas City, Missouri. In addition to Station Casino
Kansas City, there are three gaming facilities currently operating in the
Kansas City market. Earlier entrants to the Kansas City market may have an
advantage over us due to their ability to establish early market share.
Gaming has been approved by local voters in jurisdictions near Kansas City,
including St. Joseph, which currently has one gaming riverboat in operation,
Jefferson City and other cities and counties along the Missouri River. Since
the opening of the Station Casino Kansas City, Sam's Town, the closest gaming
development to Station Casino Kansas City, closed and Boyd Gaming, the owner
of Sam's Town, sold most of the Sam's Town assets to Harrah's, the operator
of Harrah's-North Kansas City, the next closest gaming operator in the area.
Any new gaming operations developed near Kansas City would likely provide
significant competition to Station Casino Kansas City and may have a negative
impact on our business.
STATION CASINO ST. CHARLES
Station Casino St. Charles competes primarily with other gaming
operations in and around St. Louis, Missouri. In addition to Station Casino
St. Charles, there are currently five competitors operating in the St. Louis
market. However, in light of ever increasing competition, we cannot be sure
about the future performance of Station Casino St. Charles. Two of the five
competitors operating in the St. Louis market are located in Illinois, which
does not impose the $500 loss limit that is imposed by Missouri. Gaming also
has been approved by local voters in jurisdictions near St. Louis, including
St. Charles, Jefferson City, and other cities and counties along the
Mississippi and Missouri Rivers. Any new gaming operations developed near St.
Louis would likely provide significant competition to Station Casino St.
Charles. Gaming laws in surrounding states and in other areas may be amended
in ways that would increase the competition to Station Casino St. Charles.
This increasing competition could have a material adverse effect on our
business. In particular, Station Casino St. Charles competes directly with
two facilities located in Maryland Heights which opened in March 1997. Such
direct competition is due to the Maryland Heights facilities' size, quality
and close proximity to Station Casino St. Charles. We have experienced a
decline in revenues at Station Casino St. Charles since the opening of the
Maryland Heights facilities. We have taken steps that we believe will
mitigate the effects of such competition, and the decline in our revenues has
stabilized; however we cannot assure that revenues at Station Casino St.
Charles will not decline in the future.
For a more comprehensive discussion of competitive factors affecting our
operations, see "Business-Competition."
18
<PAGE>
LEVERAGE
We now have and, after this offering, will continue to have a
significant amount of indebtedness, interest expense and principal repayment
obligations under the Amended Bank Facility, the existing senior subordinated
notes, the Notes and other indebtedness. We also have dividend payment
obligations under our outstanding convertible preferred stock.
The following chart shows certain of our important credit statistics and
is presented assuming we had incurred $336.0 million of indebtedness under
the Amended Bank Facility and completed the Old Notes offering and exchange
offer and applied the net proceeds from the Old Notes offering as of
September 30, 1998:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
---------------------
<S> <C>
Total indebtedness and other liabilities (including trade
and construction payables) of our subsidiaries............... $446.5 million
Amount of indebtedness and other liabilities of our
subsidiaries guaranteed by Station........................... $376.2 million
Total senior subordinated indebtedness on an even ranking
with the Notes............................................... $348.0 million
</TABLE>
RESTRICTIONS AND LIMITATIONS IMPOSED BY DEBT AGREEMENTS
Our ability to pay principal of, and interest on, our existing senior
subordinated notes, the Notes and our other debt obligations and to pay
dividends on our outstanding convertible preferred stock will depend on
distributions from our operating subsidiaries. The operating and financial
restrictions and covenants in our debt agreements, including the Indenture,
our Amended Bank Facility and any future financing agreements may adversely
affect our ability to finance future operations or capital needs or to engage
in other business activities. See "Description of the New Notes" and
"Description of Certain Indebtedness and Capital Stock."
The borrowers under the Amended Bank Facility are Palace Station Hotel &
Casino, Inc. ("PSHC"), Sunset Station, Inc. ("SSI"), Texas Station, Inc.
("TSI"), Boulder Station, Inc. ("BSI"), Kansas City Station Corporation
("KCSC") and St. Charles Riverfront Station, Inc. ("SCRSI"), but not SCI. The
Amended Bank Facility restricts the payment of dividends by PSHC to us and
prohibits us from holding cash and cash equivalents in excess of the sum of
(1) amounts necessary to make the next scheduled debt service payments and
dividend payments, (2) amounts necessary to fund casino bankroll in the
ordinary course of business and (3) $2.0 million. The Amended Bank Facility
requires that the borrowers under the Amended Bank Facility satisfy certain
financial and other covenants including:
- a maximum funded debt to adjusted EBITDA ratio for the borrowers
combined of 2.50 to 1.00 for each fiscal quarter;
- a minimum fixed charge coverage ratio for the preceding four quarters
for the borrowers combined of 1.40 to 1.00 through March 31, 1999 and
1.50 to 1.00 thereafter; and
- limitations on indebtedness.
The Amended Bank Facility also contains a maximum funded debt to
adjusted EBITDA ratio for SCI on a consolidated basis. The ability to incur
borrowings under the Amended Bank Facility will depend, among other things,
upon meeting these ratios. The maximum funded debt to adjusted EBITDA ratio
for SCI is initially 5.50 to 1.00 through December 31, 1998 and then declines
on quarterly basis to 4.00 to 1.00 for the quarter ending September 30, 2001
and thereafter. As of September 30, 1998, after giving pro forma effect to
the Old Notes offering, the exchange offer and borrowings made under the
Amended Bank Facility, SCI's funded debt to adjusted EBITDA ratio was 4.94 to
1.00 and SCI's fixed charge coverage ratio as calculated under the Amended
Bank Facility was 1.83 to 1.00.
The Amended Bank Facility contains numerous restrictions and covenants.
A breach of any of these restrictions or covenants could cause a default
under other outstanding debt and the Notes. A significant portion of our
indebtedness then may become immediately due and payable. We are not certain
whether we would have, or be able to obtain, sufficient funds to make these
accelerated payments, including payments on the Notes.
19
<PAGE>
The Indenture governing the Notes and the indentures governing our
existing senior subordinated notes contain numerous financial and operating
covenants. For example, the Indenture and the existing indentures limit our
and certain of our subsidiaries' ability to incur additional indebtedness,
unless, after giving effect thereto, a minimum 2.00 to 1.00 pro forma
consolidated coverage ratio, calculated for the four most recent consecutive
fiscal quarters, has been met. Under the Indenture and the existing
indentures, we and certain of our subsidiaries will also be permitted to
incur (1) additional indebtedness under the Amended Bank Facility without
regard to such limitations in an amount equal to the greater of $200.0
million or 1.50 times operating cash flow, as defined in "Description of the
New Notes," calculated cumulatively for the four most recent consecutive
fiscal quarters, (2) additional indebtedness that refinances previously
permitted indebtedness and (3) certain other indebtedness. If new
indebtedness is added to our and our subsidiaries' current debt levels, the
related risks that we and they now face could intensify. Under the Indenture
and the existing indentures, we and our restricted subsidiaries will be
permitted to incur an unlimited amount of indebtedness on a non-recourse
basis to finance the acquisition or lease of furniture, fixtures and
equipment used in connection with our gaming facilities.
As of September 30, 1998, our consolidated coverage ratio was 1.95 to
1.00. After giving pro forma effect to the issuance of the Old Notes and the
application of the proceeds, including the redemption of our 9 5/8% Senior
Subordinated Notes due 2003, the exchange offer and the incurrence of
indebtedness under the Amended Bank Facility, our consolidated coverage ratio
as of September 30, 1998 would have been 1.92 to 1.00. We do not currently
exceed the minimum consolidated coverage ratio. Our ability to incur any
additional indebtedness, other than certain other indebtedness permitted by
the Indenture and the existing indentures (including $256.9 million of
remaining availability on a pro forma basis as of September 30, 1998, under
the Amended Bank Facility basket under the Indenture and the existing
indentures) in subsequent quarters will be limited to permitted refinancings
until we generate sufficient cash flow to meet the 2.00 to 1.00 consolidated
coverage ratio test.
Our ability to meet our debt service and capital expenditure
requirements, pay dividends and comply with our covenants will depend upon
the future performance of our operations. Our future performance is subject
to financial, economic, competitive, regulatory and other factors affecting
us and our subsidiaries, many of which are beyond our control. While we
expect that our operating cash flow will be sufficient to comply with our
covenants and cover our expenses, including interest costs, dividends and
capital expenditures, we cannot be sure that this will be the case. If we are
unable to generate sufficient cash flow, we could be required to adopt one or
more alternatives, such as obtaining additional equity capital, reducing or
delaying planned expansions or capital expenditures, selling or leasing
assets or restructuring debt. We cannot be sure that any of these
alternatives could be effected on satisfactory terms, and any resort to
alternative sources of funds could impair our competitive position and reduce
our future cash flow. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LITIGATION RELATING TO THE TERMINATED MERGER AGREEMENT WITH CRESCENT REAL
ESTATE EQUITIES COMPANY
On January 16, 1998, we entered into an agreement and plan of merger
with Crescent Real Estate Equities Company to merge SCI with Crescent. On
July 27, 1998, SCI and Crescent announced the postponement of a previously
announced annual and special meeting of SCI's stockholders. The meeting was
postponed to address concerns related to the merger expressed by holders of
SCI's preferred stock. We subsequently requested that Crescent purchase $20
million of SCI's redeemable preferred stock issuable under the merger
agreement. The merger agreement provides that, if we are not in material
breach of our covenants, representations or warranties under the merger
agreement, Crescent is required to fund up to $115 million of redeemable
preferred stock even if the merger agreement has been terminated. Crescent
advised us that it took the position that our postponing the meeting was a
breach of the merger agreement.
On July 30, 1998, we filed suit against Crescent in Clark County
District Court, State of Nevada, seeking declaratory relief and asserted,
among other things, that the postponement of the meeting did not breach the
merger agreement, that we had received Crescent's consent to the postponement
of the meeting and that we were otherwise in full compliance with our
obligations under the merger agreement.
On August 11, 1998, we requested that Crescent purchase the additional
$95 million of redeemable preferred stock. Also on August 11, 1998, we
amended our complaint in Nevada state court to include claims regarding
Crescent's breaches of the merger agreement. Our lawsuit against Crescent
seeks significant damages for Crescent's breaches and specific performance
requiring Crescent to fulfill its obligation under the merger agreement to
purchase
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$115 million of redeemable preferred stock.
On December 22, 1998, Crescent filed its answer and counterclaims to our
suit pending in the Nevada state court. The answer generally denied our
claims, and the counterclaims sought damages and declaratory relief alleging
that we breached the merger agreement by canceling and failing to reschedule
the stockholders meeting. The suit sought declaratory judgment that our
actions with respect to the meeting, together with certain alleged
misrepresentations in the merger agreement, relieve Crescent of its
obligation under the merger agreement to fund up to $115 million of the
redeemable preferred stock. Crescent alleged that it was excused from further
performance under the merger agreement. Crescent did not specify the amount
of damages it sought. Discovery is ongoing in this action.
We anticipate that Crescent will seek the $54 million break-up fee as
part of its counterclaims. Crescent had announced on August 12, 1998, that
it intended to assert a claim for damages for the $54 million break-up fee
under the merger agreement or its equivalent and for expenses. Payment by us
of such a fee would require consent of the lenders under the Amended Bank
Facility.
On August 7, 1998, Crescent filed suit against us in the United States
District Court, Northern District of Texas, seeking damages and declaratory
relief alleging that we breached the merger agreement by canceling and
failing to reschedule the stockholders meeting. The suit sought declaratory
judgment that our actions with respect to the meeting, together with certain
alleged misrepresentations in the merger agreement, relieve Crescent of its
obligation under the merger agreement to fund up to $115 million of the
redeemable preferred stock. Crescent alleged that it was excused from further
performance under the merger agreement. Crescent did not specify the amount
of damages it sought. Simultaneously with the filing of its suit, Crescent
sent notice of termination of the merger agreement to us. We believe that
Crescent, and not SCI, breached the merger agreement.
On December 15, 1998, Crescent's suit against us pending in the United
States District Court for the Northern District of Texas was dismissed for
lack of jurisdiction. On December 21, 1998, Crescent served us with a notice
of appeal of the dismissal.
While we believe that Crescent has breached the merger agreement and
that Crescent's allegations are without merit, as with any litigation, we
cannot be sure as to the outcome of such litigation at this time. In the
event that we are required to pay the $54 million break-up fee, that payment
would have a material adverse effect on our business. We are subject to other
disputes currently in litigation. See "Business-Litigation." No assurance can
be provided as to the outcome of those matters and any litigation inherently
involves significant costs of conducting the litigation.
SUBORDINATION TO CERTAIN OF OUR INDEBTEDNESS AND ALL OF THE INDEBTEDNESS OF
OUR SUBSIDIARIES
SCI is organized as a holding company. We conduct all our operations
through our subsidiaries and depend on the earnings and cash flow of our
subsidiaries to meet our debt and dividend obligations, including our
obligations with respect to the existing senior subordinated notes, the Notes
and the convertible preferred stock. Because our subsidiaries' assets
constitute all of our operating assets and because our subsidiaries do not
guaranty the payment of principal and interest on the Notes, the holders of
the Notes will have no direct claim to our subsidiaries' assets. Therefore,
all existing and future obligations, including debt, taxes, trade and
construction payables, of our subsidiaries must be paid in full before any
amounts would become available for distribution to the noteholders.
The Notes rank behind all of our existing and future senior
indebtedness, other than trade payables of SCI, and all of our future
borrowings, other than trade payables of SCI, except any future indebtedness
that expressly provides that it ranks equal with, or subordinated in right of
payment to, the Notes. Except for limitations on the aggregate amount of
consolidated indebtedness that we may incur, the Indenture does not limit our
ability to incur additional indebtedness, create liens, transfer assets to or
among our subsidiaries or incur or permit our subsidiaries to incur secured
indebtedness. Upon any distribution to our creditors in a bankruptcy,
liquidation or reorganization or similar proceeding relating to us or our
property, the holders of senior debt of SCI will be entitled to be paid in
full in cash before any payment may be made with respect to the Notes. Under
such circumstances, holders of our senior debt (including specifically our
guarantee of the Amended Bank Facility) will have a prior claim to our assets
and to the assets of our subsidiaries which constitute their collateral.
Until the bank has finally been paid in full, our guaranty of the Amended
Bank Facility provides that we waive all rights of subrogation and
reimbursement from the borrowers
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under the Amended Bank Facility. Our assets consist primarily of the stock of
our operating subsidiaries and holders of the Notes will have no direct claim
against the assets of those subsidiaries.
On a pro forma basis at September 30, 1998 after giving effect to the
Old Notes offering, our use of the proceeds from the Old Notes offering, the
exchange offer and the incurrence of indebtedness under the Amended Bank
Facility, we would have had outstanding $376.2 million of senior
indebtedness, which consisted of guarantees of indebtedness incurred by our
subsidiaries, $348.0 million of senior subordinated indebtedness that ranked
equally with the Notes, and our subsidiaries would have had outstanding $70.3
million of other liabilities. We have no indebtedness outstanding to which
the Notes are senior, and we have no plans to issue any such indebtedness.
See "Description of Certain Indebtedness and Capital Stock" and "Description
of the New Notes."
Borrowings under the Amended Bank Facility are secured by substantially
all of the assets of the borrowers. Assets of the borrowers under the Amended
Bank Facility not securing the Amended Bank Facility secure other
indebtedness of the borrowers. In addition, all payments on the Notes will be
blocked in the event of a payment default on senior indebtedness and may be
blocked for up to 179 of 360 consecutive days in the event of certain
non-payment defaults on senior debt. The existing indenture for the existing
senior subordinated notes have subordination provisions substantially similar
to the Indenture's provisions. See "Description of the New Notes-Subordination."
INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
Upon a change of control triggering event (as defined in the Indenture),
each holder of the New Notes will have the right to require us to repurchase
their New Notes at 101%, plus accrued interest. The repurchase right is
subordinated to the rights of the holders of senior indebtedness and,
effectively, all indebtedness of our subsidiaries. The occurrence of a change
of control constitutes an event of default under the Amended Bank Facility.
Therefore, for us to repurchase the New Notes as a result of a change of
control, we must either obtain the consent of the banks under the Amended
Bank Facility or repay the Amended Bank Facility in full. These requirements
and subordination of the New Notes will limit our ability to repurchase the
Notes. The existing indentures have change of control provisions
substantially similar to the indenture's provisions. See "Description of the
New Notes-Change of Control and Rating Decline."
ST. CHARLES EXPANSION PROJECT
In the fall of 1996, we began an expansion project at Station Casino St.
Charles which included the building of a backwater basin containing two new
gaming vessels and a proposed retail and entertainment complex. The basin
has been dug, but since March 31, 1998, construction on the Station Casino
St. Charles expansion project has been halted.
We currently believe the Station Casino St. Charles expansion project as
originally contemplated fulfills a strategic need in the St. Louis, Missouri
market. While we desire to complete and operate these new facilities,
circumstances may arise in the future, including the lack of available
financing, a downturn in the demand for gaming facilities, increased
regulatory requirements unique to the state of Missouri and more attractive
uses of available capital, which may prevent the expansion project from being
completed as originally designed, if at all. In this event, certain costs
incurred to date may be deemed to possess little or no value necessitating
the recognition of an impairment loss in the period such a determination is
made. The impairment loss could include substantially all of the amount
invested by us in the Station Casino St. Charles expansion project.
As of September 30, 1998, we had invested approximately $169.0 million
related to the Station Casino St. Charles expansion project. We do not
anticipate that any major construction activity on the Station Casino St.
Charles expansion project will resume in the near term.
LOSS OF RIVERBOAT AND DOCKSIDE FACILITIES FROM SERVICE
Our riverboat and dockside facilities in Missouri could be lost from
service due to casualty, mechanical failure, extended or extraordinary
maintenance, low river water levels, or other severe weather conditions. For
example, Station Casino St. Charles was closed for approximately three weeks
during the spring of 1995 due to flooding. Although there was no significant
damage to the gaming facilities, the closure had a material adverse effect on
our operating results for the fiscal year ended March 31, 1996. We believe
that the new elevated roadway and 4,000-space parking structure at
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Station Casino St. Charles and the sheltered location of Station Casino
Kansas City will minimize the likelihood of closures of facilities due to
flooding. Cruises are subject to risks generally associated with the movement
of vessels on inland waterways, including risks of casualty due to river
turbulence, grounding and severe weather conditions. Dockside facilities are
subject to risks associated with changes in the water levels. These risks
include structural damage to the facilities caused by grounding, our
incurrence of extra expense to dredge around the facilities and our loss of
business because of inconvenience to customers. The U.S. Coast Guard also
limits operation of vessels and imposes other regulations on maintenance of
vessels.
The Missouri Gaming Commission has required that gaming entertainment
barges obtain annual certification from the American Bureau of Shipping. The
Station Casino St. Charles dockside entertainment facility was recertified by
the American Bureau of Shipping in December 1997. One of our riverboats will
be inspected in October 1999 and our second riverboat is not scheduled for
inspection until October 2002. The loss of the riverboat or dockside facility
from service for any period of time could adversely affect our operating
results.
CONSTRUCTION RISKS
In May 1998, we commenced construction of the next phase of the master
planned expansion at Texas Station. The expansion at Texas Station is
expected to be completed in the first calendar quarter of 1999. We evaluate
expansion opportunities as they become available, and, while we have no
current plans to engage in expansion activities other than the activities
described in this prospectus, we may in the future develop other projects.
Construction projects, such as the expansion of Texas Station, entail
significant risks, including
- shortages of materials or skilled labor;
- unforeseen engineering, environmental or geological problems;
- work stoppages;
- weather interference;
- floods; and
- unanticipated cost increases.
The anticipated costs and construction periods are based upon budgets,
conceptual design documents and construction schedule estimates prepared by
us in consultation with our architects and contractors. The existing
construction plans for the Texas Station project may change, and the scope of
the project may vary significantly from the currently anticipated project.
Although we have entered into certain firm contracts for construction at this
site, we cannot be sure that we will not exceed the budgeted costs of this
project or that the project will commence operations within the contemplated
time frame, if at all. Budget overruns and delays with respect to expansion
and development projects could have a material adverse impact on our results
of operations.
PALACE STATION FIRE AND FLOOD
On July 20, 1998, Palace Station suffered damage to its casino and hotel
tower as a result of a thunderstorm in the Las Vegas Valley. In November
1998, we completed the repairs to the casino and all of the rooms in the
21-story hotel tower became fully functional. Losses associated with the
property damage and business interruption are covered under our insurance
policies. As of September 30, 1998, the insurance company has advanced $6
million to us on this claim. We do not expect significant losses from the
business interruption or property claims, however, we cannot be sure that we
will be fully reimbursed by the final settlement. In addition, our business
interruption insurance coverage related to this incident terminates in
November 1999. If operating revenue at Palace Station does not return to
levels that we experienced prior to the fire and flood, our results of
operations may be materially adversely impacted.
DEPENDENCE ON KEY MARKETS
Our operating strategy emphasizes attracting and retaining customers
from the local and repeat visitor market. All of our Las Vegas casino
properties are dependent upon attracting Las Vegas residents. In addition,
Station Casino St. Charles and Station Casino Kansas City are dependent upon
attracting local residents within their respective
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geographic markets. We cannot be sure that we will be able to continue to
attract a sufficient number of guests, gaming customers and other visitors in
Nevada and Missouri to make our operations profitable. See
"Business-Operating Strategy."
OTHER DEVELOPMENT OPPORTUNITIES
We regularly evaluate and pursue new gaming development opportunities in
existing and emerging jurisdictions. These opportunities have in the past,
and may in the future, take the form of joint ventures. To the extent that we
decide to pursue any new gaming development opportunities, our ability to
benefit from such investments will depend upon a number of factors,
including:
- our ability to identify and acquire attractive sites;
- our ability to secure required federal, state and local licenses,
permits and approvals, which in some jurisdictions are limited in
number;
- certain political factors;
- the availability of adequate financing on acceptable terms (including
waivers of restrictions existing credit arrangements); and
- our ability to identify and develop satisfactory relationships with
joint venture partners.
Most of these factors are beyond our control. Therefore, we cannot be
sure that we will be able to recover our investment in any new gaming
development opportunities, or successfully expand to additional locations.
See "Business-Expansion Strategy."
We have invested, and will likely continue to invest, in real property
in connection with the pursuit of expansion opportunities. At September 30,
1998, we had invested $20.6 million in land which had been acquired for
potential gaming projects in jurisdictions where gaming has been approved and
$3.7 million in land in jurisdictions where gaming has not yet been approved.
We cannot be sure that these jurisdictions will approve gaming in the future.
These investments are subject to the risks generally incident to the
ownership of real property, including:
- changes in economic conditions;
- environmental risks;
- governmental rules and fiscal policies; and
- other circumstances over which we may have little or no control.
The development of such properties is also subject to restrictions under
the Amended Bank Facility. We cannot be sure that we will be able to recover
our investment in any such properties or be able to prevent incurring
investment losses. See "Business-Operating Strategy" and "-Properties."
GAMING AND LIQUOR REGULATION
The ownership and operation of casino gaming facilities are subject to
extensive state and local regulation. The states of Nevada and Missouri and
the applicable local authorities require us to hold various licenses,
findings of suitability, registrations, permits and approvals. The Nevada
Gaming Commission and the Missouri Gaming Commission may, among other things,
limit, condition, suspend or revoke a license or approval to own the stock of
any of our Nevada or Missouri subsidiaries for any cause deemed reasonable by
such licensing authority. Substantial fines or forfeiture of assets for
violations of gaming laws or regulations may be levied against us, our
subsidiaries and the
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persons involved. The suspension or revocation of any of our licenses or the
levy on us of substantial fines or forfeiture of assets would have a material
adverse effect on our business.
To date, we have obtained all governmental licenses, findings of
suitability, registrations, permits and approvals necessary for the operation
of our gaming activities. However, gaming licenses and related approvals are
deemed to be privileges under Nevada and Missouri law, and we cannot be sure
that any new licenses, findings of suitability, registrations, permits and
approvals that may be required in the future will be given or that existing
ones will not be revoked. Any expansion of our gaming operations in Nevada,
Missouri or into new jurisdictions will require various licenses, findings of
suitability, registrations, permits and approvals of the gaming authorities.
The approval process can be time consuming and costly and has no assurance of
success.
Gaming authorities have the authority generally to require that any
beneficial owner of our securities, including the Notes, file an application
and be investigated for a finding of suitability. If a record or beneficial
owner of a note is required by any gaming authority to be found suitable,
such owner will be required to apply for a finding of suitability within 30
days after request of such gaming authority or within such earlier time
prescribed by such gaming authority. The applicant for a finding of
suitability must pay all costs of the investigation for such finding of
suitability. If a record or beneficial owner is required to be found suitable
and is not found suitable, it may be required pursuant to the terms of the
Notes or law to dispose of the Notes. See "Regulation and Licensing" and
"Description of the New Notes-Mandatory Disposition Pursuant to Gaming Laws."
UNCERTAIN EFFECT OF NATIONAL GAMBLING COMMISSION
The U.S. Congress has created the National Gambling Impact and Policy
Commission to conduct a comprehensive study of all matters relating to the
economic and social impact of gaming in the United States. The enabling
legislation provides that, not later than two years after the enactment of
such legislation, the commission would be required to issue a report
containing its findings and conclusions, together with recommendations for
legislation and administrative actions. Any such recommendations, if enacted
into law, could adversely impact the gaming industry and have a material
adverse effect on our business, financial condition or results of operations.
The commissioner's report is expected to be issued in June 1999.
From time to time, certain legislators have proposed the imposition of a
federal tax on gross gaming revenues. Any such tax could have a material
adverse effect on our business, financial condition or results of operations.
UNCERTAINTY OF MISSOURI POLITICAL ENVIRONMENT
On January 16, 1997, our gaming license in Kansas City was formally
issued for our facility which is located in a man-made basin filled with
water piped in from the surface of the Missouri River. In reliance on
numerous approvals from the Missouri Gaming Commission specific to the
configuration and granted prior to the formal issuance of our gaming license,
we built and opened the Station Casino Kansas City facility. Our license and
the resolutions related thereto specifically acknowledge that the Missouri
Gaming Commission had reviewed and approved this configuration. On November
25, 1997, the Supreme Court of Missouri, in a case challenging the gaming
licenses of certain competitors of Station Casino St. Charles located in
Maryland Heights, Missouri, ruled that gaming in artificial spaces may occur
only in spaces that are contiguous to the surface stream of the Missouri and
Mississippi Rivers. On November 3, 1998, the citizens of the State of
Missouri approved a constitutional amendment that retroactively legalized
lotteries, gift enterprises and games of chance aboard excursion gambling
boats and floating facilities, like ours, that are located within artificial
spaces containing water that are within 1,000 feet of the closest edge of the
main channel of the Mississippi or Missouri Rivers. This amendment to the
constitution became effective on November 23, 1998. The Missouri Gaming
Commission has stayed its preliminary orders of disciplinary action against
licensees that operate within artificial basins, and has dismissed the
preliminary orders for disciplinary action with respect to all applicable
licensees except KCSC. The Missouri Gaming Commission has not dismissed the
disciplinary proceeding against KCSC because it is investigating an alleged
violation by KCSC that is related to an aspect of the placement of our gaming
facilities in an artificial basin. While we anticipate that the disciplinary
action with respect to KCSC will be dismissed, we cannot be sure that the
Missouri Gaming Commission will take such action or that the Missouri Gaming
Commission will not impose a fine or other penalty against us in connection
with such dismissal. Despite the current resolution of issues, there remains
numerous active organizations in Missouri that oppose gaming and that may in
the future take action to cause gaming operations in Missouri to be
restricted or prohibited.
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LIQUID TRADING MARKET FOR THE NEW NOTES MAY NOT DEVELOP
The New Notes constitute a new issue of securities, have no established
trading market and may not be widely distributed. The initial purchasers of
the Old Notes have informed us that they currently intend to make a market in
the New Notes after the exchange offer. However, the initial purchasers are
not obligated to do so and may discontinue such market-making activities at
any time without notice. We do not intend to list the New Notes on any
securities exchange. If the New Notes are traded after their initial
issuance, they may trade at a discount from the offering price of the Old
Notes, depending on:
- prevailing interest rates;
- the market for similar securities; and
- other factors, including general economic conditions and our financial
condition, performance and prospects.
We cannot be sure that any market for the New Notes will develop before,
during or after the exchange offer. If a market does develop, the price of
the New Notes may fluctuate and the ability to buy or sell the New Notes may
be difficult or limited. If a market for the New Notes does not develop, or
is not maintained, you may be unable to resell such securities for an
extended period of time, if at all.
YEAR 2000 READINESS
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 such as date-sensitive computer software ("IT") as
well as non-IT systems, such as equipment containing microcontrollers 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 our properties. As such, we are exposed to the risk that Year
2000 problems could disrupt operations at our affected properties and have a
material adverse impact upon our operating results.
We are also exposed to the risk of possible failure of IT and non-IT
systems external to our operations ("External Risk Factors"). These External
Risk Factors arise from the fact that our operations, like most businesses,
depend upon numerous other private, public, and governmental entities. While
these External Risk Factors are not our responsibility and the remediation of
these factors is beyond our control, we are attempting to monitor these risks
and form such contingency plans as we deem necessary. As a result of these
External Risk Factors, we may be materially and adversely impacted even if
our 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 our suppliers could experience Year 2000 problems that
impact the ability of the suppliers to provide goods and services
required in the operation of our properties. We believe that the
impact of such a potential disruption would be limited due to the
availability of alternative suppliers, but we cannot be sure that such
a disruption would not have an adverse impact on our operations.
- One or more of our 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, we could be adversely impacted
if disruption of utility services occurred in any of our key customer
markets, as this could impact the customary flow of visitors from the
affected market.
- Airline service to and from the principal markets in which we operate
could experience disruption due to Year 2000 problems, thus limiting
the ability of potential customers to visit our properties.
- A significant portion of our customers in the Las Vegas locals market
are either directly employed by or dependent upon the major
hotels/casinos operating on the Las Vegas strip. We could be
significantly impacted if a long-term disruption of business of the
Las Vegas strip operations resulted from Year 2000 problems.
- The possible disruption of banking services due to Year 2000 problems
could impair our 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.
We are not in the position to determine whether the External Risk
Factors will have a material adverse impact on our operating results. While
we are in the initial states of developing contingency plans with respect to
identified risk factors, the nature of many External Risk Factors is such
that we do not believe a viable alternative would be available. For example,
should airline service be disrupted, there are no equivalent alternatives
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 our operating results.
APPROACH
We have established a task force to coordinate our response to the Year
2000. This task force, which reports to SCI's Chief Financial Officer, is led
by the Vice President of Information Technology. We also engaged an outside
consultant which assisted us in establishing an approach to dealing with the
Year 2000 issue, and we are in the process of implementing a Year 2000
compliance program at our properties. The program consists of the following
phases:
- Phase 1. Compilation of an inventory of information technology (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 complied in Phase 1 and inquiries of third
parties with whom we do 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 representation as to Year 2000 compliance has not
been received or for which representation was received but has not
been confirmed.
STATUS
Phases 1 and 2 are substantially complete, though we have not received
all responses to inquiries of significant third parties as to their Year 2000
readiness. Phases 3 and 4 are ongoing and will continue through the first
half of the calendar 1999. It is our goal to have this project completed by
mid-1999. Based upon the analysis conducted to date, we believe all of the
major critical systems at our properties are currently compliant or will be
compliant by mid-1999. The only significant aspect of our 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.
COSTS
The total cost to us of making our systems Year 2000 compliant is
currently estimated to be in the range of $1 to $2 million. Of that amount
we have incurred approximately $600,000 as of September 30, 1998. We are,
however, still in the process of identifying non-compliant systems and the
cost of replacing or repairing such systems, so the actual cost of making our
systems Year 2000 compliant may be materially greater than the amount we
currently estimate. 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 noncompliant software. These costs will be
capitalized and depreciated over their expected useful life. To the extent
existing hardware or software is replaced, we 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 our administration of our Year 2000 project, are
being expensed as incurred and are likewise included in the cost estimated
above.
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USE OF PROCEEDS
We will not receive any proceeds in connection with the exchange offer.
In consideration for issuing the New Notes in exchange for the Old Notes as
described in this prospectus, we will receive, retire and cancel the Old
Notes. The net proceeds from the sale of the Old Notes, after deducting
discounts, commissions and offering expenses were approximately $196.1
million. We used the net proceeds from the sale of the Old Notes and
borrowings under the Amended Bank Facility to redeem all of our outstanding
9 5/8% Senior Subordinated Notes due 2003 and to pay premiums related to the
redemption of those notes. We redeemed our 95/8% Senior Subordinated Notes
due 2003 on January 4, 1999 at a redemption price equal to 103.61% of their
principal amount, plus accrued and unpaid interest thereon to the date of
redemption.
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CONSOLIDATED CAPITALIZATION
The following table sets forth our consolidated capitalization at
September 30, 1998 as adjusted to reflect (1) our issuance and sale of the
Old Notes after deducting discounts and commissions and estimated expenses of
the offering of the Notes payable by us, (2) the application of the net
proceeds therefrom to redeem our 9 5/8% Senior Subordinated Notes due 2003
and (3) the execution of and incurrence of indebtedness under the Amended
Bank Facility. This table should be read in conjunction with the more
detailed information and financial statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
--------------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt(1).......................... $ 155,054 $ 21,654
---------- ----------
---------- ----------
Long-term debt:
Bank Facility(1)........................................ $195,600 $329,000
9 5/8% Senior Subordinated Notes due 2003(2)............ 187,487 -
10 1/8% Senior Subordinated Notes due 2006(2)........... 196,956 196,956
9 3/4% Senior Subordinated Notes due 2007(2)............ 144,816 144,816
Notes................................................... - 199,900
Other long-term debt, less current portion.............. 28,928 28,928
---------- ----------
Total long-term debt, less current portion............ 753,787 899,600
Total stockholders' equity(3)................................. 289,690 276,016
---------- ----------
Total capitalization............................... $1,043,477 $1,175,616
---------- ----------
---------- ----------
</TABLE>
- -----------
(1) The Amended Bank Facility provides for borrowings up to an aggregate of
$425.0 million available to certain subsidiaries of SCI, which borrowings
are guaranteed by SCI. Availability is subject to our compliance with the
indebtedness covenants contained in the Indenture and the existing
indentures and by certain ratios under the Amended Bank Facility. The
Amended Bank Facility was entered into on November 6, 1998. As Adjusted
amounts do not reflect the incurrence of approximately $32.0 million of
additional borrowings under the Amended Bank Facility incurred through the
closing of the Old Notes offering. As Adjusted amounts also reflect the
repayment of our old bank facility, repayment of our $80.0 million
supplemental loan facility and the impact on current portion of long term
debt as a result. Borrowings under the Amended Bank Facility are expected
to be periodically incurred in connection with the Texas Station and Sunset
Station expansion projects and payment of construction payables and general
corporate purposes.
(2) Net of original issue discounts in the aggregate of $11.7 million and $6.2
million, respectively.
(3) As Adjusted amounts reflect the extraordinary charges related to the
write-off of the unamortized debt discount and premium to redeem our 9 5/8%
Senior Subordinated Notes due 2003 and the unamortized loan costs for our
9 5/8% Senior Subordinated Notes due 2003, our old bank facility and
supplemental loan facility.
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SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information presented below as of
and for our fiscal years ended March 31, 1994, 1995, 1996, 1997 and 1998 has
been derived from consolidated financial statements which, except for 1994
and 1995, are contained elsewhere in this prospectus. The selected
consolidated financial information presented below as of and for the six
months ended September 30, 1997 and 1998 is derived from unaudited
consolidated financial statements and is not necessarily indicative of the
results that may be expected for future periods, including the period ended
December 31, 1998. In our opinion, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of our financial
position and results of operations for such period have been included. The
selected consolidated financial information set forth below is qualified in
its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, the notes thereto and other financial
and statistical information included elsewhere in this prospectus. We have
decided to change our fiscal year end from March 31 of each year to December
31 of each year. We will report the period from April 1, 1998 to December 31,
1998 separately on a transition report on Form 10-K.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- --------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATE:
Operating Revenues
Casino..................... $109,090 $210,534 $358,495 $450,013 $600,847 $282,700 $332,565
Food and beverage.......... 26,078 43,208 73,057 92,220 131,365 63,577 68,307
Room....................... 14,360 17,690 23,614 27,420 37,330 17,218 19,307
Other...................... 31,226 36,561 39,099 48,957 53,494 28,676 31,261
-------- -------- -------- -------- -------- -------- --------
Gross revenues.......... 180,754 307,993 494,265 618,610 823,036 392,171 451,440
Less promotional allowances... (11,211) (17,715) (27,408) (35,095) (53,426) (24,558) (31,742)
-------- -------- -------- -------- -------- -------- --------
Net revenues.......... 169,543 290,278 466,857 583,515 769,610 367,613 419,698
-------- -------- -------- -------- -------- -------- --------
Operating Costs and Expenses
Casino..................... 47,492 92,812 150,805 203,857 291,102 137,592 163,331
Food and beverage.......... 19,528 34,045 57,659 68,994 89,928 44,862 42,884
Room....................... 5,439 7,014 9,147 10,318 13,461 6,481 7,480
Other...................... 22,432 27,270 24,902 23,927 24,658 13,481 12,500
Selling, general and
administrative.......... 26,269 60,810 97,466 120,285 172,258 81,896 89,801
Corporate expense.......... 7,920 13,141 15,979 18,284 15,633 7,644 9,983
Restructuring charge....... - - - 2,016 - - -
Development expenses....... 1,791 7,200 3,960 1,302 104 104 -
Depreciation and amortization 12,976 22,220 35,039 44,589 67,414 33,169 35,185
Preopening expenses........ - 19,378 2,436 31,820 10,866 10,866 -
-------- -------- -------- -------- -------- -------- --------
Total operating costs and
expenses.............. 143,847 283,890 397,393 525,392 685,424 336,095 361,164
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)....... 25,696 6,388 69,464 58,123 84,186 31,518 58,534
Interest expense, net......... (9,179) (19,967) (30,563) (36,698) (78,826) (35,713) (44,408)
Write-off of costs to elect
REIT status................ - - - - (2,914) - -
Merger and related legal
costs...................... (2,943)
Other income (expense)........ 2,192 2,160 1,150 (47) (6,566) (4,996) (565)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item......... 18,709 (11,419) 40,051 21,378 (4,120) (9,191) 10,618
Income tax (provision)
benefit.................... (4,806) 3,477 (14,579) (7,615) 966 3,258 (4,475)
Reinstatement of deferred
taxes...................... (4,486) - - - - - -
Extraordinary item-loss on
early retirement of debt,
net of applicable income
tax benefit................ - - - - (2,042) - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............. 9,417 (7,942) 25,472 13,763 (5,196) (5,933) 6,143
Preferred stock dividends..... - - (53) (7,245) (7,245) (3,622) (3,622)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable
to common stock............ 9,417 (7,942) 25,419 6,518 (12,441) (9,555) 2,521
Pro forma net income after
income taxes(1)
(unaudited)................ $ 12,309 $ - $ - $ - $ - $ - $ -
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
(CONTINUED ON NEXT PAGE)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA(2):
Number of hotel rooms......... 1,028 1,328 1,528 1,728 2,195 2,195 2,395
Average daily occupancy rate.. 97% 95% 94% 96% 93% 95% 91%
Casino square footage......... 84,000 206,000 278,000 432,000 521,000 521,000 532,000
Number of slot machines....... 3,323 7,020 9,555 13,008 16,237 16,362 16,096
Capital expenditures(3)....... $102,687 $163,884 $307,745 $506,096 $134,385 $103,561 $47,650
EBITDA(4)..................... 41,743 47,986 106,939 136,548 162,466 75,553 93,719
Cash flows provided by
(used in)
Operating activities....... 23,685 48,494 77,953 111,803 104,955 54,644 47,162
Investing activities....... (111,072) (157,585) (266,935) (479,008) (219,407) (182,958) (46,015)
Financing activities....... 92,073 109,893 286,889 294,859 122,088 129,715 (903)
Ratio of earnings to fixed
charges(5)................. 2.01x 0.38x 1.87x 1.00x 0.82x 0.61x 1.22x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
--------------------------------------------------------- AS OF SEPTEMBER 30,
1994 1995 1996 1997 1998 1998
-------- -------- --------- ---------- ---------- -------------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 16,159 $ 16,961 $114,868 $ 42,522 $ 50,158 $ 50,402
Total assets.................. 301,486 436,538 827,314 1,234,118 1,300,216 1,314,287
Long-term debt, including
current portion............ 159,460 299,814 464,998 760,963 900,226 908,841
Stockholders' equity.......... 95,791 87,886 278,470 298,848 286,887 289,690
</TABLE>
- -----------
(1) Reflects provisions for federal income taxes (assuming a 34% effective tax
rate) as if the Company had not been treated as an S corporation during
this period.
(2) Other Data relating to the number of hotel rooms, the casino square footage
and the number of slot machines represent end of period data.
(3) Capital expenditures for the fiscal year ended March 31, 1994 included
$52.8 million related to the development of Station Casino St. Charles and
$31.9 million related to the development of Boulder Station. Capital
expenditures for the fiscal year ended March 31, 1995 include $52.9 million
related to the development of Station Casino St. Charles and $90.7 million
related to the development of Boulder Station. Capital expenditures for the
fiscal year ended March 31, 1996 include $84.9 million related to the
acquisition and completion of Texas Station, $25.0 million related to the
parking garage and entertainment complex at Boulder Station, $62.8 million
related to the development and construction of Station Casino Kansas City,
$29.7 million related to the development and construction of Sunset Station
and $39.4 million related to the expansion of Station Casino St. Charles
including an elevated roadway, a parking structure and restaurant
facilities. Capital expenditures for the fiscal year ended March 31, 1997
included $211.1 million related to the development and construction of
Station Casino Kansas City, $112.8 million related to the development and
construction of Sunset Station and $99.6 million related to the development
and construction of the Station Casino St. Charles expansion project.
Capital expenditures for the fiscal year ended March 31, 1998 included
$43.5 million related to the development and construction of Sunset Station
and $31.9 million related to the development and construction of the
Station Casino St. Charles expansion project. Capital expenditures for the
six months ended September 30, 1998 included $17.9 million for the Sunset
Station master-planned expansion project and $12.1 million for the Texas
Station master-planned expansion project.
(4) EBITDA consists of operating income, plus depreciation, amortization,
preopening expenses and a one-time restructuring charge in fiscal 1997 of
$2.0 million primarily related to employee severance payments and, in the
case of Station Casino St. Charles, lease income in fiscal 1994 of
$3.1 million relating to the lease of Station Casino St. Charles riverboat.
We believe that in addition to cash flows and net income, EBITDA is a
useful financial performance measurement for assessing our operating
performance. Together with net income and cash flows, EBITDA provides
investors with an additional basis to evaluate our ability to incur and
service debt and incur capital expenditures. You should consider the
components of EBITDA to evaluate EBITDA and the trends it depicts. The
impact of interest, taxes, depreciation and amortization, preopening
expenses, a one-time restructuring charge and lease income, each of which
can significantly affect our results of operations and liquidity, and
should be considered in evaluating our operating performance, cannot be
determined from EBITDA. Further, EBITDA does not represent net income or
cash flows from operating, financing and investing activities as defined
by generally accepted accounting principles and does not necessarily
indicate cash flows will be sufficient to fund cash needs. EBITDA should
not be considered as an alternative to net income, as an indicator of our
operating performance or to cash flows as a measure of liquidity. In
addition, you should note that not all gaming companies that report EBITDA
or adjustments to such measures may calculate EBITDA or such adjustments in
the same manner as we do, and therefore, our measure of EBITDA may not be
comparable to similarly titled measures used by other gaming companies.
(5) For the fiscal year ended March 31, 1995, earnings were inadequate to cover
fixed charges by $17.4 million. For the fiscal year ended March 31, 1998
and the six months ended September 30, 1997, earnings were inadequate to
cover fixed charges by $16.9 million and $18.3 million, respectively.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Information" and the consolidated financial
statements and the notes thereto included elsewhere in this prospectus. We have
changed our fiscal year end from March 31 of each year to December 31 of each
year. We will report the period from April 1, 1998 to December 31, 1998
separately on a transition report on Form 10-K.
RESULTS OF OPERATIONS
The following table highlights our results of operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------- ------------------
1996 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED)
NEVADA OPERATIONS(A)
Net revenues................................ $304,316 $357,193 $470,393 $217,280 $260,490
Operating income............................ 60,621 72,592 88,261 34,104 56,105
EBITDAR, As Adjusted(b)..................... 88,208 103,525 144,077 65,642 81,409
EBITDA, As Adjusted(b)...................... 82,779 99,905 133,158 61,300 74,555
MISSOURI OPERATIONS(A)
Net revenues................................ $129,878 $197,831 $273,800 $136,144 $144,787
Operating income............................ 28,058 4,295 9,886 4,276 11,742
EBITDAR, As Adjusted(b)..................... 40,281 51,784 42,290 20,417 28,135
EBITDA, As Adjusted(b)...................... 39,627 50,680 40,791 19,665 27,378
STATION CASINOS, INC. AND OTHER
Net revenues................................ $32,663 $28,491 $25,417 $14,189 $14,421
Operating loss.............................. (19,215) (18,764) (13,961) (6,862) (9,313)
EBITDAR, As Adjusted(b)..................... (15,013) (13,388) (11,473) (5,403) (7,915)
EBITDA, As Adjusted(b)...................... (15,467) (14,037) (11,483) (5,412) (8,214)
TOTAL STATION CASINOS, INC.
Net revenues................................ $466,857 $583,515 $769,610 $367,613 $419,698
Operating income............................ 69,464 58,123 84,186 31,518 58,534
EBITDAR, As Adjusted(b)..................... 113,476 141,921 174,894 80,656 101,629
EBITDA, As Adjusted(b)...................... 106,939 136,548 162,466 75,553 93,719
</TABLE>
- -----------
(a) The Nevada Operations include the accounts of Palace Station, Boulder
Station, Texas Station and Sunset Station. The Missouri Operations include
the accounts of Station Casino St. Charles and Station Casino Kansas City.
(b) "EBITDA, As Adjusted" consists of operating income plus depreciation,
amortization, preopening expenses and a one time restructuring charge in
1997 of $2.0 million related primarily to employee severance costs.
"EBITDAR, As Adjusted" represents EBITDA, As Adjusted plus rent expense.
We believe that in addition to cash flows and net income, EBITDA, As
Adjusted and EBITDAR, As Adjusted are useful financial performance
measurements for assessing our operating performance. Together with net
income and cash flows, EBITDA, As Adjusted and EBITDAR, As Adjusted
provides you with an additional basis to evaluate our ability to incur and
service debt and incur capital expenditures. To evaluate EBITDA, As
Adjusted and EBITDAR, As Adjusted and the trends they depict, you should
consider the components of each. You should consider the impact of
interest, taxes, depreciation and amortization, preopening expenses, a one
time restructuring charge in 1997 and rent expense, each of which can
significantly affect our results of operations and liquidity in evaluating
our operating performance, and which cannot be determined from EBITDA, As
Adjusted or from EBITDAR, As Adjusted. Further, EBITDA, As Adjusted and
EBITDAR, As Adjusted do not represent net income or cash flows from
operating, financing and investing activities as defined by generally
accepted accounting principles and do not necessarily indicate that cash
flows will be sufficient to
31
<PAGE>
fund cash needs. You should not consider them as an alternative to net
income, as an indicator of our operating performance or to cash flows as a
measure of liquidity. In addition, you should note that not all gaming
companies that report EBITDA or EBITDAR information or adjustments to such
measures may calculate EDITDA, EBITDAR or such adjustments in the same
manner as we do, and therefore, our measures of EBITDA, As Adjusted and
EBITDAR, As Adjusted may not be comparable to similarly titled measures
used by other gaming companies.
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1997.
For the six months ended September 30, 1998, consolidated net revenues
increased 14.2% to $419.7 million, as compared to $367.6 million in the prior
year. The Nevada Operations contributed $260.5 million of net revenues for the
six months ended September 30, 1998, an increase of $43.2 million over the prior
year. This increase in net revenues is due primarily to the opening of Sunset
Station in June 1997 and continued improvement at Texas Station. The Missouri
Operations contributed $144.8 million of net revenues for the six months ended
September 30, 1998, an increase of $8.6 million over the prior year. This
increase in net revenues is due to continued improvement at Station Casino
Kansas City, offset by a decline of 4.8% in net revenues at Station Casino St.
Charles due to increased competition in the St. Louis market since the opening
of a new hotel/casino in Maryland Heights in March 1997. At Station Casino
Kansas City, we continue to gain market share and the competitive environment
has eased with the closing of a competitor in June 1998. In addition, Station
Casino St. Charles has been negatively impacted as a result of disruption caused
by major construction on the interstate adjacent to the property. This
construction was completed at the end of September 1998.
For the six months ended September 30, 1998, consolidated operating income
increased 85.7% to $58.5 million, from $31.5 million in the prior year. The
Nevada Operations generated operating income of $56.1 million, an increase of
64.5% over the prior year. Included in the prior year amount was $10.9 million
of preopening expenses primarily related to the opening of Sunset Station. The
Missouri Operations generated operating income of $11.7 million, an increase of
174.6% over the prior year, due to the factors noted above.
CASINO. For the six months ended September 30, 1998, casino revenues
increased 17.6% to $332.6 million, from $282.7 million in the prior year. These
increases are due primarily to the opening of Sunset Station in June 1997, and
significant improvements at Texas Station and Station Casino Kansas City. These
increases were offset by a decrease at Palace Station due to the closure of part
of the casino as a result of flood damage in July 1998 and Station Casino St.
Charles due to the added competition and the interstate construction noted
above. See "-Palace Station Fire and Flood."
For the six months ended September 30, 1998, casino expenses increased
18.7% to $163.3 million, from $137.6 million in the prior year. These increases
in casino expenses are consistent with the increase in casino revenues noted
above. For the six months ended September 30, 1998, the casino net profit margin
declined to 50.9% from 51.3% in the prior year. Our Nevada Operations
experienced a slight decline in net casino margin, primarily due to the new
operations at Sunset Station, while Station Casino Kansas City improved
significantly. In addition, the Missouri Operations have a lower margin than our
combined margin, due primarily to higher gaming tax rates in Missouri as
compared to Nevada.
FOOD AND BEVERAGE. For the six months ended September 30, 1998, food and
beverage revenues increased 7.4% to $68.3 million, from $63.6 million in the
prior year.
For the six months ended September 30, 1998, food and beverage net profit
margins improved to 37.2%, from 29.4% in the prior year. These increases in
margin are due to improvement at our Nevada Operations, especially at Texas
Station and Sunset Station, as a result of continued focus on cost control.
ROOM. For the six months ended September 30, 1998, room revenues increased
12.1% to $19.3 million, from $17.2 million in the prior year. These increases
are due primarily to the opening of Sunset Station in June 1997, and the
200-room Wild Wild West Hotel and Casino ("Wild Wild West") which opened in
July 1998. Wild Wild West is operated by our wholly-owned subsidiary, Tropicana
Station, Inc. ("TRSI"). Room occupancy Company-wide decreased to 91% from 95%,
while the average daily room rate remained flat at $49 during the six months
ended September 30, 1998.
32
<PAGE>
OTHER. For the six months ended September 30, 1998, other revenue
increased 9.0% to $31.3 million, from $28.7 million in the prior year. These
increases are due primarily to proceeds from business interruption insurance
related to the Palace Station fire and flood. See "-Palace Station Fire and
Flood."
SELLING, GENERAL AND ADMINISTRATIVE. For the six months ended
September 30, 1998, selling, general and administrative expenses "SG&A"
increased 9.7% to $89.8 million, from $81.9 million in the prior year. These
increases are due primarily to the opening of Sunset Station in June 1997. For
the six months ended September 30, 1998, SG&A as a percentage of net revenues
decreased to 21.4%, from 22.3% in the prior year.
CORPORATE EXPENSES. For the six months ended September 30, 1998, corporate
expenses increased 30.6% to $10.0 million, from $7.7 million in the prior year.
This increase can be attributed to legal and referendum costs in Missouri
associated with the "boat in the moat" issue, and costs related to the Indian
gaming referendum in California. The referendum costs also increased our overall
effective tax rate to historically high levels of 42.1% for the six months ended
September 30, 1998, as these costs are not deductible for tax purposes.
Corporate expenses are expected to increase significantly year over year during
the third fiscal quarter, as well, with the culmination of the referendum
process in November. For the six months ended September 30, 1998, corporate
expenses increased to 2.4% of net revenues from 2.1% in the prior year.
DEPRECIATION AND AMORTIZATION. For the six months ended September 30,
1998, depreciation and amortization increased 6.1% to $35.2 million, from $33.2
million in the prior year. This increase is due primarily to the opening of
Sunset Station in June 1997.
PREOPENING EXPENSES. We capitalize preopening expenses associated with our
construction projects, including Sunset Station which opened June 10, 1997. Such
amounts are expensed upon the opening of the related project. During the six
months ended September 30, 1997, we expensed preopening expenses of
$10.9 million related primarily to Sunset Station.
INTEREST EXPENSE. For the six months ended September 30, 1998, interest
costs incurred (expensed and capitalized) decreased to $45.0 million, compared
to $45.2 million in the prior year. During the six months ended September 30,
1997 we had capitalized interest of $9.1 million related to the construction of
Sunset Station and an expansion project at Station Casino St. Charles. Effective
January 1, 1998, we have ceased capitalizing interest on the expansion project
at Station Casino St. Charles.
PALACE STATION FIRE AND FLOOD. On July 20, 1998, Palace Station suffered
damage to its casino and hotel tower as a result of a thunderstorm in the Las
Vegas Valley. In November 1998, the repairs to the casino were completed and all
of the rooms in the 21-story hotel tower were fully functional. Losses
associated with the property damage and business interruption are covered under
our insurance policies. As of September 30, 1998, the insurance company has
advanced $6 million to us on this claim. We expect no significant losses from
the business interruption or property claims, however, there can be no
assurances that we will be fully reimbursed by the final settlement. In
addition, our business interruption insurance coverage related to this incident
terminates in November 1999. To the extent that operating revenue at Palace
Station does not return to levels experienced prior to the fire and flood, our
results of operations may be materially adversely impacted.
COMMITMENTS AND CONTINGENCIES. During the six months ended September 30,
1998, we wrote off $2.9 million of costs incurred related to the terminated
merger agreement with Crescent Real Estate Equities Company. We also expect to
incur ongoing litigation costs associated with the current lawsuits involving
the merger agreement. See "Business-Litigation."
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Consolidated net revenues increased 31.9% to $769.6 million for the fiscal
year ended March 31, 1998, from $583.5 million in the prior year. Our Nevada
Operations contributed $470.4 million of net revenues for the fiscal year ended
March 31, 1998, an increase of 31.7% over the prior year. This increase in net
revenues is due primarily to the opening of Sunset Station in June 1997 and the
continued improvement at Texas Station. Net revenues at Boulder Station declined
approximately 2.8% due primarily to the opening of Sunset Station. Our Missouri
Operations contributed $273.8 million of net revenues for the fiscal year ended
March 31, 1998, an increase of 38.4% over the
33
<PAGE>
prior year. This increase in net revenues is due to a full year of operations at
Station Casino Kansas City which opened in January 1997, offset by a decline of
23.5% in net revenues at Station Casino St. Charles due to increased competition
in the St. Louis market with the opening of a new hotel/casino in Maryland
Heights in March 1997.
Consolidated operating income increased 44.8% to $84.2 million for the
fiscal year ended March 31, 1998, from $58.1 million in the prior year.
Operating income at our Nevada Operations increased 21.6% to $88.3 million for
the fiscal year ended March 31, 1998, from $72.6 million in the prior year.
Excluding $10.9 million of preopening expenses primarily related to the opening
of Sunset Station, the Nevada Operations generated operating income of
$99.1 million, an increase of 36.6% over the prior year. Operating income at our
Missouri Operations increased 130.2% to $9.9 million for the fiscal year ended
March 31, 1998, from $4.3 million in the prior year. The increase in
consolidated operating income, an increase in net interest expense of
$42.1 million, the expiration of certain option payments to lease or acquire
land for future development resulting in an expense of $5.0 million, the write-
off of $2.9 million in transaction costs associated with the abandonment of
plans to convert to a real estate investment trust, the donation of land with a
book value of $1.8 million to the County of St. Charles and an extraordinary
loss on the early retirement of the Sunset Station construction term note
resulted in a net loss applicable to common stock of $12.4 million, or a loss
per common share of $0.35 for the fiscal year ended March 31, 1998, compared to
net income applicable to common stock of $6.5 million, or earnings per common
share of $0.18 in the prior year.
CASINO. Casino revenues increased 33.5% to $600.8 million for the fiscal
year ended March 31, 1998, from $450.0 million in the prior year. This increase
is due to the opening of Sunset Station in June 1997, a full year of operations
at Station Casino Kansas City which opened in January 1997 and improvements at
Texas Station, offset by a decrease at Station Casino St. Charles due to the
added competition noted above.
Casino expenses increased 42.8% to $291.1 million for the fiscal year ended
March 31, 1998, from $203.9 million in the prior year. The casino net profit
margin decreased to 51.6% for the fiscal year ended March 31, 1998, from 54.7%
in the prior year. Our Nevada Operations experienced a slight increase in net
casino margin, while the Missouri Operations were negatively impacted in St.
Charles due to the increased competition and Station Casino Kansas City which
has a lower margin due to the start-up nature of its operations, and its late
entry into the Kansas City market. In addition, the Missouri Operations have a
lower margin than our combined margin, due primarily to higher gaming tax rates
in Missouri as compared to Nevada.
FOOD AND BEVERAGE. Food and beverage revenues increased 42.4% to
$131.4 million for the fiscal year ended March 31, 1998, from $92.2 million in
the prior year. This increase is due to the opening of Sunset Station and a full
year of operations at Station Casino Kansas City.
Food and beverage net profit margins improved to 31.5% for the fiscal year
ended March 31, 1998, from 25.2% in the prior year. This increase in margin is
due to improvement at our Nevada Operations and Station Casino Kansas City,
primarily as a result of continued focus on cost control.
ROOM. Room revenues increased 36.1% to $37.3 million for the fiscal year
ended March 31, 1998, from $27.4 million in the prior year. This increase is due
primarily to the opening of Sunset Station in June 1997 and a full year of
operations at Station Casino Kansas City. Room occupancy Company-wide decreased
to 93% from 96%, while the average daily room rate increased to $52 from $48
during the fiscal year ended March 31, 1998.
OTHER. Other revenue increased 9.3% to $53.5 million for the fiscal year
ended March 31, 1998, from $49.0 million in the prior year. This increase is due
primarily to a full year of operations at Station Casino Kansas City and the
opening of Sunset Station. Revenues from our slot route business increased 3.7%
to $21.8 million for the fiscal year ended March 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 43.2% to $172.3 million for the fiscal year ended March 31,
1998, from $120.3 million in the prior year. This increase is due to a full year
of operations at Station Casino Kansas City and the opening of Sunset Station in
June 1997. SG&A as a percentage of net revenues increased to 22.4% for the
fiscal year ended March 31, 1998, from 20.6% in the prior year. This increase is
due primarily to the new operations at Sunset Station and Station Casino Kansas
City which, as new properties, tend to have a higher percentage of SG&A to net
revenues.
34
<PAGE>
CORPORATE EXPENSES. Corporate expenses decreased 14.5% to $15.6 million
for the fiscal year ended March 31, 1998, from $18.3 million in the prior year.
Corporate expenses declined to 2.0% of net revenues for the fiscal year ended
March 31, 1998, from 3.1% in the prior year. This reduction was the result of
management's efforts to lower corporate expenses.
DEVELOPMENT EXPENSES. Development expenses decreased significantly for the
fiscal year ended March 31, 1998, compared to the prior year. This decrease is
the result of reduced efforts to identify new gaming opportunities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
51.2% to $67.4 million for the fiscal year ended March 31, 1998, from
$44.6 million in the prior year. This increase is due primarily to the opening
of Sunset Station and a full year of operations at Station Casino Kansas City.
PREOPENING EXPENSES. We capitalize preopening expenses associated with our
construction projects, including Sunset Station which opened June 10, 1997. Such
amounts are expensed upon the opening of the related project. During the fiscal
year ended March 31, 1998, we expensed preopening expenses of $10.9 million
related primarily to Sunset Station.
INTEREST EXPENSE. Interest costs incurred (expensed and capitalized)
increased 56.8% to $92.3 million for the fiscal year ended March 31, 1998. This
increase is primarily attributable to added interest costs associated with the
9 3/4% senior subordinated notes issued by us in April 1997, borrowings under
the Sunset Station loan agreement and borrowings under the reducing revolving
credit facility. Effective January 1, 1998, we had ceased capitalizing interest
on the expansion project at Station Casino St. Charles.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Consolidated net revenues increased 25.0% to $583.5 million for the fiscal
year ended March 31, 1997, from $466.9 million in the prior year. Our Nevada
Operations contributed $357.2 million of net revenues for the fiscal year ended
March 31, 1997, an increase of 17.4% over the prior year. This increase is
primarily due to improved operations at Boulder Station and the operations of
Texas Station which opened in July 1995. Our Missouri Operations contributed
$197.8 million of net revenues for the fiscal year ended March 31, 1997, an
increase of 52.3% over the prior year. This increase is due to the opening of
Station Casino Kansas City in January 1997 and an increase in revenues at
Station Casino St. Charles. For the fiscal year ended March 31, 1996, net
revenues and operating income at Station Casino St. Charles were adversely
impacted by flooding on the Missouri River, which closed operations for 16 days
and disrupted operations through the balance of the first quarter of fiscal year
1996. During the fiscal year ended March 31, 1997, the improved results at
Station Casino St. Charles were achieved despite disruption created from the
construction of a new parking garage and elevated roadway, which opened in
May 1996, and construction related to the further development of the property's
master plan. Flooding on the Missouri River did occur again in May 1996. The
newly completed parking garage and elevated roadway served one of its intended
purposes in minimizing business disruption caused by the flood. Additionally,
results at Station Casino St. Charles were adversely impacted with the opening
of a new hotel/casino in March 1997.
Operating income decreased 16.3% to $58.1 million for the fiscal year ended
March 31, 1997, from $69.5 million in the prior year. Operating income at our
Nevada Operations increased 19.7% to $72.6 million from $60.6 million in the
prior year. Operating income at our Missouri Operations were negatively impacted
by the write-off of preopening expenses for Station Casino Kansas City and a
one-time restructuring charge from the implementation of a plan to reduce costs
and improve efficiency which resulted primarily in employee severance payments.
Operating income at Station Casino St. Charles increased 24.7% to $35.0 million.
For the fiscal year ended March 31, 1997, these results, including an increase
in net interest expense of $6.1 million, a decrease in the income tax provision
of $7.0 million and dividends of $7.2 million on the convertible preferred stock
issued in March 1996, resulted in net income applicable to common stock of
$6.5 million, or earnings per common share of $0.18, compared to net income
applicable to common stock of $25.4 million or earnings per common share of
$0.75 in the prior year.
CASINO. Casino revenues increased 25.5% to $450.0 million for the fiscal
year ended March 31, 1997, from $358.5 million in the prior year. This increase
is due to the opening of Station Casino Kansas City, a full year of operations
at Texas Station and improved results at both Boulder Station and Station Casino
St. Charles. Casino
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revenues increased $42.8 million and $51.6 million for the Nevada Operations and
Missouri Operations, respectively. Station Casino Kansas City generated casino
revenue of $29.9 million since opening in January 1997.
Casino expenses increased 35.2% to $203.9 million for the fiscal year ended
March 31, 1997, from $150.8 million in the prior year. These increases in casino
expenses are consistent with the increases in casino revenues discussed above.
Casino net profit margin decreased to 54.7% from 57.9% in the prior year.
This decrease is due to a slight decrease at the Nevada Operations and a lower
margin at Station Casino Kansas City due to the start-up nature of the new
operations. In addition, the Missouri Operations have a lower margin than our
combined margin due primarily to higher gaming tax rates in Missouri as compared
to Nevada.
FOOD AND BEVERAGE. Food and beverage revenues increased 26.2% to
$92.2 million for the fiscal year ended March 31, 1997, from $73.1 million in
the prior year. This improvement is primarily due to an increase in food and
beverage revenues at Station Casino St. Charles of $5.0 million resulting from
two new full-service restaurant facilities which opened in October 1995, an
increase of $5.0 million at Texas Station and $7.5 million from Station Casino
Kansas City.
Food and beverage net profit margins improved to 25.2% for the fiscal year
ended March 31, 1997, from 21.1% in the prior year. This increase in net margins
is primarily due to improvements at the Nevada Operations, especially Texas
Station, as a result of continued focus on cost control and strong margins at
Station Casino St. Charles with the addition of the two full-service
restaurants.
ROOM. Room revenues increased 16.1% to $27.4 million for the fiscal year
ended March 31, 1997, from $23.6 million in the prior year. This increase is due
primarily to the addition of Texas Station with a total of 200 rooms which
contributed an increase of $1.6 million of room revenues and Station Casino
Kansas City with a total of 180 rooms which contributed $1.2 million of room
revenues for the fiscal year ended March 31, 1997. Company-wide room occupancy
increased to 96% from 94%, while the average daily room rate increased to $48
from $46.
OTHER. Other revenues increased 25.2% to $49.0 million for the fiscal year
ended March 31, 1997, from $39.1 million in the prior year. This increase is due
to $2.3 million for our interest in the operating income of Barley's Casino &
Brewing Company which opened in January 1996, $3.1 million of lease income from
the lease of a riverboat gaming facility, combined increases in other revenues
at our other operating properties of $7.5 million, offset by lost revenues of
$3.0 million from the sale of vending assets of Southwest Services which were
sold in September 1995. The riverboat gaming facility lease terminated in
August 1997. Revenues from our slot route business remained constant at
$21.0 million.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 23.4% to $120.3 million for the fiscal year ended March 31,
1997, from $97.5 million in the prior year. This increase is primarily due to
the addition of Texas Station in July 1995 and Station Casino Kansas City in
January 1997. SG&A as a percentage of net revenues decreased slightly to 20.6%
from 20.9% in the prior year.
CORPORATE EXPENSES. Corporate expenses increased 14.4% to $18.3 million
for the fiscal year ended March 31, 1997, from $16.0 million in the prior year.
These increases are attributable to increases in personnel infrastructure to
manage our new properties and projects under development. Corporate expenses
decreased to 3.1% of net revenues for the fiscal year ended March 31, 1997, from
3.4% in the prior year.
DEVELOPMENT EXPENSES. Development expenses decreased significantly for the
fiscal year ended March 31, 1997 compared to the prior year. This decrease is
the result of reduced efforts to identify potential gaming opportunities. Such
costs are incurred by us in our efforts to identify and pursue potential gaming
opportunities in selected jurisdictions, including those in which gaming has not
been approved. We expense development costs including lobbying, legal and
consulting until such time as the jurisdiction has approved gaming and we have
identified a specific site. Costs incurred subsequent to these criteria being
met are capitalized.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
27.3% to $44.6 million for the fiscal year ended March 31, 1997, from
$35.0 million in the prior year. Station Casino Kansas City contributed $2.8
million
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of this increase, while Texas Station contributed $3.8 million. Depreciation
expense increased at Boulder Station primarily as a result of the parking garage
and entertainment facilities added during mid-fiscal year 1996 and at Station
Casino St. Charles primarily as a result of the parking garage which opened in
May 1996. These increases were offset by a decrease in depreciation expense at
Palace Station.
PREOPENING EXPENSES. We have capitalized significant preopening expenses
associated with our construction projects, including Station Casino Kansas City
which opened January 16, 1997, and Sunset Station. These amounts are expensed
upon the opening of the related project and could have a material adverse impact
on our earnings. During the fiscal year ended March 31, 1997, we expensed
preopening expenses of $31.8 million substantially related to Station Casino
Kansas City. Preopening expenses for the fiscal year ended March 31, 1996 relate
to the opening of the new restaurant facilities at Station Casino St. Charles,
the theater and parking garage at Boulder Station, the opening of Texas Station
in July 1995 and the opening at Barley's Casino & Brewing Company in
January 1996.
INTEREST EXPENSE. Interest costs incurred (expensed and capitalized)
increased 59.2% to $58.8 million for the fiscal year ended March 31, 1997. This
increase is primarily attributable to added interest costs associated with the
10 1/8% Senior Subordinated Notes issued by us in March 1996 and borrowings
under the reducing revolving credit facility. During the first quarter of fiscal
year 1997, we recorded interest income of $0.7 million from investments in tax
free municipal securities purchased with the excess proceeds of the public
offerings completed in March 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended September 30, 1998, our sources of capital
included cash flows from operating activities of $47.2 million and $80 million
of borrowings under notes payable with a group of banks. These borrowings were
used to reduce borrowings under our secured amended and restated reducing
revolving loan agreement (the "Old Bank Facility"). At September 30, 1998, we
had total available borrowings of $285.2 million under the Old Bank Facility, of
which $256.0 million were outstanding, and $50.4 million in cash and cash
equivalents. In November 1998, we entered into the Amended Bank Facility which
amended and restated the Old Bank Facility and which was used to repay an $80.0
million supplemental loan facility. See "Description of Certain Indebtedness and
Capital Stock."
Our Amended Bank Facility consists of three secured tranches. Two revolving
tranches constitute a reducing revolving credit facility (the "Revolving
Facility") which provides for borrowings up to an aggregate principal amount of
$350.0 million and the third tranche constitutes a $75.0 million term loan (the
"Term Loan"). The borrowers under the Amended Bank Facility are PSHC, BSI, TSI,
SSI, KCSC and SCRSI (collectively, the "Borrowers"). The Amended Bank Facility
is secured by substantially all of the assets of the Borrowers. SCI, Southwest
Gaming Services, Inc. ("SGSI") and certain other subsidiaries guarantee the
borrowings under the Amended Bank Facility (collectively the "Guarantors"). The
maturity date for the Revolving Facility is September 30, 2003. The availability
under the Revolving Facility will reduce by $7 million on September 30, 1999; by
$12.25 million on each of December 31, 1999, March 31, 2000 and June 30, 2000;
by $14.0 million on September 30, 2000, December 31, 2000, March 31, 2001 and
June 30, 2001; and by $17.5 million on each fiscal quarter end thereafter. The
Term Loan matures on December 31, 2005 and amortizes in installments of $187,500
on each fiscal quarter end from March 31, 2000 until and including December 31,
2004 and of $17.8 million on each fiscal quarter end thereafter. Borrowings
under the Revolving Facility bear interest at a margin above the Alternate Base
Rate or the Eurodollar Rate (each, as defined in the Amended Bank Facility), as
selected by us. The margin above such rates, and the fee on the unfunded
portions of the Revolving Facility, will vary quarterly based on our combined
consolidated ratio of average quarterly adjusted funded debt to net income
before interest, taxes, depreciation and amortization adjusted for non-recurring
gains and losses and preopening expenses, if any ("Adjusted EBITDA"). As of
November 25, 1998, the Borrowers' margin above the Eurodollar Rate on borrowings
under the Revolving Facility was 2.25%. The maximum margin for Eurodollar Rate
borrowings is 2.75%. The maximum margin for alternate base rate borrowings is
1.50%. The maximum fee for the unfunded portion of the Revolving Facility is
0.50% multiplied by the average of the unfunded portion of the Revolving
Facility. The interest rate on any Eurodollar Term Loan is 3.25% above the
Eurodollar Rate. In addition, the Amended Bank Facility has minimum tangible net
worth requirements.
During the six months ended September 30, 1998, our total capital
expenditures were approximately $47.7 million, of which approximately (1) $30.0
million was associated with the expansion projects at Sunset Station and Texas
Station, and (2) $17.7 million was associated with maintenance capital
expenditures and various other projects.
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Our primary capital requirements during the remainder of the period ended
December 31, 1998 and calendar 1999 are expected to include:
- the payment of construction contracts payable of approximately
$8.6 million as of September 30, 1998;
- the remaining costs of the expansion projects at Sunset Station and
Texas Station, estimated to cost approximately $66 million;
- maintenance capital expenditures;
- principal and interest payments on indebtedness; and
- dividend payments on convertible preferred stock.
We previously began construction of an expansion project at Station Casino St.
Charles.
In the fall of 1996, we began an expansion project at Station Casino St.
Charles which included the building of a backwater basin containing two new
gaming vessels and a proposed retail and entertainment complex. The basin
has been constructed, but since March 31, 1998, construction on the Station
Casino St. Charles expansion project has been halted.
We currently believe the Station Casino St. Charles expansion project as
originally contemplated fulfills a strategic need in the St. Louis, Missouri
market. While we desire to complete and operate these new facilities,
circumstances may arise in the future, including the lack of available
financing, a downturn in the demand for gaming facilities, increased regulatory
requirements unique to the state of Missouri and more attractive uses of
available capital, which may prevent the expansion project from being completed
as originally designed, if at all. In this event, certain costs incurred to
date may be deemed to possess little or no value necessitating the recognition
of an impairment loss in the period such a determination is made. The impairment
loss could include substantially all of the amount invested by us in the Station
Casino St. Charles expansion project.
As of September 30, 1998, we had invested approximately $169.0 million
related to the Station Casino St. Charles expansion project. We do not
anticipate that any major construction activity on the Station Casino St.
Charles expansion project will resume in the near term. See "Risk
Factors-St. Charles Expansion Project."
We believe that cash flows from operations, borrowings under the Amended
Bank Facility, vendor and lease financing of equipment, and existing cash
balances will be adequate to satisfy our anticipated uses of capital during the
remainder of the period ended December 31, 1998 and calendar 1999. We, however,
are continually evaluating our financing needs. If more attractive financing
alternatives become available to us, we may amend our financing plans, assuming
such financing would be permitted under our existing debt agreements and other
applicable agreements. See "Description of Certain Indebtedness and Capital
Stock."
In connection with the agreement and plan of merger between SCI and
Crescent Real Estate Equities Company ("Crescent") dated January 16, 1998, we
have the option to issue to Crescent and Crescent has agreed to purchase up to
an aggregate of 115,000 shares of a new series of SCI's redeemable preferred
stock at a price of $1,000 per share (plus accrued dividends) in cash in
increments of 5,000 shares. On July 28, 1998, we requested Crescent to purchase
$20 million of the redeemable preferred stock, and on August 11, 1998, we
requested Crescent to purchase the remaining $95 million of the redeemable
preferred stock. The proceeds of such purchases were to be used to repay
amounts due under the Old Bank Facility which were used to pay for master
planned expansions. On August 7, 1998, Crescent notified us that Crescent
believed it was not obligated to purchase the 115,000 shares of redeemable
preferred stock. On August 12, 1998, Crescent announced that it intended to
assert a claim for damages for the $54 million break-up fee under the merger
agreement, or its equivalent, and expenses. SCI and Crescent are currently
involved in litigation in a Nevada state court regarding the merger agreement,
and whether Crescent is obligated to purchase the $115 million of redeemable
preferred stock. Both parties have asserted that the other party has breached
the merger agreement and is liable for damages. We anticipate that Crescent
will seek the $54 million break-up fee as part of its counterclaims against us.
Discovery is ongoing in this action. In the event that we are required to pay
the $54 million break-up fee, that payment would have a material adverse effect
on our business. While we believe that Crescent has
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breached the merger agreement and that Crescent's allegations of breach by us
are without merit, as with any litigation, no assurance as to the outcome of
such litigation can be made. See "Business-Litigation."
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement on Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," and
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," both of which are effective for fiscal years beginning after
December 15, 1997. Management estimates that these SFAS's will have no impact on
our results of operations or financial position.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") No. 98-5
"Reporting the Costs of Start-up Activities." The provisions of SOP 98-5 are
effective for fiscal years beginning after December 15, 1998, and require that
the costs associated with start-up activities (including preopening costs of
casinos) be expensed as incurred.
YEAR 2000 READINESS
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 such as date-sensitive computer software as well as non-IT systems,
such as equipment containing microcontrollers 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
our properties. As such, we are exposed to the risk that Year 2000 problems
could disrupt operations at our affected properties and have a material adverse
impact upon our operating results.
We are also exposed to the risk of possible failure of IT and non-IT
systems external to our operations. These External Risk Factors arise from the
fact that our operations, like most businesses, depend upon numerous other
private, public, and governmental entities. While these External Risk Factors
are not our responsibility and the remediation of these factors is beyond our
control, we are attempting to monitor these risks and form such contingency
plans as we deem necessary. As a result of these External Risk Factors, we may
be materially and adversely impacted even if our 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 our suppliers could experience Year 2000 problems that
impact the ability of the suppliers to provide goods and services
required in the operation of our properties. We believe that the
impact of such a potential disruption would be limited due to the
availability of alternative suppliers, but we cannot be sure that such
a disruption would not have an adverse impact on our operations.
- One or more of our 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, we could be adversely impacted
if disruption of utility services occurred in any of our key customer
markets, as this could impact the customary flow of visitors from the
affected market.
- Airline service to and from the principal markets in which we operate
could experience disruption due to Year 2000 problems, thus limiting
the ability of potential customers to visit our properties.
- A significant portion of our customers in the Las Vegas locals market
are either directly employed by or dependent upon the major
hotels/casinos operating on the Las Vegas strip. We could be
significantly impacted if a long-term disruption of business of the
Las Vegas strip operations resulted from Year 2000 problems.
- The possible disruption of banking services due to Year 2000 problems
could impair our 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.
We are not in the position to determine whether the External Risk Factors
will have a material adverse impact on our operating results. While we are in
the initial states of developing contingency plans with respect to identified
risk factors, the nature of many External Risk Factors is such that we do not
believe a viable alternative would be available. For example, should airline
service be disrupted, there are no equivalent alternatives 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 our operating results.
APPROACH
We have established a task force to coordinate our response to the Year
2000. This task force, which reports to SCI's Chief Financial Officer, is led
by the Vice President of Information Technology. We also engaged an outside
consultant which assisted us in establishing an approach to dealing with the
Year 2000 issue, and we are in the process of implementing a Year 2000
compliance program at our properties. The program consists of the following
phases:
- Phase 1. Compilation of an inventory of information technology (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 complied in Phase 1 and inquiries of third
parties with whom we do 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 representation as to Year 2000 compliance has not
been received or for which representation was received but has not
been confirmed.
STATUS
Phases 1 and 2 are substantially complete, though we have not received
all responses to inquiries of significant third parties as to their Year 2000
readiness. Phases 3 and 4 are ongoing and will continue through the first
half of the calendar 1999. It is our goal to have this project completed by
mid-1999. Based upon the analysis conducted to date, we believe all of the
major critical systems at our properties are currently compliant or will be
compliant by mid-1999. The only significant aspect of our 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.
COSTS
The total cost to us of making our systems Year 2000 compliant is currently
estimated to be in the range of $1 to $2 million. Of that amount we have
incurred approximately $600,000 as of September 30, 1998. We are, however,
still in the process of identifying non-compliant systems and the cost of
replacing or repairing such systems, so the actual cost of making our systems
Year 2000 compliant may be materially greater than the amount we currently
estimate. 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 noncompliant software. These costs will be capitalized and depreciated
over their expected useful life. To the extent existing hardware or software is
replaced, we 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 our
administration of our Year 2000 project, are being expensed as incurred and are
likewise included in the cost estimated above. See "Risk Factors-Year 2000
Readiness."
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BUSINESS
GENERAL
Station Casinos, Inc. is an established multi-jurisdictional gaming company
that owns and operates six distinctly-themed casino properties, four of which
are located in Las Vegas, Nevada, one which is located in Kansas City, Missouri
and one which is located in St. Charles, Missouri. We also own and provide slot
route management services in southern Nevada. Management's growth strategy
includes the master-planned expansion of our existing gaming facilities in
Nevada and Missouri and the evaluation and pursuit of additional development
opportunities in Nevada and other gaming markets.
In Las Vegas, we own and operate Palace Station, Boulder Station, Texas
Station and Sunset Station (collectively, the "Las Vegas Casino Properties").
Palace Station caters primarily to Las Vegas residents and repeat visitors and
aggressively markets itself as "The Local Favorite." Palace Station is located
on approximately 39 acres strategically located on Sahara Avenue adjacent to
Interstate 15, and is near major attractions on the Las Vegas Strip and downtown
Las Vegas. Boulder Station is located on approximately 45 acres along the
Boulder Highway, immediately adjacent to Interstate 515, and is strategically
located on the opposite side of Las Vegas from Palace Station. Boulder Station
caters primarily to Las Vegas residents living on the eastern side of Las Vegas.
Texas Station is strategically located on approximately 47 acres at the corner
of Lake Mead Boulevard and Tonopah Highway in North Las Vegas and draws
customers from the rapidly growing North Las Vegas and Summerlin residential
areas. Sunset Station is strategically located on approximately 105 acres on
Sunset Road immediately adjacent to Interstate 515 and features a
Spanish/Mediterranean-themed hotel/casino. Sunset Station caters primarily to
residents living in the rapidly growing Henderson/Green Valley area of Las
Vegas. Sunset Station is located eight miles southeast of Boulder Station. In
May 1998, we entered into a long term lease for approximately 19 acres of land
located on Tropicana Avenue adjacent to Interstate 15, approximately three miles
from Palace Station. We began operating Wild Wild West on this land beginning on
July 1, 1998, while management evaluates development alternatives for this
location.
In Missouri, we own and operate Station Casino Kansas City and Station
Casino St. Charles. Station Casino Kansas City, is located on 171 acres
immediately east of the heavily traveled Interstate 435 bridge, seven miles east
of downtown Kansas City. Station Casino Kansas City caters to local customers
within the greater Kansas City area and tourists from outside the region.
Station Casino St. Charles is located on 52 acres situated immediately north of
the Interstate 70 bridge in St. Charles, and is strategically located to attract
customers from the St. Charles and greater St. Louis areas and tourists from
outside the region. Management is employing the same operating strategies that
have been successful at our properties in the competitive Las Vegas market in
order to secure a strong presence in the Missouri markets.
OPERATING STRATEGY
We believe that the following key principles have been integral to our
success as a gaming operator and we intend to continue to employ these
strategies at each of our various operations.
TARGETED CUSTOMER BASE
Our operating strategy emphasizes attracting and retaining customers
primarily from the local and repeat visitor markets. The Las Vegas Casino
Properties, Station Casino Kansas City and Station Casino St. Charles
(collectively the "Casino Properties") attract customers from their local
markets through innovative, frequent and high-profile promotional programs,
focused marketing efforts and convenient locations, and from the repeat visitor
market through aggressive marketing and the development of strong relationships
with specifically targeted travel wholesalers. Although perceived value
initially attracts a customer to the Casino Properties, actual value generates
customer satisfaction and loyalty. Management believes that actual value becomes
apparent during the customer's visit through an enjoyable, affordable and
high-quality entertainment experience. Las Vegas, which is and has been one of
the fastest growing cities in the United States, is characterized by a strong
economy and demographics which include an increasing number of retirees and
other active gaming customers. This strategy applies as well to the Missouri
markets. We believe that our visitor patrons are also discerning customers who
enjoy our value-oriented, high-quality approach. This is particularly true in
Las Vegas where patrons view our hotel and casino product as a preferable
alternative to attractions located on the Las Vegas Strip and downtown Las
Vegas.
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PROVIDE A HIGH-VALUE EXPERIENCE
Because we target the repeat customer, management is committed to providing
a high-value entertainment experience for our customers in our restaurants,
hotels and casinos. Management believes that the value offered by restaurants at
each of the Casino Properties is a major factor in attracting local gaming
customers, as dining is a primary motivation for casino visits by many locals.
Through their restaurants, each of which has a distinct theme and style of
cuisine, our Casino Properties offer generous portions of high-quality food at
reasonable prices. In addition, our operating strategy focuses on slot and video
poker machine play. Our target market consists of frequent gaming patrons who
seek not only a friendly atmosphere and convenience, but also higher than
average payout rates. Because locals and repeat visitors demand variety and
quality in their slot and video poker machine play, the Casino Properties offer
the latest in slot and video poker technology, including several games designed
exclusively for us.
As part of our commitment to providing a quality entertainment experience
for our patrons, we are dedicated to ensuring a high level of customer
satisfaction and loyalty by providing attentive customer service in a friendly,
casual atmosphere. Management recognizes that consistent quality and a
comfortable atmosphere stem from the collective care and friendliness of each
employee. Station, which began as a family-run business, has maintained
close-knit relationships among its management and endeavors to instill among its
employees this same sense of loyalty. Toward this end, management takes a
hands-on approach through active and direct involvement with employees at all
levels. An indication of the value of this approach may be seen by the number of
Las Vegas residents seeking employment with us.
MARKETING AND PROMOTION
We employ an innovative marketing strategy that utilizes frequent,
high-profile promotional programs in order to attract customers and establish a
high level of name recognition. In addition to aggressive marketing through
television, radio and newspaper advertising, we have created and sponsored such
promotions as "Car-A-Day," "Paycheck Bonanza" and the "Great Giveaway," a
popular football season contest. These promotions have become a tradition in the
locals market and have had a positive impact upon our patronage during their
respective promotion periods.
LAS VEGAS CASINO PROPERTIES
PALACE STATION
Palace Station is located on approximately 39 acres strategically located
at the intersection of Sahara Avenue and Interstate 15, one of Las Vegas' most
heavily traveled areas. Palace Station is a short distance from McCarran
International Airport and from major attractions on the Las Vegas Strip and
downtown Las Vegas. With Palace Station's ample parking and convenient location,
customers are assured easy access to the hotel and casino, a factor that
management believes is particularly important in attracting and retaining its
customers. Palace Station has the following features and amenities:
- approximately 287,000 square feet of main facility area with a
turn-of-the-20th-century railroad station theme;
- a 1,028-room hotel and approximately 3,700 parking spaces, including
1,900 spaces in two multi-level parking structures;
- an approximately 84,000-square foot casino with approximately 2,070
slot and video poker machines, 40 gaming tables, a keno lounge, a
poker room, a bingo parlor and a race and sports book; and
- non-casino amenities including two swimming pools, five full-service
restaurants, two fast food outlets, a 24-hour gift shop and a
nongaming video arcade.
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The hotel features 587 rooms in a modern 21-story tower. Guests in the tower
enjoy a view of the Las Vegas Strip, downtown Las Vegas and the surrounding
mountains. The remaining 441 hotel rooms are located in low-rise buildings
adjoining the tower and casino.
Palace Station's five full-service restaurants have a total of over 1,225
seats. These restaurants offer a variety of high-quality food at reasonable
prices, including the 24-hour Iron Horse Cafe (featuring a Chinese menu in
addition to American fare), an all-you-can-eat buffet known as "The Feast," the
Broiler (a steak and seafood restaurant), the Pasta Palace (an Italian
restaurant) and the Guadalajara Bar & Grille (a Mexican restaurant). Palace
Station guests also may take advantage of the Palace Saloon Piano Bar and the
recently remodeled Loading Dock Lounge which provide music, dancing and
entertainment. Quick service meals and snacks are offered at the Pizza Palace,
Manhattan Bagel, Baskin Robbins, Burger King and The Whistle Stop Snackbar.
BOULDER STATION
Boulder Station, which opened in August 1994, is located on approximately
45 acres strategically located on the opposite side of Las Vegas from Palace
Station. Patrons enjoy convenient access to Boulder Station which is located on
the Boulder Highway and immediately adjacent to the Interstate 515 interchange.
Interstate 515 and the Boulder Highway are the major thoroughfares into Las
Vegas for visitors from Arizona. Management believes that Boulder Station's
highly visible location at this well-traveled intersection offers a competitive
advantage relative to existing hotels and casinos located on the Boulder
Highway. Boulder Station is located approximately four miles east of the Las
Vegas Strip and approximately four miles southeast of downtown Las Vegas.
Boulder Station has the following features and amenities:
- approximately 337,000 square feet of main facility area with a
turn-of-the-20th-century railroad station theme;
- a 300-room hotel and approximately 4,350 parking spaces, including a
1,900 space multi-level parking structure;
- an approximately 89,000-square foot casino with approximately 3,065
slot and video poker machines, 38 gaming tables, a keno lounge, a
poker room, a bingo parlor and a race and sports book; and
- non-casino amenities including a swimming pool, five full service
restaurants and several fast food outlets, a gift shop, a non-gaming
video arcade, a 280-seat lounge and eight additional bars, an
11-screen theater complex and a child-care facility.
Boulder Station's five full-service restaurants have a total of over 1,400
seats. These restaurants offer a variety of high-quality food at reasonable
prices. Restaurant themes and menus are similar to Palace Station's, allowing
Boulder Station to benefit from the market acceptance and awareness of this
product. Restaurants include the 24-hour Iron Horse Cafe (featuring a Chinese
menu in addition to American fare), an all-you-can-eat buffet known as "The
Feast," the Broiler (a steak and seafood restaurant), the Pasta Palace (an
Italian restaurant), and the Guadalajara Bar & Grille (a Mexican restaurant). In
addition to these restaurants which are similar to the offerings at Palace
Station, Boulder Station offers fast-food outlets, including Pizza Palace, Viva
Salsa, and China Express. Additionally, we lease space to the operators of such
restaurants as Burger King, TCBY and Starbuck's Coffee to enhance the customers'
dining selection. Boulder Station's restaurants and bars are located in open
settings that are designed to intermingle the dining and gaming experience.
TEXAS STATION
Texas Station, which opened in July 1995, is located on approximately 47
acres strategically located at the corner of Lake Mead Boulevard and Tonopah
Highway in North Las Vegas. The facility features a friendly, "down-home" Texas
atmosphere, highlighted by its distinctive early Texas architecture. Texas
Station has the following features and amenities:
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- approximately 258,000 square feet of main facility area in a low rise
complex with a friendly "down-home" Texas atmosphere, highlighted by
distinctive early Texas architecture;
- a six story, 200-room hotel tower and approximately 4,000 parking
spaces, including a 1,500-space multi-level parking structure;
- an approximately 85,000-square foot casino with approximately 2,025
slot and video poker machines, 34 gaming tables, a keno lounge, a
poker room, a bingo parlor and a race and sports book; and
- non-casino amenities including a swimming pool, five full service
restaurants and several fast food outlets and franchises, a gift shop,
a non-gaming video arcade, a 132-seat entertainment lounge, seven
additional bars and a 12-screen theater complex operated by Act III
Theatres.
Management believes that the theater complex provides a competitive
advantage for the property and is an additional attraction that draws a
significant number of patrons to the facility.
Texas Station's five full-service restaurants have a total of over 1,300
seats. These restaurant facilities offer a variety of high-quality food at
reasonable prices, including the 24-hour Yellow Rose Cafe (a 24-hour coffee
shop), the Stockyard Steakhouse, the Laredo Cantina and Cafe (a Mexican
restaurant), the San Lorenzo (an Italian restaurant) and the Market Street
Buffet (featuring seven different food stations). In addition to the Texas
Station themed restaurants, guests may also take advantage of the unique
features of the Whiskey Bar with a seven-foot high bronco rider, which rotates
on a pedestal and may be viewed by patrons on all sides, the Garage Bar which
features a 1976 fire-engine red Cadillac Eldorado with seven-foot Texas
long-horns on the hood, or the Armadillo Honky Tonk where a 3,000 piece cut
glass armadillo is the centerpiece of a dance hall. The facility also offers
fast-food outlets, including a pizza kitchen and ice cream shop. Management
believes that the quality and variety of the restaurants offered at the facility
are a major draw in the rapidly growing North Las Vegas and Summerlin markets.
SUNSET STATION
Sunset Station, which opened in June 1997, is located on an approximately
105-acre parcel at the intersection of Interstate 515 and Sunset Road. Multiple
access points provide customers convenient access to the gaming complex and
parking areas. Situated in the path of development along Interstate 515, the
major thoroughfare into Las Vegas from Boulder City and Arizona, Sunset Station
has prominent visibility from the freeway and the Sunset commercial corridor.
Sunset Station is located approximately nine miles east of McCarran
International Airport and eight miles southeast of Boulder Station.
Sunset Station is distinguished from our other properties by its interior
and exterior Spanish/ Mediterranean-style architecture. Prior to the expansion
described below, Sunset Station had the following features and amenities:
- approximately 350,000 square feet of main facility area with interior
and exterior Spanish/Mediterranean-style architecture;
- a 20-story, 467-room hotel tower and approximately 4,200 parking
spaces;
- an approximately 80,000-square foot casino with approximately 2,750
slot and video poker machines, 49 gaming tables, a keno lounge, a
poker room, a bingo parlor and a race and sports book; and
- non-casino amenities including an outdoor swimming pool, six full
service restaurants (and tenant lease space for additional
restaurants) and several fast food outlets and franchises, a gift
shop, a non-gaming video arcade, an entertainment lounge and an
amphitheater, additional bars and a microbrewery, a 13-screen theater
complex operated by Act III Theatres and a child-care facility.
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Sunset Station's six full-service restaurants have a total of over 2,100
seats featuring "live-action" cooking and simulated patio dining. These
restaurant facilities offer a variety of high-quality food at reasonable prices,
including the 24-hour Sunset Cafe (a 24-hour coffee shop), the Casa Del Sol (a
seafood restaurant), the Capri (an Italian restaurant), Rosalitas (a Mexican
restaurant), Sunset Brewing Company (a microbrewery) and The Feast Around the
World, a live action buffet featuring Mexican, Italian, barbecue, American and
Chinese cuisine. Guests may also take advantage of the Gaudi Bar, a centerpiece
of the casino featuring over 8,000 square feet of stained-glass and a water
light display. The facility also offers fast-food outlets including Fat Burger,
Viva Salsa, Capri Pizza, Kenya's Bakery and Ben & Jerry's Ice Cream.
Sunset Station is located on approximately 105 acres, of which only
approximately 70 acres have been developed. We are currently evaluating
potential development plans for the undeveloped property. Uses for the land
could include a lifestyle entertainment retail center, and the development of
several pads for various build-to-suit retail, restaurant and entertainment
concepts. Timing and definitive plans have not yet been determined for such a
development.
MISSOURI CASINO PROPERTIES
STATION CASINO KANSAS CITY
Station Casino Kansas City opened in January 1997. This facility is a
master-planned gaming and entertainment destination facility featuring an
historic Missouri riverboat theme and is strategically located to attract
customers from the greater Kansas City area and tourists from outside the
region. Station Casino Kansas City is located on an approximately 171-acre site
immediately east of the heavily traveled Interstate 435 bridge, seven miles east
of downtown Kansas City. Station Casino Kansas City's marketing programs are
specifically designed to effectively target and capture repeat customer demand
from the local customer base and also emphasize the strong visitor and overnight
markets. Management believes that Station Casino Kansas City has specific
advantages relative to riverboat facilities in the region. The site is adjacent
to the Interstate 435 bridge, which supports traffic flow of approximately
71,000 cars per day. Interstate 435 is a six-lane, north-south expressway
offering quick and easy accessibility to the site, and also provides direct
visibility of the site.
We believe the Station Casino Kansas City facility offers Las Vegas-style
gaming experience in the Midwest. The gaming facilities are docked adjacent to
a land-based entertainment facility with approximately 526,000 square feet of
main facility area which includes the following features and amenities:
- two continuously docked gaming vessels situated in a man-made
protective basin with an approximately 140,000 square-foot gaming
space with approximately 3,145 slot and video poker machines, 162
gaming tables and a poker room.
- a 200-room hotel and 5,000 parking spaces; and
- an entertainment center with seven full service restaurants and
several fast food outlets, 11 bars and lounges, a 1,400-seat Grand
Pavilion, a Kid's Quest child-care facility, an 18-screen movie
complex operated by Act III Theatres, a 5,700-square foot non-gaming
video arcade operated by Sega GameWorks and a gift shop.
Station Casino Kansas City's restaurants offer a variety of high-quality
food at reasonable prices. Restaurants include an all-you-can-eat live action
buffet "Feast Around the World," featuring Italian, Mexican, Chinese, barbecue,
and traditional American fare, Bugatti's Little Italy Cafe, featuring fine
Italian cuisine and a wine bar with an extensive selection, Pancho Villa's
Cantina, featuring southwestern foods, the Orleans Seafood Co. and Oyster Bar,
featuring fresh Louisiana style seafood, and the Hafbrauhaus Brewery &
Biergarten featuring a wide selection of micro-brewed lagers, an assortment of
American and Bavarian cuisine and live entertainment. In addition, Station
Casino Kansas City leases space to a well-known Kansas City favorite, Arthur
Bryant's Barbeque.
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STATION CASINO ST. CHARLES
Station Casino St. Charles opened in May 1994. Station Casino St. Charles
is located immediately north of the Interstate 70 bridge in St. Charles on
approximately 52 acres owned by us. The Station Casino St. Charles complex is
strategically located to attract customers from the St. Charles and greater St.
Louis area, and tourists from outside the region. The site is adjacent to the
Interstate 70 bridge. Interstate 70 is a 10-lane, east-west expressway offering
quick and easy accessibility to and direct visibility of the Station Casino
St. Charles site.
The Station Casino St. Charles facility includes two gaming vessels-a
292-foot by 74-foot wide gaming riverboat known as "The Station Casino Belle"
and a floating two-story, 105,000 square foot gaming and entertainment facility
with the following features and amenities:
- an approximately 47,000 square-foot gaming area with a capacity for
4,000 gaming customers, approximately 1,890 slot and video poker
machines and 75 gaming tables; and
- non-casino amenities including two full service restaurants and a fast
food court, seven bars, an entertainment lounge, a gift shop and a
lobby and ticketing facility.
Capitalizing on our operating experience in Las Vegas, Station Casino St.
Charles has emphasized convenience in offering two separate gaming facilities.
In doing so, we are able to stagger Station Casino St. Charles' two hour cruises
to begin each hour of the day from nine in the morning until two the following
morning, seven days a week. With a 45 minute boarding time, the longest a
customer has to wait is 15 minutes to enter a gaming facility. Additionally, we
received approval for continuously docked gaming on each of the gaming
facilities. In Missouri, continuously docked gaming requires "simulated
cruising," which allows customers to board only at certain specified times;
however, the customer may leave at any time, which is significantly more
convenient for the customer.
In furtherance of the Station Casino St. Charles master plan, we
completed construction of a new elevated roadway and a 4,000-space five-story
parking structure in May 1996. The elevated roadway and parking structure
provide improved access to the current and new gaming facilities and
significantly diminish Station Casino St. Charles' susceptibility to closure
during the spring flooding season. This project includes a turn-around deck
and porte-cochere. The parking facility is constructed above the existing
flood plain and provides the infrastructure for the current facilities and
the Station Casino St. Charles expansion project. In the fall of 1996, we
began an expansion project at Station Casino St. Charles which included the
building of a backwater basin containing two new gaming vessels and a
proposed retail and entertainment complex. The basin has been constructed,
but since March 31, 1998, construction on the Station Casino St. Charles
expansion project has been halted.
THE SOUTHWEST COMPANIES
We provide slot route management services to numerous food and beverage
establishments and commercial businesses in Southern Nevada through our
subsidiary, SGSI.
SGSI commenced its slot route business in southern Nevada in December 1990.
Management combined its gaming experience with its route management abilities to
capitalize on the rapidly expanding slot route business. SGSI has approximately
895 machines in service throughout southern Nevada.
EXPANSION STRATEGY
SELECTION CRITERIA
Management believes that a highly visible central location, convenient
access and ample parking are critical factors in attracting local patronage and
repeat visitors. Additionally, sites must be large enough to support
multi-phased master-planned growth. We select sites that are centrally located
within a dense population base so that the facility cannot be cutoff from its
primary market. These sites generally have been adjacent to high-traffic surface
streets and interstate highways. Management believes that each of our Casino
Properties' locations has provided us with a significant competitive advantage
to attract its targeted customer base.
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MASTER-PLANNED DEVELOPMENT
Management's expansion strategy includes the master-planned expansion of
our existing and future gaming locations. In designing project sites, we plan
and engineer for multi-phased facility expansion to accommodate future growth
and to allow us to develop dominant properties in each market place. A project's
master-planned design typically allows the option of adding hotel rooms, casino
space and non-gaming entertainment such as movie theaters, additional
restaurants, retail shops, and various other entertainment venues.
EXPANSION AND DEVELOPMENT OPPORTUNITIES
We continually evaluate the timing and scope of our master-planned
developments at each of the Casino Properties and may determine from time to
time to expand the scope of, improve on or suspend the implementation of our
master plans. These decisions are dependent upon the availability of financing,
competition and future economic and gaming regulatory environments, many of
which are beyond our control.
We also evaluate other development opportunities in current and emerging
gaming markets, including land-based, dockside, riverboat and Indian gaming
opportunities. Our decision whether to proceed with any new gaming development
opportunity is dependent upon future economic and regulatory factors, the
availability of financing and competitive and strategic considerations, many of
which are beyond our control.
EXPANSION OF EXISTING CASINO PROPERTIES
SUNSET STATION
In November 1998, we completed construction of the next phase of the master
planned expansion at Sunset Station. This phase of the master plan is designed
to enhance Sunset Station's reputation for quality entertainment and includes:
- a 2,000-space covered parking garage;
- an additional 14,000 square feet of casino space with an additional
250 slot and video poker machines; and
- a new steakhouse, a food court area and improved conference
facilities.
Excluding net construction period interest, the total cost of the expansion
project is expected to be $34.0 million.
TEXAS STATION
In May 1998, we commenced construction of the next phase of the master plan
at Texas Station. This phase of the master plan is designed to enhance Texas
Station's reputation for quality entertainment and will include:
- a 2,000-space covered parking garage;
- an additional 21,000 square feet of casino space with 850 additional
slot and video poker machines; and
- a 10,000-square foot Kid's Quest child-care facility, a food court
area, an expanded arcade, six additional "stadium-style" movie
screens; and a new bar and lounge similar to the Gaudi Bar at Sunset
Station, except with a Texas theme.
Excluding net construction period interest, we anticipate that the total cost of
the expansion project will be $51.0 million. We estimate that this expansion
project will be completed in the first calendar quarter of 1999.
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STATION CASINO ST. CHARLES
In the fall of 1996, we began an expansion project at Station Casino St.
Charles which included the building of a backwater basin containing two new
gaming vessels and a proposed retail and entertainment complex. The basin
has been constructed, but since March 31, 1998, construction on the Station
Casino St. Charles expansion project has been halted.
We currently believe the Station Casino St. Charles expansion project as
originally contemplated fulfills a strategic need in the St. Louis, Missouri
market. While we desire to complete and operate these new facilities,
circumstances may arise in the future, including the lack of available
financing, a downturn in the demand for gaming facilities or increased
regulatory requirements unique to the state of Missouri and more attractive uses
of available capital, which may prevent the expansion project from being
completed as originally designed, if at all. In this event, certain costs
incurred to date may be deemed to possess little or no value necessitating the
recognition of an impairment loss in the period such a determination is made.
The impairment loss could include substantially all of the amount invested by us
in the Station Casino St. Charles expansion project.
As of September 30, 1998, we had invested approximately $169.0 million
related to the Station Casino St. Charles expansion project. We do not
anticipate that any major construction activity on the Station Casino St.
Charles expansion project will resume in the near term. See "Risk Factors-St.
Charles Expansion Project."
COMPETITION
The gaming industry includes land-based casinos, dockside casinos,
riverboat casinos, casinos located on Indian reservations and other forms of
legalized gaming. There is intense competition among companies in the gaming
industry, many of which have significantly greater resources than we do. Certain
states have recently legalized, and several other states are currently
considering legalizing, casino gaming in designated areas. Legalized casino
gaming in such states and on Indian reservations will provide strong competition
to us and could adversely affect our operations, particularly to the extent that
such gaming is conducted in areas close to our operations. Proposition 5, a
California ballot initiative passed by voters in California on November 3, 1998,
permits Indian tribes who enter into agreements with the State of California to
conduct certain gaming activities including horse race wagering, gaming devices
(including slot machines), banked card games and lotteries. Various opposition
factions have challenged the implementation of Proposition 5 by filing an action
in the Supreme Court of California. On December 2, 1998, the California Supreme
Court granted a stay on the implementation of Proposition 5 pending
consideration of arguments on constitutionality grounds. The California Supreme
Court's decision is not expected until the spring of 1999. It is not certain
when Proposition 5 will be effective or how it will affect us; however, because
visitors from California make up Nevada's largest visitors market, if
Proposition 5 is implemented, increased competition from Indian gaming may
result in a decline in our revenues and may have a material adverse effect on
our business.
The Las Vegas Casino Properties face competition from all other casinos and
hotels in the Las Vegas area, including to some degree, from each other. Such
competition includes at least ten hotel/casinos targeted primarily towards local
residents and repeat visitors, and numerous non-hotel gaming facilities targeted
towards local residents. We compete with other locals oriented hotel/casinos by
focusing on repeat customers and attracting these customers through innovative
marketing programs. Our value-oriented, high-quality approach is designed to
generate repeat business. Additionally, the Casino Properties are strategically
located and designed to permit convenient access and ample parking, which are
critical factors in attracting local visitors and repeat patrons. Currently,
there are approximately 28 major gaming properties located on or near the Las
Vegas Strip, 14 located in the downtown area and several located in other areas
of Las Vegas. In addition, seven new hotel/casinos and three hotel/casino
expansions are under construction or have been announced, which will add
approximately 19,000 rooms to the Las Vegas area over approximately the next two
years. Five of the new hotel/casinos are major resorts with a theme and an
attraction which are expected to draw significant numbers of visitors. These new
facilities could have a positive effect on the Las Vegas Casino Properties if
more visitors are drawn to Las Vegas. However, major additions, expansions or
enhancements of existing properties or the construction of new properties by
competitors could also have a material adverse effect on the businesses of the
Las Vegas Casino Properties. The additional capacity has had little, if any,
impact on the Las Vegas Casino Properties' hotel occupancy or casino volume to
date. However, there can be no assurance that hotel occupancy or casino volume
will not be adversely affected in the future.
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The Las Vegas Casino Properties face more direct competition from ten
hotel/casinos primarily targeted to the local and the repeat visitor markets.
Some of these competitors have completed expansions and existing competitors and
new entrants into these markets are in the planning stages or under construction
on other projects. Other gaming operators own undeveloped properties on which
they could develop gaming facilities in the immediate vicinity of Texas Station
and Sunset Station. At least one operator is exploring development opportunities
in the immediate vicinity of Sunset Station. In 1999, The Resort at Summerlin
Hotel and Casino is expected to open in northwest Las Vegas approximately 5
miles from Texas Station. Although not targeted at the local market, The Resort
at Summerlin will compete indirectly with Texas Station because of its close
proximity to Texas Station. Although we have competed strongly in these
marketplaces, there can be no assurance that additional capacity will not have a
negative impact on us.
The Missouri Gaming Commission has been empowered to determine the number
of gaming licenses supportable by the region's economic situation. As of
September 30, 1998, 37 applications for gaming licenses had been filed with the
State of Missouri, including nine applications to operate in the St. Louis
marketplace. Ten licensees are currently licensed in St. Louis, Kansas City,
St. Joseph and Caruthersville, Missouri. Station Casino St. Charles competes
primarily with other gaming operations in and around St. Louis, Missouri.
Currently, in addition to Station Casino St. Charles, there are five competitors
operating in the St. Louis market. In particular, Station Casino St. Charles
directly competes with two facilities located in Maryland Heights which opened
in 1997. Such direct competition is due to the Maryland Heights facilities'
size, quality and close proximity. We have experienced a decline in revenues at
Station Casinos St. Charles since the opening of the Maryland Heights
facilities. We have taken steps that management believes will mitigate the
effects of such competition and the decline in revenues has stabilized. However,
in light of ever increasing competition, there can be no assurance as to the
future performance of Station Casino St. Charles. Additionally, two of the five
competitors operating in the St. Louis market are located in Illinois, which
does not impose the $500 loss limit imposed in Missouri. Gaming also has been
approved by local voters in jurisdictions near St. Louis, including St. Charles,
Jefferson City and other cities and counties along the Mississippi and Missouri
Rivers. Any new gaming operations developed near St. Louis would likely provide
significant competition to Station Casino St. Charles. Gaming laws in
surrounding states and in other areas may be amended in ways that would increase
the competition to Station Casino St. Charles. This increasing competition could
have a material adverse effect on our business.
Recently, Davis Gaming was selected for investigation for licensure for a
gaming operation which it intends to develop in Boonville, Missouri, a city in
central Missouri near Jefferson City and Columbia, and Mark Twain Casino L.L.C.
was selected for investigation for licensure for a gaming operation which it
intends to develop in LaGrange, Missouri, a city in northeastern Missouri.
Neither area is currently served by a Missouri gaming facility. The Davis
Gaming project has proceeded and has received preliminary site and development
approval from the Missouri Gaming Commission. The Mark Twain Casino project has
not progressed since the initial selection decision.
Station Casino Kansas City competes primarily with other gaming operations
in and around Kansas City, Missouri. In addition to Station Casino Kansas City,
there are three other gaming facilities currently operating in the Kansas City
market. Earlier entrants to the Kansas City market may have an advantage over us
due to their ability to establish early market share. Gaming has been approved
by local voters in jurisdictions near Kansas City, including St. Joseph (which
currently has one riverboat gaming operation), Jefferson City and other cities
and counties along the Missouri River. Since the opening of Station Casino
Kansas City, Sam's Town, the closest gaming development to Station Casino Kansas
City, closed and Boyd Gaming, the owner of Sam's Town, sold most of the Sam's
Town assets to Harrah's, the operator of Harrah's-North Kansas City, the next
closest gaming operator in the area. Any new gaming operations developed near
Kansas City would likely provide significant competition to Station Casino
Kansas City.
Several companies are engaging in riverboat gaming in states neighboring
Missouri. Illinois sites, including Alton, East St. Louis, and Metropolis, enjoy
certain competitive advantages over Station Casino St. Charles because Illinois,
unlike Missouri, does not impose limits on the size of losses and places fewer
restrictions on the extension of credit to customers. In contrast, Missouri
gaming law provides for a maximum loss of $500 per player on each cruise and
prohibits the extension of credit (except credit cards and checks). Unlike
Illinois gaming law, the Missouri gaming law places no limits on the number of
gaming positions allowed at each site. As of September 30, 1998, Illinois had
approved a total of ten licenses; however, only nine licensees are operating
riverboat gaming facilities. While riverboats are currently the only licensed
form of casino-style gaming in Illinois and the number of licenses is restricted
to ten, possible future competition may arise if gaming is legalized in or
around Chicago, which was specifically excluded from the legislation permitting
gaming in Illinois.
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Our Missouri gaming operations also compete to a lesser extent with the
riverboat and floating gaming facilities in Mississippi, Louisiana, Iowa and
Indiana. Like Illinois, neither Mississippi nor Louisiana gaming legislation
imposes limits on wagers or losses. Gaming laws in these states and in other
areas may be amended in ways that would increase the competition to our Missouri
gaming operations.
To a lesser extent, our operations compete with gaming operations in other
parts of the State of Nevada, such as Reno, Laughlin and Lake Tahoe, with
facilities in Atlantic City, New Jersey and other parts of the world and with
state-sponsored lotteries, on-and-off-track pari-mutuel wagering, card parlors
and other forms of legalized gambling.
EMPLOYEES
As of September 30, 1998, we had approximately 10,705 employees. From time
to time, certain of our employees are contacted by unions and we engage in
discussions with such employees regarding establishment of collective bargaining
agreements. In 1998, approximately 12 of our employees in the receiving area of
Palace Station voted to become unionized. While we are from time to time faced
with such movements by employees, we do not believe that such movements will
have any broad-based impact on our employees, however there can be no assurances
to that effect. Management believes that it has good relationships with its
employees.
PROPERTIES
Palace Station is located on approximately 39 acres located on the west
side of Las Vegas, Nevada. We own 26 acres and lease the remaining 13 acres
pursuant to five long-term ground leases with unaffiliated third parties. The
property is subject to a lien to secure borrowings under the Amended Bank
Facility.
Boulder Station is located on approximately 45 acres located on the east
side of Las Vegas, Nevada. We own 18 acres and lease the remaining 27 acres from
a trust pursuant to a long-term ground lease. The trustee of the trust is Bank
of America National Trust and Savings Association ("Bank of America NT&SA") and
the beneficiary of the trust is KB Enterprises, an affiliated company owned by
Frank J. Fertitta, Jr. and Victoria K. Fertitta (the "Related Lessor"), the
parents of Frank J. Fertitta III, Chairman of the Board and Chief Executive
Officer of SCI. The lease has a maximum term of 65 years, ending in June 2058.
The lease provided for monthly payments of $125,000 through June 1998. In July
1998, the monthly rent was adjusted to $135,525 through June 2008. The rent will
be adjusted in July 2008 and every ten years thereafter by a cost of living
factor. In July 2003, and every ten years thereafter the rent will be adjusted
to the product of the fair market value of the land and the greater of:
- the then prevailing annual rate of return for comparably situated
property; or
- 8% per year.
In no event will the rent for any period be less than the immediately preceding
period. Pursuant to the ground lease, we have an option, exercisable at
five-year intervals beginning in June 1998, to purchase the land at fair market
value. We are not expected to exercise our June 1998 option. We believe that
the terms of the ground lease are as fair to us as could be obtained from an
independent third party. Our leasehold interest in the property and the acreage
we own directly are subject to a lien to secure borrowings under the Amended
Bank Facility.
Texas Station is located on approximately 47 acres located in North Las
Vegas, Nevada. We lease the property from a trust pursuant to a long-term ground
lease. The trustee of the trust is Bank of America NT&SA and the beneficiary of
the trust is Texas Gambling Hall & Hotel, Inc., an affiliate company of the
Related Lessor. The lease has a maximum term of 65 years, ending in May 2060.
The lease provides for monthly rental payments of $150,000 until July 2000. In
July 2000, and every ten years thereafter, the rent will be adjusted to the
product of the fair market value of the land and the greater of:
- the then prevailing annual rate of return being realized for owners of
comparable land in Clark County; or
- 8% per year.
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The rent will be further adjusted by a cost of living factor after the first ten
years and every ten years thereafter. In no event will the rent for any period
be less than the immediately preceding period. Pursuant to the ground lease, we
have an option, exercisable at five-year intervals beginning in May 2000, to
purchase the land at fair market value. Pursuant to the ground lease, the lessor
will have a right to put the land to us, exercisable no later than one year
after the first to occur of:
- a change of control (as defined in the lease); or
- delivery of written notice that such a change of control is
anticipated, at a purchase price equal to fair market value as
determined by negotiation.
We believe that the terms of the ground lease are as fair to us as could be
obtained from an independent third party. Our leasehold interest in the property
is subject to a lien to secure borrowings under the Amended Bank Facility.
Station Casino St. Charles is located on approximately 52 acres located
immediately north of Interstate 70 on the edge of the Missouri River in St.
Charles, Missouri. We own the entire 52 acres. Our ownership interest in the St.
Charles property is subject to liens to secure borrowings under the Amended Bank
Facility.
Station Casino Kansas City is located on approximately 171 acres in Kansas
City, Missouri. We entered into a joint venture with an unaffiliated third party
to acquire the property. Station Casino Kansas City leases the site from the
joint venture with monthly payments of $90,000 through the remainder of the
lease term. The lease term was extended to March 31, 2006, with the option to
extend the lease for up to eight renewal periods of ten years each plus one
additional period of seven years. Commencing April 1, 1998, the rent was, and
every anniversary thereafter the rent will be, adjusted by a cost of living
factor. In connection with the joint venture agreement, we received an option
that provided us the right to acquire the joint venture partner's interest in
this joint venture. We have the option to purchase this interest at any time
after April 1, 2002 through April 1, 2011 for $11.7 million, however, the
purchase price will be adjusted by a cost of living factor of not more than 5%
or less than 2% per annum commencing April 1, 1998. We paid $2.6 million for
this option. Our leasehold interest in the property is subject to a lien to
secure borrowings under the Amended Bank Facility, and under certain
circumstances the Amended Bank Facility permits the lenders to force the
exercise of such option.
Sunset Station is located on approximately 105 acres located in the Green
Valley/Henderson area of Las Vegas, Nevada. We lease approximately 48 acres
pursuant to a long-term ground lease with an unaffiliated third party. The lease
was entered into in June 1994, and has a term of 65 years with monthly rental
payments of $120,000, adjusted on each subsequent five-year anniversary by a
cost of living factor. On the seventh anniversary date of the lease, we have the
option to purchase the land for $23.8 million. The lessor also has an option to
sell the land to us for $21.8 million on the seventh anniversary of the lease.
The remaining approximately 52 acres were purchased by us in September 1995, for
approximately $11.0 million.
We have acquired or leased several parcels of land in various
jurisdictions as part of our development activities. At September 30, 1998,
we had invested $20.6 million in land which had been acquired for potential
gaming projects in jurisdictions where gaming has been approved. In addition,
we had invested $3.7 million in land in certain jurisdictions where gaming
has not yet been approved. No assurances can be made that these jurisdictions
will approve gaming in the future.
LITIGATION
SCI and its subsidiaries are defendants in various lawsuits relating to
routine matters incidental to their business. As with all litigation, no
assurance can be provided as to the outcome of the following matters and
litigation inherently involves significant costs.
CRESCENT CASE
On January 16, 1998, we entered into an agreement and plan of merger with
Crescent Real Estate Equities Company to merge SCI with Crescent. On July 27,
1998, SCI and Crescent announced the postponement of a previously announced
annual and special meeting of SCI's stockholders. The meeting was postponed to
address
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concerns related to the merger expressed by holders of SCI's preferred stock. We
subsequently requested that Crescent purchase $20 million of SCI's redeemable
preferred stock issuable under the merger agreement. The merger agreement
provides that, if we are not in material breach of our covenants,
representations or warranties under the merger agreement, Crescent is required
to fund up to $115 million of redeemable preferred stock even if the merger
agreement has been terminated. Crescent advised us that it took the position
that our postponing the meeting was a breach of the merger agreement.
On July 30, 1998, we filed suit against Crescent in Clark County District
Court, State of Nevada, seeking declaratory relief and asserted, among other
things, that the postponement of the meeting did not breach the merger
agreement, that we had received Crescent's consent to the postponement of the
meeting and that we were otherwise in full compliance with our obligations under
the merger agreement.
On August 11, 1998, we requested that Crescent purchase the additional
$95 million of redeemable preferred stock. Also on August 11, 1998, we amended
our complaint in Nevada state court to include claims regarding Crescent's
breaches of the merger agreement. Our lawsuit against Crescent seeks significant
damages for Crescent's breaches and specific performance requiring Crescent to
fulfill its obligation under the merger agreement to purchase $115 million of
redeemable preferred stock.
On December 22, 1998, Crescent filed its answer and counterclaims to our
suit pending in the Nevada state court. The answer generally denied our
claims, and the counterclaims sought damages and declaratory relief alleging
that we breached the merger agreement by canceling and failing to reschedule the
stockholders meeting. The suit sought declaratory judgment that our actions with
respect to the meeting, together with certain alleged misrepresentations in the
merger agreement, relieve Crescent of its obligation under the merger agreement
to fund up to $115 million of the redeemable preferred stock. Crescent alleged
that it was excused from further performance under the merger agreement.
Crescent did not specify the amount of damages it sought. Discovery is ongoing
in this action.
We anticipate that Crescent will seek the $54 million break-up fee as part
of its counterclaims. Crescent had announced on August 12, 1998, that it
intended to assert a claim for damages for the $54 million break-up fee under
the merger agreement or its equivalent and for expenses. Payment by us of such a
fee would require consent of the lenders under the Amended Bank Facility.
On August 7, 1998, Crescent filed suit against us in the United States
District Court, Northern District of Texas, seeking damages and declaratory
relief alleging that we breached the merger agreement by canceling and failing
to reschedule the stockholders meeting. The suit sought declaratory judgment
that our actions with respect to the meeting, together with certain alleged
misrepresentations in the merger agreement, relieve Crescent of its obligation
under the merger agreement to fund up to $115 million of the redeemable
preferred stock. Crescent alleged that it was excused from further performance
under the merger agreement. Crescent did not specify the amount of damages it
sought. Simultaneously with the filing of its suit, Crescent sent notice of
termination of the merger agreement to us. We believe that Crescent, and not
SCI, breached the merger agreement.
On December 15, 1998, Crescent's suit against us pending in the United
States District Court for the Northern District of Texas was dismissed for lack
of jurisdiction. On December 21, 1998, Crescent served us with a notice of
appeal of the dismissal.
While we believe that Crescent has breached the merger agreement and that
Crescent's allegations are without merit, as with any litigation, we cannot be
sure as to the outcome of such litigation at this time. In the event that we
are required to pay the $54 million break-up fee, that payment would have a
material adverse effect on our business. In addition, any litigation inherently
involves significant costs of conducting the litigation.
CLASS ACTION/DERIVATIVE ACTION
A suit seeking status as a class action and a derivative action was filed
by plaintiff, Crandon Capital Partners, on August 7, 1998, in Clark County
District Court, State of Nevada, naming SCI and its board of directors as
defendants. The lawsuit, which was filed as a result of the failed merger
between SCI and Crescent, alleges, among other things, a breach of fiduciary
duty owed to the shareholders/class members. The lawsuit seeks damages allegedly
suffered by the shareholders/class members as a result of the transactions with
Crescent and all costs and disbursements
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of the lawsuit. Although no assurance can be provided with respect to any
litigation, SCI and its board of directors do not believe the suit has merit and
intend to defend themselves vigorously.
POULOS/AHEARN CASE
A suit seeking status as a class action lawsuit was filed by plaintiff,
William H. Poulos, et al., as class representative, on April 26, 1994, in the
United States District Court, Middle District of Florida, naming 41
manufacturers, distributors and casino operators of video poker and electronic
slot machines, including us. On May 10, 1994, a lawsuit alleging substantially
identical claims was filed by another plaintiff, William Ahearn, et al., as
class representative, in the United States District Court, Middle District of
Florida, against 48 manufacturers, distributors and casino operators of video
poker and electronic slot machines, including us and most of the other major
hotel/casino companies. The lawsuits allege that the defendants have engaged in
a course of fraudulent and misleading conduct intended to induce persons to play
such games based on a false belief concerning how the gaming machines operate,
and the extent to which there is an opportunity to win. The two lawsuits have
been consolidated into a single action, and have been transferred to the United
States District Court, for the State of Nevada. On September 26, 1995, a lawsuit
alleging substantially identical claims was filed by plaintiff, Larry Schreier,
et. al, as class representative, in the United States District Court for the
District of Nevada, naming 45 manufacturers, distributors, and casino operators
of video poker and electronic slot machines, including us. Motions to dismiss
the Poulos/Ahearn and Schreier cases were filed by defendants. On April 17,
1996, the Poulos/Ahearn lawsuits were dismissed, but plaintiffs were given leave
to file Amended Complaints on or before May 31, 1996. On May 31, 1996, an
Amended Complaint was filed, naming William H. Poulos, et. al, as plaintiff.
Defendants filed a motion to dismiss. On August 15, 1996, the Schreier lawsuit
was dismissed with leave to amend. On September 27, 1996, Schreier filed an
Amended Complaint. Defendants filed motions to dismiss the Amended Complaint. In
December 1996, the court consolidated the Poulos/Ahearn, the Schreier, and a
third case not involving us and ordered all pending motions be deemed withdrawn
without prejudice, including Defendants' Motions to Dismiss the Amended
Complaints. The plaintiffs filed a Consolidated Amended Complaint on
February 13, 1997. On or about December 19, 1997, the court issued formal
opinions granting in part and denying in part the defendants' motion to dismiss.
In so doing, the court ordered plaintiffs to file an amended complaint in
accordance with the court's orders in January of 1998. Accordingly, plaintiffs
amended their complaint and filed it with the United Stated District Court, for
the State of Nevada in February 1998. We and all other defendants have answered
the amended complaint filed on behalf of plaintiffs and continue to deny the
allegations contained in the amended complaint. The plaintiffs are seeking
compensatory, special, consequential, incidental, and punitive damages in
unspecified amounts. The defendants have committed to vigorously defend all
claims and allegations contained in the consolidated action. The parties have
fully briefed the issues regarding class certification, which are currently
pending before the court. The discovery stay remains in effect pending
resolution of these issues. We do not expect that the lawsuits will have a
material adverse effect on our financial position or results of operations.
NICOLE ANDERSON CASE
A suit seeking status as a class action lawsuit was filed by plaintiff
Nicole Anderson, et. al., as class representative, on September 24, 1997, in the
United States District Court for the Eastern District of Missouri, Eastern
Division. The lawsuit alleges certain racially based discriminatory action at
Station Casino St. Charles and seeks injunctive relief and compensatory,
special, consequential, incidental and punitive damages in unspecified amounts.
On or about October 24, 1997, plaintiff filed her first amended complaint. On
November 24, 1997, we filed our answer to plaintiff's first amended complaint
which denied the allegations contained in the amended complaint. We do not
believe the suit has merit and intend to continue defending ourselves
vigorously.
On August 25, 1998, a hearing was held to determine whether this lawsuit
could be certified as a class action. The court conditionally certified a
subclass of dealers in the table game department; the other plaintiffs may
proceed individually with their claims. Discovery in all these cases has begun,
but as yet no trial date has been set.
AKIN CASE
On January 16, 1997, our gaming license in Kansas City was formally issued
for its facility, which is located in a man-made basin filled with water piped
in from the surface of the Missouri River. In reliance on numerous approvals
from the Missouri Gaming Commission specific to the configuration and granted
prior to the formal issuance of our gaming license, we built and opened the
Station Casino Kansas City facility. The license issued to us and the
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resolutions related thereto specifically acknowledge that the Missouri Gaming
Commission had reviewed and approved this configuration. On November 25, 1997,
the Supreme Court of Missouri, in a case challenging the gaming licenses of
certain competitors of Station Casino St. Charles located in Maryland Heights,
Missouri, ruled that gaming in artificial spaces may occur only in spaces that
are contiguous to the surface stream of the Missouri and Mississippi Rivers. On
November 3, 1998, the citizens of the State of Missouri approved a
Constitutional amendment which was proposed by initiative petition, that
retroactively legalized lotteries, gift enterprises and games of chance aboard
excursion gambling boats and floating facilities, like ours, that are located
within artificial spaces containing water that are within 1,000 feet of the
closest edge of the main channel of the Mississippi or Missouri Rivers. This
amendment to the Constitution became effective on November 23, 1998. The
Missouri Gaming Commission has stayed its preliminary orders of disciplinary
action against licensees that operate within artificial basins, and has
dismissed the preliminary orders for disciplinary action with respect to all
applicable licensees except KCSC. The Missouri Gaming Commission has not
dismissed the disciplinary proceeding against KCSC because it is investigating
an alleged violation by KCSC that is related to an aspect of the placement of
our gaming facilities in an artificial basin. While we anticipate that the
disciplinary action with respect to KCSC will be dismissed, we cannot be sure
that the Missouri Gaming Commission will take such action or that the Missouri
Gaming Commission will not impose a fine or other penalty against us in
connection with such dismissal. Numerous active organizations oppose gaming in
Missouri and may in the future take action to cause gaming operations in
Missouri to be restricted or prohibited.
STEPHEN B. SMALL CASE
A class action lawsuit was filed by plaintiff Stephen B. Small, et al., as
class representative, on November 28, 1997, in the United States District Court
for the Western District of Missouri, naming four gaming operators in Kansas
City, Missouri, including Kansas City Station Corporation. The lawsuit alleged
that the defendants are conducting gaming operations that are not located on the
Missouri River in violation of certain state and federal statutes. On
September 1, 1998, the United States District Court granted Kansas City Station
Corporation's motion to dismiss the lawsuit. On October 30, 1998, the plaintiff
filed a similar lawsuit in the Circuit Court of Cole County, Missouri. The
plaintiff is seeking a declaratory judgment that the operators were conducting
illegal games of chance prior to December 3, 1998, the effective date of a
Constitutional amendment passed by Missouri voters on November 3, 1998,
legalizing gaming facilities within 1000 feet of the main channel of the
Mississippi and Missouri Rivers. Plaintiff is also seeking compensatory,
special, consequential, and incidental damages in unspecified amounts.
Management believes that the claims are without merit and does not expect that
the lawsuit will have a material adverse effect on our financial position or
results of operations.
CANFORA CASE
In June 1997, Joseph J. Canfora, a former employee of ours, commenced a
lawsuit against us in the United States District Court for the Western District
of Missouri asserting breach of employment agreement, bad faith discharge and
violations of ERISA. In December 1997, the claims relating to bad faith
discharge and ERISA violations were dismissed. Canfora subsequently amended his
complaint and alleged breach of employment agreement and tortious interference
with business expectancies. On January 18, 1999, Station and Canfora agreed to
a final settlement of the lawsuit and therefore we anticipate no further
litigation in this matter.
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REGULATION AND LICENSING
NEVADA GAMING REGULATIONS
The ownership and operation of casino gaming facilities, the operation
of slot machine routes and the manufacture and distribution of gaming devices
and cashless wagering systems in Nevada are subject to:
- the Nevada Gaming Control Act and the rules and regulations
promulgated thereunder (collectively, the "Nevada Act"); and
- various local ordinances and regulations.
Our gaming operations are subject to the licensing and regulatory control of
the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming
Control Board ("Nevada Board"), the City of Las Vegas, the Clark County
Liquor and Gaming Licensing Board (the "Clark County Board"), the City of
North Las Vegas, the City of Henderson and certain other local regulatory
agencies. The Nevada Commission, the Nevada Board, the City of Las Vegas,
the Clark County Board, the City of North Las Vegas, the City of Henderson,
and certain other local regulatory agencies are collectively referred to as
the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things:
- the prevention of unsavory or unsuitable persons from having a direct
or indirect involvement with gaming at any time or in any capacity;
- the establishment and maintenance of responsible accounting practices
and procedures;
- the maintenance of effective controls over the financial practices of
licensees, including the establishment of minimum procedures for
internal controls and the safeguarding of assets and revenues,
providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities;
- the prevention of cheating and fraudulent practices; and
- providing a source of state and local revenues through taxation and
licensing fees.
Change in such laws, regulations and procedures could have an adverse effect
on our gaming operations.
SCI's direct and indirect subsidiaries that conduct gaming operations in
Nevada are required to be licensed by the Nevada Gaming Authorities. The
gaming licenses require the periodic payment of fees and taxes and are not
transferable. SGSI is licensed as a distributor and as an operator of a slot
machine route. PSHC, BSI, TSI, SSI and TRSI have received licenses to
conduct nonrestricted gaming operations. Town Center Amusements, Inc.
("TCAI") has been licensed to conduct nonrestricted gaming operations at
Barley's Casino & Brewing Company ("Barley's Casino"), a micro brewery and
casino located in southeast Las Vegas. SCI's ownership in TCAI is held
through an intermediary company known as Green Valley Station, Inc. ("GVSI")
which is licensed as a member and Manager of TCAI. SCI is registered by the
Nevada Commission as a publicly traded corporation (a "Registered
Corporation") and has been found suitable to own the stock of PSHC, BSI, TSI,
SSI, TRSI, GVSI, and SGSI. SCI is also licensed as a manufacturer and
distributor. PSHC, BSI, TSI, SSI, TRSI, GVSI and SGSI are each a corporate
gaming licensee and TCAI is a limited liability company licensee
(individually a "Gaming Subsidiary" and collectively the "Gaming
Subsidiaries") under the terms of the Nevada Act. As a Registered
Corporation, SCI is required periodically to submit detailed financial and
operating reports to the Nevada Commission and the Nevada Board and furnish
any other information which the Nevada Commission or the Nevada Board may
require. No person may become a stockholder or holder of an interest of, or
receive any percentage of profits from the Gaming Subsidiaries without first
obtaining licenses and approvals from the Nevada Gaming Authorities. SCI and
the Gaming Subsidiaries have obtained from the Nevada Gaming Authorities the
various registrations, findings of suitability, approvals, permits and
licenses
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(individually, a "Gaming License" and collectively, the "Gaming Licenses")
required in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, a Registered
Corporation, such as SCI, or the Gaming Subsidiaries, which hold a Gaming
License, in order to determine whether such individual is suitable or should
be licensed as a business associate of a Registered Corporation or a gaming
licensee. Officers, directors and certain key employees of the Gaming
Subsidiaries must file applications with the Nevada Gaming Authorities and
may be required to be licensed or found suitable by the Nevada Gaming
Authorities. Officers, directors and key employees of SCI who are actively
and directly involved in gaming activities of the Gaming Subsidiaries may be
required to be licensed or found suitable by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing for any
cause which they deem reasonable. A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in corporate position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue to have a
relationship with SCI or the Gaming Subsidiaries, the companies involved
would have to sever all relationships with such person. In addition, the
Nevada Commission may require SCI or the Gaming Subsidiaries to terminate the
employment of any person who refuses to file the appropriate applications.
Determinations of suitability or questions pertaining to licensing are not
subject to judicial review in Nevada.
SCI and the Gaming Subsidiaries are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing
transactions by SCI and the Gaming Subsidiaries must be reported to or
approved by the Nevada Commission and/or the Nevada Board.
If it were determined that the Nevada Act was violated by a Gaming
Subsidiary, the Gaming Licenses it holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, SCI, the Gaming Subsidiaries and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission to operate
Palace Station, Boulder Station, Texas Station, Sunset Station, Wild Wild
West, and Barley's Casino and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the reasonable
rental value of the casino) could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of the Gaming Licenses of the Gaming
Subsidiaries or the appointment of a supervisor could (and revocation of any
Gaming License would) materially adversely affect our gaming operations.
Any beneficial owner of SCI's voting securities, regardless of the number
of shares owned, may be required to file an application, be investigated, and
have their suitability as a beneficial owner of SCI's voting securities
determined if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. The applicant must pay all costs of investigation incurred by the
Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act provides that persons who acquire beneficial ownership of
more than 5% of the voting securities of a Registered Corporation must report
the acquisition to the Nevada Commission. The Nevada Act also requires that
beneficial owners of more than 10% of the voting securities of a Registered
Corporation must apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing. An "institutional investor," as defined in the
Nevada Commission's regulations, which acquires beneficial ownership of more
than 10%, but not more than 15% of SCI's voting securities may apply to the
Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes
only. An institutional investor shall not be deemed to hold voting securities
for investment purposes unless the voting securities were acquired and are
held in the ordinary course of business as an institutional investor and not
for the purpose of causing, directly or indirectly, the election of a
majority of the members of SCI's Board of Directors, any change in SCI's
corporate charter, bylaws, our management policies or operations, or any of
its gaming affiliates, or any other action which the Nevada Commission finds
to be inconsistent with holding our
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voting securities for investment purposes only. Activities which are not
deemed to be inconsistent with holding voting securities for investment
purposes only include:
- voting on all matters voted on by stockholders;
- making financial and other inquiries of management of the type
normally made by securities analysts for informational purposes and
not to cause a change in its management, policies or operations; and
- such other activities as the Nevada Commission may determine to be
consistent with such investment intent.
If the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant
is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or
a license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder who is found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
the voting securities of a Registered Corporation beyond such period of time
as may be prescribed by the Nevada Commission may be guilty of a criminal
offense. SCI is subject to disciplinary action if, after it receives notice
that a person is unsuitable to be a stockholder or to have any other
relationship with SCI or the Gaming Subsidiaries, SCI:
- pays that person any dividend or interest upon its voting securities;
- allows that person to exercise, directly or indirectly, any voting
right conferred through securities held by that person;
- pays remuneration in any form to that person for services rendered or
otherwise; or
- fails to pursue all lawful efforts to require such unsuitable person
to relinquish his voting securities including, if necessary, the
immediate purchase of said voting securities for cash at fair market
value.
Additionally, the Clark County Board has the authority to approve all persons
owning or controlling the stock of any corporation controlling a gaming
licensee.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation, such as the Notes, to file
applications, be investigated and be found suitable to own the debt security
of a Registered Corporation if the Nevada Commission has reason to believe
that such ownership would otherwise be inconsistent with the declared
policies of the State of Nevada. Any person who is found unsuitable and who
holds, directly or indirectly, any beneficial ownership of a debt security of
a Registered Corporation beyond such period of time as may be prescribed by
the Nevada Commission may be guilty of a criminal offense. If the Nevada
Commission determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if, without the prior approval of the
Nevada Commission, it:
- pays to the unsuitable person any dividend, interest, or any
distribution whatsoever;
- recognizes any voting right by such unsuitable person in connection
with such securities;
- pays the unsuitable person remuneration in any form; or
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- makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar transaction.
SCI is required to maintain a current stock ledger in Nevada which may
be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be
required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. SCI is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require SCI's stock certificates to bear a legend
indicating that the securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on SCI.
SCI may not make a public offering of is securities without the prior
approval of the Nevada Commission if the securities or proceeds received are
intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. On
May 22, 1997, the Nevada Commission granted SCI prior approval to make
offerings under a Shelf Registration for a period of twenty-two months,
subject to certain conditions ("Shelf Approval"). The Shelf Approval was
amended and restated on June 23, 1998 to include TSI and to be effective for
11 months. However, the Shelf Approval may be rescinded for good cause
without prior notice upon the issuance of an interlocutory stop order by the
Chairman of the Nevada Board and must be renewed at the end of the approval
period. SCI has filed an application for renewal and has requested that the
Shelf Approval be renewed for a period of two years. The Shelf Approval also
applies to any affiliated company wholly-owned by us (an "Affiliate") which
is a publicly traded corporation or would thereby become a publicly traded
corporation pursuant to a public offering. The Shelf Approval also includes
approval for the Gaming Subsidiaries to guarantee any security issued by, or
to hypothecate their assets to secure the payment or performance of any
obligations issued by, us or an Affiliate in a public offering under the
Shelf Approval. The Shelf Approval does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is unlawful. The
exchange offer will constitute a public offering (as defined in the Nevada
Act) and will be made pursuant to the Shelf Approval. In addition,
restrictions on the transfer of any equity securities issued by a Gaming
Subsidiary and agreements not to encumber such equity securities
(collectively, "Stock Restrictions") are ineffectve without the prior
approval of the Nevada Commission. The Shelf Approval also includes approval
for Stock Restrictions imposed in respect of securities issued in a public
offering such as the New Notes. However, the Stock Restrictions in respect
of the Old Notes are not covered by the Shelf Approval and therefore required
the prior approval of the Nevada Commission in order to be effective. SCI
has filed an application for approval of the Stock Restrictions.
Changes in control of SCI through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby such person obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and the Nevada
Commission that they meet a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission may also
require controlling stockholders, officers, directors and other persons
having a material relationship or involvement with the entity proposing to
acquire control, to be investigated and licensed as part of the approval
process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming licensees, and Registered
Corporations that are affiliated with those operations, may be injurious to
stable and productive corporate gaming. The Nevada Commission has
established a regulatory scheme to ameliorate the potentially adverse effects
of these business practices upon Nevada's gaming industry and to further
Nevada's policy to:
- assure the financial stability of corporate gaming licensees and their
affiliates;
- preserve the beneficial aspects of conducting business in the
corporate form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
Approvals are, in certain circumstances, required from the Nevada Commission
before a Registered Corporation can make exceptional repurchases of voting
securities above the current market price of such securities and before a
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corporate acquisition opposed by management can be consummated. The Nevada
Act also requires prior approval of a plan of recapitalization proposed by
the Registered Corporation's Board of Directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purpose of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type
of gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either:
- a percentage of the gross revenues received;
- the number of gaming devices operated; or
- the number of table games operated.
A casino entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the serving or selling of food
or refreshments or the selling of any merchandise. Nevada licensees that
hold a license as an operator of a slot route, or manufacturer's or
distributor's license also pay certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons
(collectively, "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada, is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, licensees are required to
comply with certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada Commission if
they knowingly violate any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fail to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engage in activities or enter into associations that are
harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ, contract with or associate with a person in the foreign
operation who has been denied a license or finding of suitability in Nevada
on the grounds of personal unsuitability or whom a court in the State of
Nevada has found guilty of cheating. The loss or restriction of our gaming
licenses in Nevada would have a material adverse effect on our business and
could require us to cease gaming operations in Nevada.
NEVADA LIQUOR REGULATIONS
The sale of alcoholic beverages at Palace Station is subject to
licensing, control and regulation by the City of Las Vegas. The sale of
alcoholic beverages at Boulder Station and Wild Wild West is subject to
licensing, control and regulation by the Clark County Board. Texas Station
is subject to licensing, control and regulation of the City of North Las
Vegas. Sunset Station is subject to the licensing, control and regulation of
the City of Henderson. Barley's Casino is subject to licensing, control and
regulation of the City of Henderson and the Department of Treasury, Bureau of
Alcohol, Tobacco and Firearms. All licenses are revocable and are not
transferable. The agencies involved have full power to limit, condition,
suspend or revoke any such license, and any such disciplinary action could
(and revocation would) have a material adverse effect on the operations of
the Gaming Subsidiaries.
MISSOURI GAMING REGULATIONS
Gaming was originally authorized in the State of Missouri and the City
of St. Charles on November 3, 1992, although no governmental action was taken
to enforce or implement the original law. On April 29, 1993, Missouri enacted
the Missouri Gaming Law which replaced the original law and established the
Missouri Gaming Commission, which is responsible for the licensing and
regulation of riverboat gaming in Missouri. The Missouri Gaming Commission
has discretion to approve gaming license applications for both permanently
moored ("dockside") riverboat casinos and powered ("excursion") riverboat
casinos. On September 20, 1993, we filed our initial application with the
Missouri Gaming Commission for either a dockside or a cruising gaming license
in St. Charles, Missouri. The license was issued on May 27, 1994, thereby
making us one of the first two entrants in the Missouri riverboat gaming
market.
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<PAGE>
Opponents of gaming in Missouri have brought several legal challenges to
gaming in the past and may bring similar challenges in the future. There can
be no assurances that any future challenges, if brought, would not further
interfere with our full-scale gaming operations in Missouri.
On January 25, 1994, as a result of a cause of action brought by
anti-gaming interests, the Missouri Supreme Court held that games of chance,
including certain games authorized under the Missouri Gaming Law such as
bingo and keno, constitute "lotteries" and were therefore prohibited under
the Missouri Constitution. A state wide election on April 5, 1994, failed to
adopt a constitutional amendment that would have exempted excursion boats and
floating facilities from such constitutional prohibition on lotteries.
Therefore, in May 1994, we commenced operations only with those games which
involve some element of skill ("limited gaming"), such as poker and
blackjack, that would be constitutionally permissible. The authorization of
both games of skill and games of chance ("full-scale gaming") occurred on
November 8, 1994 with passage by Missouri voters of a constitutional
amendment virtually identical to the measure which was defeated on April 5,
1994. Full-scale gaming became effective on December 9, 1994, and by the end
of December 1994, we were conducting full scale gaming on both our excursion
and dockside casinos in St. Charles, Missouri.
On January 16, 1997, the Missouri Gaming Commission granted KCSC a Class
A and Class B Excursion Gambling Boat license to own and operate the River
King and River Queen floating gaming facilities.
On November 25, 1997, the Supreme Court ruled, in a case again brought
by anti-gaming interests, involving certain operators who compete with
Station Casino St. Charles in Maryland Heights, Missouri, that gaming may
occur only in artificial spaces that are contiguous to the surface stream of
the Missouri and Mississippi rivers. On November 3, 1998, the citizens of
the State of Missouri approved a Constitutional amendment which was proposed
by initiative petition, that retroactively legalized lotteries, gift
enterprises and games of chance aboard excursion gambling boats and floating
facilities located within artificial spaces containing water that are within
1,000 feet of the closest edge of the main channel of the Mississippi or
Missouri Rivers. This amendment to the constitution became effective on
November 23, 1998. The Missouri Gaming Commission has stayed its preliminary
orders of disciplinary action against licensees that operate within
artificial basins, and has dismissed the preliminary orders for disciplinary
action with respect to all applicable licensees except KCSC. The Missouri
Gaming Commission has not dismissed the disciplinary proceeding against KCSC
because it is investigating an alleged violation by KCSC that is related to
an aspect of the placement of our gaming facilities in an artificial basin.
While we anticipate that the disciplinary action with respect to KCSC will be
dismissed, we cannot be sure that the Missouri Gaming Commission will take
such action or that the Missouri Gaming Commission will not impose a fine or
other penalty against us in connection with such dismissal.
Under the Missouri Gaming Law, the ownership and operation of riverboat
gaming facilities in Missouri are subject to extensive state and local
regulation. By virtue of its gaming license in Missouri, Station, any
subsidiaries it has or it may form and certain of its officers and employees
are subject to the Missouri Gaming Law and the regulations of the Missouri
Gaming Commission.
As part of the application and licensing process for a gaming license,
the applicant must submit detailed financial, operating and other reports to
the Missouri Gaming Commission. Each applicant has an ongoing duty to update
the information provided to the Missouri Gaming Commission in the
application. In addition to the information required of the applicant,
directors, officers and other key persons must submit Personal Disclosure
Forms which include detailed personal financial information and are subject
to thorough investigations. All gaming employees must obtain an occupational
license issued by the Missouri Gaming Commission. Operators' licenses are
issued through application to the Missouri Gaming Commission, which requires,
among other things:
- investigations into an applicant's character, financial responsibility
and experience qualifications; and
- that applicants furnish (1) an affirmative action plan for the hiring
and training of minorities and women and (2) an economic development
or impact report.
License fees are a minimum of $50,000 for the initial application and $25,000
annually thereafter.
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<PAGE>
The Missouri Gaming Commission may revoke or suspend gaming licenses and
impose other penalties for violation of the Missouri Gaming Law and the rules
and regulations which may be promulgated thereunder, including, without
limitation, forfeiture of all gaming equipment used for improper gaming and
fines of up to three times an operator's highest daily amount of gross
receipts from wagering on the gambling games conducted during the preceding
twelve months. No gaming licensee or occupational licensee may pledge,
hypothecate or transfer in any way any license, or any interest in a license,
issued by the Missouri Gaming Commission. An ownership interest in a gaming
licensee that is not a publicly held entity or a holding company that is not
a publicly held entity may not be pledged or hypothecated in any way to, or
otherwise be subject to any type of security interest held by, any entity or
person other than a regulated bank or saving and loan association without
prior approval of the Missouri Gaming Commission. Missouri Gaming Commission
regulations prohibit a licensee from consummating any of the following
transactions without at least 60 days' prior notice to the Missouri Gaming
Commission, and during such period, the Missouri Gaming Commission may
disapprove the transaction or require the transaction be delayed pending
further investigation:
- any transfer or issuance of an ownership interest in a gaming licensee
that is not a publicly held entity or a holding company that is not a
publicly held entity; and
- any pledge or hypothecation or grant of any type of security interest
in an ownership interest in a gaming licensee that is not a publicly
held entity or a holding company that is not a publicly held entity to
a regulated bank or saving and loan association;
provided that no ownership interest may be transferred in any way pursuant to
any pledge, hypothecation or security interest without separate notice to the
Missouri Gaming Commission at least thirty days prior to such transfer, which
restriction must be specifically included in the grant of pledge,
hypothecation or security interest.
Missouri Gaming Commission regulations require a licensee to notify the
Missouri Gaming Commission of its intention to consummate any of the
following transactions at least fifteen days prior to such consummation, and
the Missouri Gaming Commission may reopen the licensing hearing prior to or
following the consummation date to consider the effect of the transaction on
the licensee's suitability:
- any issuance of ownership interest in a publicly held gaming licensee
or a publicly held holding company, if such issuance would involve,
directly or indirectly, an amount of ownership interest equaling five
percent or greater of the ownership interest in the gaming licensee or
holding company after the issuance is complete;
- any private incurrence of debt equal to or exceeding one million
dollars by a gaming licensee or holding company that is affiliated
with the holder of a license;
- any public issuance of debt by a gaming licensee or holding company
that is affiliated with the holder of a license; and
- any significant related party transaction as defined in the
regulations.
The Missouri Gaming Law imposes operational requirements on riverboat
operators, including a charge of two dollars per gaming customer that
licensees must pay to the Missouri Gaming Commission, certain minimum payout
requirements, a 20% tax on adjusted gross receipts, prohibitions against
providing credit to gaming customers (except for the use of credit cards and
cashing checks) and a requirement that each licensee reimburse the Missouri
Gaming Commission for all costs of any Missouri Gaming Commission staff
necessary to protect the public on the licensee's riverboat. Licensees must
also submit audited quarterly financial reports to the SEC and pay the
associated auditing fees. Other areas of operation which are subject to
regulation under Missouri rules are the size, denomination and handling of
chips and tokens; the surveillance methods and computer monitoring of
electronic games; accounting and audit methods and procedures; and approval
of an extensive internal control system. The Missouri rules also require
that all of an operator's purchases of chips, tokens, dice, playing cards and
electronic gaming devices must be acquired from suppliers licensed by the
Missouri Gaming Commission. The Missouri Gaming Law provides for a loss
limit of $500 per person per excursion and requires licensees to maintain
scheduled excursions with boarding and disembarking times regardless of
whether the riverboat cruises. Although the Missouri Gaming Law provides no
limit
60
<PAGE>
on the amount of riverboat space that may be used for gaming, the Missouri
Gaming Commission is empowered to impose such space limitations through the
adoption of rules and regulations. Additionally, United States Coast Guard
safety regulations could affect the amount of riverboat space that may be
devoted to gaming. The Missouri Gaming Law also includes requirements as to
the form of riverboats, which must resemble Missouri's riverboat history to
the extent practicable and include certain non-gaming amenities. All ten
licensees currently operating rierboat gaming operations in Missouri are
authorized to conduct all or a portion of their operations on a dockside
basis.
With respect to the availability of dockside gaming, which may be more
profitable than excursion gaming, the Missouri Gaming Commission is empowered
to determine on a site-by-site basis where such gaming is appropriate and
shall be permitted. All other riverboats will be required to cruise. On
December 27, 1994, SCRSI was granted a dockside gaming license for its
floating gaming facility by the Missouri Gaming Commission. On April 16,
1996, SCRSI, subsequently received approval from the Missouri Gaming
Commission to conduct its operations on its excursion gaming riverboat on a
continuously docked basis. The U.S. Coast Guard has recommended to the
Missouri Gaming Commission that all gaming vessels on the Missouri River be
required to remain dockside because certain characteristics of the Missouri
River, including turbulence, lack of emergency response infrastructure and
potential congestion, create substantially elevated risks for the operation
of large capacity passenger vessels. Dockside gaming in Missouri may differ
from dockside gaming in other states, such as Mississippi, because the
Missouri Gaming Commission has the ability to require "simulated cruising."
This requirement permits customers to board dockside riverboats only at
specific times and prohibits boarding during a certain portion of each
simulated cruise, which are required to be a minimum of two hours and a
maximum of four hours. Dockside gaming in Missouri may not be as profitable
as dockside gaming in other states, that allow for continuous customer
ingress and egress.
We may not make a public issuance of debt or ownership interests without
first notifying the Missouri Gaming Commission at least 15 days prior to such
issuance. The Missouri Gaming Commission may reopen the licensing hearing of
the gaming licensee prior to or following the consummation date to consider
the effect of the transaction on the gaming licensee's suitability.
GENERAL GAMING REGULATIONS IN OTHER JURISDICTIONS
If we become involved in gaming operations in any other jurisdictions,
such gaming operations will subject us and certain of our officers,
directors, key employees, stockholders and other affiliates ("Regulated
Persons") to strict legal and regulatory requirements, including mandatory
licensing and approval requirements, suitability requirements, and ongoing
regulatory oversight with respect to such gaming operations. Such legal and
regulatory requirements and oversight will be administered and exercised by
the relevant regulatory agency or agencies in each jurisdiction (the
"Regulatory Authorities"). Station and the Regulated Persons will need to
satisfy the licensing, approval and suitability requirements of each
jurisdiction in which we seek to become involved in gaming operations. These
requirements vary from jurisdiction to jurisdiction, but generally concern
the responsibility, financial stability and character of the owners and
managers of gaming operations and persons financially interested or involved
in gaming operations. In general, the procedures for gaming licensing,
approval and finding of suitability require us and each Regulated Person to
submit detailed personal history information and financial information to
demonstrate that the proposed gaming operation has adequate financial
resources generated from suitable sources and adequate procedures to comply
with the operating controls and requirements imposed by law and regulation in
each jurisdiction, followed by a thorough investigation by such Regulatory
Authorities. In general, Station and each Regulated Person must pay the costs
of such investigation. An application for any gaming license, approval or
finding of suitability may be denied for any cause that the Regulatory
Authorities deem reasonable. Once obtained, licenses and approvals may be
subject to periodic renewal and generally are not transferable. The
Regulatory Authorities may at any time revoke, suspend, condition, limit or
restrict a license, approval or finding of suitability fr any cause they deem
reasonable. Fines for violations may be levied against the holder of a
license or approval and in certain jurisdictions, gaming operation revenues
can be forfeited to the state under certain circumstances. There can be no
assurance that we will obtain all of the necessary licenses, approvals and
findings of suitability or that our officers, directors, key employees, other
affiliates and certain other stockholders will satisfy the suitability
requirements in one or more jurisdictions, or that such licenses, approvals
and findings of suitability, if obtained, will not be revoked, limited,
suspended or not renewed in the future.
Failure by us to obtain, or the loss or suspension of, any necessary
licenses, approval or findings of suitability would prevent us from
conducting gaming operations in such jurisdiction and possibly in other
jurisdictions. We may be required to submit detailed financial and operating
reports to Regulatory Authorities.
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<PAGE>
The laws, regulations and procedures pertaining to gaming are subject to
the interpretation of the Regulatory Authorities and may be amended. Any
changes in such laws, regulations, or their interpretations could have a
material adverse effect on us.
62
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors, executive officers and
certain key management personnel of SCI and certain of its subsidiaries. All
directors hold their positions until their terms expire and until their
respective successors are elected and qualified. Executive officers are
elected by and serve at the discretion of the SCI board of directors until
their successors are duly chosen and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Frank J. Fertitta III(1) 36 Chairman of the Board, President, Chief Executive Officer and Director
Glenn C. Christenson 49 Executive Vice President, Chief Financial Officer, Chief Administrative
Officer, Treasurer and Director
Scott M Nielson 41 Executive Vice President, General Counsel and Secretary
Blake L. Sartini(1) 40 Executive Vice President, Chief Operating Officer and Director
William W. Warner 34 Vice President of Finance
R. Hal Dean 82 Director
Lorenzo J. Fertitta(1) 30 Director
Lowell H. Lebermann, Jr. 59 Director
Delise F. Sartini(1) 39 Director
- -----------
</TABLE>
(1) Frank J. Fertitta III and Lorenzo J. Fertitta are brothers and Delise F.
Sartini is their sister. Delise F. Sartini is married to Blake L.
Sartini.
FRANK J. FERTITTA III. Mr. Fertitta has served as Chairman of the Board of
SCI since February 1993, Chief Executive Officer since July 1992 and President
since 1989. He has held senior management positions since 1985, when he was
named General Manager of Palace Station. He was elected a director of SCI in
1986, at which time he was also appointed Executive Vice President and Chief
Operating Officer. In 1992, he co-founded Station Casino St. Charles and has
served as Chairman of the Board of Directors of that company since that time.
GLENN C. CHRISTENSON. Mr. Christenson was appointed Chief Administrative
Officer in March 1997 and has served as Executive Vice President of SCI since
February 1994. From 1989 to 1993, he served as Vice President of SCI. He has
served as Chief Financial Officer since 1989, as Treasurer since 1992 and as a
director of SCI since 1993. Mr. Christenson is a Certified Public Accountant.
From 1983 to 1989, he was a partner of the international accounting firm of
Deloitte Haskins & Sells (now Deloitte & Touche), where he served as
partner-in-charge of audit services for the Nevada practice and National Audit
partner for the Hospitality Industry. Mr. Christenson has served on the Board of
Directors of the Nevada Resort Association and was Chairman of the Nevada Resort
Association's IRS Liaison Committee.
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<PAGE>
SCOTT M NIELSON. Mr. Nielson was appointed Executive Vice President of SCI
in June 1994. In 1991, he was appointed General Counsel and in 1992 he was
appointed Secretary of SCI. From 1991 through June 1994, he served as Vice
President of SCI. From 1986 to 1991, Mr. Nielson was in private legal practice,
most recently as a partner in the Las Vegas firm of Schreck, Jones, Bernhard,
Woloson & Godfrey, where he specialized in gaming law and land use planning and
zoning. Mr. Nielson is a member of the American Bar Association, the Nevada Bar
Association and the International Association of Gaming Attorneys.
BLAKE L. SARTINI. Mr. Sartini was appointed Chief Operating Officer in
March 1997 and has served as Executive Vice President of SCI since February
1994. From February 1994 to March 1997 he also served as President-Nevada
Operations for SCI. From 1991 to 1993, he served as Vice President of Gaming
Operations for us. He has served as a director of SCI since 1993 and has over
14 years of experience in the hotel and casino industry. From 1985 to 1990,
Mr. Sartini held various management positions at Station and served as
President of Southwest Gaming Services, Inc., a subsidiary of SCI until
November 1995. In 1992, he co-founded Station Casino St. Charles and serves
as its President.
WILLIAM W. WARNER. Mr. Warner has served as Vice President of Finance of
SCI since January 1996 and from August 1993 to January 1996 he served as
Director of Finance. Prior to his employment by SCI, Mr. Warner served as
controller of Kentco Capital Corporation from 1991 to 1993 and from 1986 to 1991
he served with the international accounting firm of ArthurAnderson LLP, most
recently as an Audit Manager.
R. HAL DEAN. Mr. Dean has served as a director of SCI since June 1993 and
is chairman of the Human Resources Committee. Mr. Dean presently is a member of
the Board of Directors of LaBarge, Inc. (from 1984) in St. Louis. Mr. Dean
retired in 1982 from the Ralston Purina Company, having served 44 years in
various capacities including Chairman of the Board (1968-1982) and Chief
Executive Officer (1964-1982). Mr. Dean has served on several other Boards of
Directors including those of Gulf Oil Corp., Pittsburgh, Pennsylvania
(1970-1985), Chase Manhattan Bank International Advisory Group, New York, New
York (1965-1970), Mercantile Trust Co., St. Louis, Missouri (1969-1987), General
American Life Insurance Co., St. Louis, Missouri (1972-1987), Barnes Hospital,
St. Louis, Missouri (1979-1985) and Chevron Corp., San Francisco, California
(1985-1989).
LORENZO J. FERTITTA. Mr. Fertitta has served as a director of SCI since
1991. He has served as President and Chief Executive Office of Fertitta
Enterprises, Inc. since June 1993, where he is responsible for managing an
investment portfolio consisting of marketable securities and real property. From
time to time, the investment portfolio contains investments in other gaming
operations. Mr. Fertitta was a co-founder of Southwest Gaming in 1990 and of
Station Casino St. Charles in 1992 and has served on their respective boards
since their inception. From 1991 to 1993, he served as Vice President of SCI.
Mr. Fertitta serves as a commissioner on the Nevada State Athletic Commission.
LOWELL H. LEBERMANN, JR. Mr. Lebermann has served as a director of SCI
since October 1993 and is chairman of the Audit Committee. He is also a director
of Valero Energy Corporation, San Antonio, serving as a member of the executive
committee. He is a former director of Franklin Federal Bancorp, Austin (now
Norwest), and founding member of the Board of Directors of the Texas Workers'
Compensation Fund. He is president and CEO of Centex Beverage, Inc. wholesale
distributor of Miller beer and imported beverages. Since 1993, he has been a
member of the Board of Regents of the University of Texas System. He was a
Council Member of the Austin City Council from 1971-1977.
DELISE F. SARTINI. Ms. Sartini was appointed a director of SCI on August
30, 1995. She has served as Vice President of Community Affairs at Palace
Station in excess of five years. Ms. Sartini was a co-founder of Southwest
Gaming in 1990 and of Station Casino St. Charles in 1992. Ms. Sartini is
involved in various charitable organizations and serves on the Board of
Directors of St. Jude's Ranch for Children.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF SCI
The following table sets forth, as of December 31, 1998, certain
information regarding the shares of SCI Common Stock beneficially owned by each
stockholder who is known by SCI to beneficially own in excess of 5% of the
outstanding shares of SCI Common Stock, by each director and named executive
officer and by all executive officers and directors as a group. Based on filings
with the SEC, SCI has not identified any person who owns in excess of 5% of the
SCI Convertible Preferred Stock.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER(1)(2) NUMBER(3) % OF CLASS
------------------------------ --------- ----------
BENEFICIAL OWNERSHIP
OF SHARES
---------
<S> <C> <C>
Frank J. Fertitta III . . . . . . . . . . . . . . . . 5,826,819 16.0
Blake L. Sartini(4) . . . . . . . . . . . . . . . . . 4,903,834 13.8
Lorenzo J. Fertitta . . . . . . . . . . . . . . . . . 4,781,511 13.5
Delise F. Sartini(4) . . . . . . . . . . . . . . . . 4,727,023 13.4
Par Capital Management, Inc.(5) . . . . . . . . . . . 2,605,000 7.4
Glenn C. Christenson . . . . . . . . . . . . . . . . 267,346 *
Scott M Nielson . . . . . . . . . . . . . . . . . . . 222,477 *
William W. Warner . . . . . . . . . . . . . . . . . . 10,807 *
R. Hal Dean . . . . . . . . . . . . . . . . . . . . . 44,265 *
Lowell H. Lebermann, Jr. . . . . . . . . . . . . . . 21,000 *
Executive Officers and Directors as a
Group (9 persons) . . . . . . . . . . . . . . . . . 16,088,686 43.5
- ------------
</TABLE>
* Less than one percent
(1) Except as otherwise noted, excludes shares of SCI Stock issuable upon
conversion of SCI Convertible Preferred Stock. Of the total number of
shares reported in this table, the following are the approximate number
of vested options beneficially owned by each individual in the table:
Frank J. Fertitta III 945,615; Blake L. Sartini 191,437; Delise F.
Sartini 14,627; Lorenzo J. Fertitta 99,000; Glenn C. Christenson 213,146;
Scott M Nielson 168,477; William W. Warner 0; R. Hal Dean 22,500; and
Lowell H. Lebermann, Jr. 20,000. Of the total number of shares reported
in this table, 457 shares beneficially owned by William W. Warner are
held by SCI's 401(k) Plan which shares may be voted by the trustee of
such shares.
(2) The address of each of the beneficial owners named in this table other
than Par Capital Management, Inc. is: c/o Station Casinos, Inc.,
2411 West Sahara Avenue, Las Vegas, Nevada 89102.
(3) Unless otherwise indicated in the footnotes to this table and subject to
the community property laws where applicable, each of the stockholders
named in this table has sole voting and investment power with respect to
the shares shown as beneficially owned.
(4) Reflects beneficial ownership shared by Blake L. and Delise F. Sartini.
Blake L. and Delise F. Sartini do not, however, share beneficial
ownership of the vested options reflected in note (1) and thus have
different total ownership figures.
(5) The address of Par Capital Management, Inc. is One Financial Center,
Suite 1600, Boston, Massachusetts 02111. The SEC filing dated
September 2, 1998 for Par Capital Management, Inc. states that it is
filed by Par Capital Management, Inc., Par Investment Partners, L.P. and
Par Group, L.P.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS AND CAPITAL STOCK
AMENDED BANK FACILITY
The Amended Bank Facility consists of a Revolving Facility up to an
aggregate principal amount of $350.0 million and a Term Loan of $75.0 million.
The Revolving Facility includes a swing line facility with a sub-limit on
borrowing of $15.0 million. The borrowers under the Amended Bank Facility are
PSHC, BSI, TSI, SSI, KCSC and SCRSI. The Amended Bank Facility is secured by
substantially all of the assets of the Borrowers. SCI, SGSI and certain other
subsidiaries guarantee the borrowings under the Amended Bank Facility. The
maturity date of the Revolving Facility is September 30, 2003. The availability
under the Revolving Facility will reduce by $7.0 million on September 30, 1999;
by $12.25 million on each of December 31, 1999, March 31, 2000 and June 30,
2000; by $14.0 million on September 30, 2000, December 31, 2000, March 31, 2001
and June 30, 2001; and by $17.5 million on each fiscal quarter end thereafter.
The Term Loan matures on December 31, 2005 and amortizes in installments of
$187,500 on each fiscal quarter end from March 31, 2000 until and including
December 31, 2004 and of $17.8 million on each fiscal quarter end thereafter.
Borrowings under the Revolving Facility bear interest at a margin above the
agent bank's alternate reference rate or the Eurodollar Rate, as selected by us.
The margin above such rates, and the fee on the unfunded portions of the
Revolving Facility, will vary quarterly based on our combined consolidated ratio
of average quarterly adjusted funded debt to Adjusted EBITDA. As of November 25,
1998, the Borrowers' margin above the Eurodollar Rate on borrowings under the
Revolving Facility was 2.25%. The maximum margin for Eurodollar Rate borrowings
is 2.75%. The maximum margin for alternate base rate borrowings is 1.50%. The
maximum fee for the unfunded portion of the Revolving Facility is 0.50%. The
interest rate on the Term Loan is 3.25% above the Eurodollar Rate.
The Amended Bank Facility contains certain financial and other covenants.
These include a maximum funded debt to Adjusted EBITDA ratio for the Borrowers
combined of 2.50 to 1.00 for each fiscal quarter, a minimum fixed charge
coverage ratio for the preceding four quarters for the Borrowers combined of
1.40 to 1.00 until and including March 31, 1999 and for each quarter thereafter,
1.50 to 1.00, limitations on indebtedness, limitations on asset dispositions,
limitations on investments, limitations on prepayments of indebtedness and rent
and limitations on capital expenditures. As of September 30, 1998, the Borrowers
combined funded debt to Adjusted EBITDA ratio was 2.04 to 1.00 and their
combined fixed charge coverage ratio for the preceding four quarters ended
September 30, 1998 was 1.81 to 1.00. A tranche of the Revolving Facility
contains a minimum tangible net worth requirement for Palace Station
($10 million plus 95% of net income determined as of the end of each fiscal
quarter with no reduction for net losses) and certain restrictions on
distributions of cash from Palace Station to SCI. As of September 30, 1998,
Palace Station's tangible net worth exceeded the requirement by approximately
$8.4 million. These covenants limit Palace Station's ability to make payments to
SCI, a significant source of anticipated cash for SCI.
In addition, the Amended Bank Facility has financial and other covenants
relating to Station. These include a tangible net worth covenant of
$265.0 million (adjusted upward for 95% of cumulative net income (without
deduction for any net loss) and 100% of capital stock issuances by SCI and
downward for certain capital stock repurchases, preferred stock dividends, or
certain permissible asset dispositions, required write down of assets and
preopening expense, if any) and a consolidated funded debt to Adjusted EBITDA
ratio of no more than 5.50 to 1.00 on December 31, 1998 and reducing quarterly
to 4.00 to 1.00 on September 30, 2001. Other covenants limit prepayments of
indebtedness or rent (including, subordinated debt other than refinancings
meeting certain criteria), limitations on asset dispositions, limitation on
dividends, limitations on indebtedness, limitations on investments and
limitations on capital expenditures. The Amended Bank Facility also prohibits
SCI from holding cash and cash equivalents in excess of the sum of the amounts
necessary to make the next scheduled interest or dividend payments on our senior
subordinated notes and preferred stock, the amounts necessary to fund casino
bankroll in the ordinary course of business any amount required to be held by
SCI or any restricted subsidiary by any gaming boards, and $2.0 million. SCI
has pledged the stock of all of its subsidiaries except KCSC and SCRSI and has
agreed to pledge the stock of the latter two subsidiaries upon regulatory
approval (which is expected to be obtained). The Guarantors waive certain
defenses and rights including rights of subrogation and reimbursement. The
Amended Bank Facility contains customary events of default and remedies and is
cross-defaulted to our senior subordinated notes and a change of control default
(which definition is substantially similar to the definition of Change of
Control Triggering Event in the indentures governing our senior subordinated
notes).
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SENIOR SUBORDINATED NOTES
We had $529.2 million, net of unamortized discount of $11.7 million, of
senior subordinated notes outstanding as of September 30, 1998, $187.5
million of these notes bear interest, payable semi-annually, at a rate of
9-5/8% per year, $197.0 million of these notes bear interest, payable
semi-annually, at a rate of 10-1/8% per year and $144.8 million of the notes
bear interest, payable semi-annually, at a rate of 9-3/4% per year
(collectively the "Existing Notes"). On January 4, 1999, we redeemed our
9-5/8% Senior Subordinated Notes due 2003 at a redemption price equal to
103.61% of their principal amount, plus accrued and unpaid interest thereon
to the date of redemption. The indentures governing the Existing Notes (the
"Existing Indentures") contain certain customary financial and other
covenants which prohibit us from incurring indebtedness (including capital
leases) other than:
- non-recourse debt for certain specified subsidiaries;
- certain equipment financings;
- the Existing Notes;
- up to $15 million of additional indebtedness;
- additional indebtedness if, after giving effect thereto, a 2.00 to
1.00 pro forma Consolidated Coverage Ratio (as defined in the Existing
Indentures) has been met;
- Permitted Refinancing Indebtedness (as defined in the Existing
Indentures);
- borrowings of up to $72 million under the Amended Bank Facility
(contained in the indentures governing the 9-5/8% Senior Subordinated
Notes due 2003) and borrowings under the Amended Bank Facility not to
exceed the greater of $200.0 million or 1.5 times Operating Cash Flow
(as defined) for the four most recent quarters (contained in the
indentures governing the 9-3/4% and 10-1/8% Senior Subordinated
Notes); and
- certain other indebtedness.
At September 30, 1998, SCI's Consolidated Coverage Ratio was 1.95 to 1.00. In
addition, the Existing Indentures prohibit SCI from paying dividends on any of
SCI's capital stock unless at the time of and after giving effect to such
dividends, among other things, the aggregate amount of all Restricted Payments
and Restricted Investments (as defined in the Existing Indentures, and which
include any dividends on any of SCI's capital stock) do not exceed the sum of:
- 50% of SCI's Cumulative Consolidated Net Income (as defined) (less
100% of any consolidated net losses);
- certain net proceeds from the sale of SCI's equity securities; and
- $15 million.
The limitation on the incurrence of additional indebtedness and dividend
restrictions in the Existing Indentures may significantly affect our ability to
pay dividends on SCI's capital stock. The Existing Indentures also give the
holders of the Existing Notes the right to require SCI to purchase the Existing
Notes at 101% of the principal amount of the Existing Notes plus accrued
interest thereon upon a Change of Control and Rating Decline (each as defined in
the Existing Indentures) of SCI.
SUNSET OPERATING LEASE
SCI has entered into an operating lease for furniture, fixtures and
equipment (the "Equipment") with a cost of $40.0 million, dated as of
September 25, 1996 (the "Sunset Operating Lease") between SCI and First Security
Trust Company of Nevada. The Sunset Operating Lease expires in October 2000 and
carries a lease rate of 2.25% above the
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Eurodollar Rate. A total of $35.7 million of the Sunset Operating Lease has been
drawn and no further draws pursuant to the lease will be made. SCI has entered
into a sublease with SSI for the Equipment pursuant to an operating lease with
financial terms substantially similar to the Sunset Operating Lease. SCI
currently incurs approximately $2.2 million of rent expense per quarter related
to this lease. In the event that Sunset Station elects to purchase the
Equipment, SCI has provided a funding commitment up to the amount necessary for
such purchase. SCI has an ongoing option to purchase the equipment. The option
exercise price was $31.8 million at September 30, 1998. This amount reduces
throughout the term of the lease to $21.4 million at October 2000.
In connection with the Sunset Operating Lease, SCI also entered into a
participation agreement, dated as of September 25, 1996 with the trustee, as
lessor under the Sunset Operating Lease, and holders of beneficial interests in
the Lessor Trust. Pursuant to the participation agreement, the holders of
beneficial interests in the Lessor Trust advanced funds to the trustee for the
purchase by the trustee of, or to reimburse us for the purchase, of the
Equipment, which is currently being leased to us under the Sunset Operating
Lease, and in turn subleased to SSI. Pursuant to the participation agreement,
SCI also agreed to indemnify the Lessor and the holders of beneficial interests
in the Lessor Trust against certain liabilities.
COMMON STOCK
SCI is authorized to issue up to 90,000,000 shares of common stock, $0.01
par value per share (the "Common Stock"), 35,311,792 shares of which were issued
and outstanding as of September 30, 1998. Each holder of the Common Stock is
entitled to one vote for each share held of record on each matter submitted to a
vote of stockholders. Holders of the Common Stock have no cumulative voting,
conversion, redemption or preemptive rights or other rights to subscribe for
additional shares other than pursuant to the Rights Plan described below.
Subject to any preferences that may be granted to the holders of SCI's
preferred stock, each holder of Common Stock is entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor and any distributions to the stockholders and, in the event
of liquidation, dissolution or winding up of SCI, is entitled to share ratably
in all our assets remaining after payment of liabilities.
RIGHTS PLAN
On October 6, 1997, SCI declared a dividend of one preferred share purchase
right (a "Right") for each outstanding share of Common Stock. The dividend was
paid on October 21, 1997. Each Right entitles the registered holder to purchase
from SCI one one-hundredth of a share of SCI's Series A Preferred Stock, par
value $0.01 per share ("Preferred Shares") at a price of $40.00 per one
one-hundredth of a Preferred Share, subject to adjustment. The Rights are not
exercisable until the earlier of 10 days following a public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 15% or more of the outstanding Common Stock ("Acquiring Person") or
10 business days (or such later date as may be determined by action of the board
of directors of SCI prior to such time as any person or group of affiliated
persons becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer, the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding Common Stock. The Rights will expire on
October 21, 2007. Acquiring Persons do not have the same rights to receive
Common Stock as other holders upon exercise of the Rights. Because of the nature
of the Preferred Shares' dividend, liquidation and voting rights, the value of
one one-hundredth interest in a Preferred Share purchasable upon exercise of
each Right should approximate the value of one Common Share. In the event that
any person or group of affiliated or associated persons becomes an Acquiring
Person, the proper provisions will be made so that each holder of a Right, other
than Rights beneficially owned by the Acquiring Person (which will thereafter
become void), will thereafter have the rights to receive upon exercise that
number of Common Shares having a market value of two times the exercise price of
the Right. In the event that SCI is acquired in a merger or other business
combination transaction or 50% or more of our consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon exercise of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right. Because of the
characteristics of the Rights in connection with a person or group of affiliated
or associated persons becoming an Acquiring Person, the Rights may have the
effect of making an acquisition of SCI more difficult and may discourage such an
acquisition.
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PREFERRED STOCK
SCI is authorized to issue up to 5,000,000 shares of preferred stock, $0.01
par value per share (the "Preferred Stock"). As of September 30, 1998, 2,070,000
shares of $3.50 Convertible Preferred Stock (the "Convertible Preferred Stock")
have been issued and are outstanding. The board of directors of SCI, without
further action by the holders of Common Stock or the Convertible Preferred
Stock, may issue shares of SCI Preferred Stock in one or more series and may fix
or alter the rights, preferences, privileges and restrictions, including the
voting rights, redemption provisions (including sinking fund provisions),
dividend rights, dividend rates, liquidation rates, liquidation preferences,
conversion rights and the description and number of shares constituting any
wholly unissued series of Preferred Stock. Except as described above, the board
of directors of SCI, without further stockholder approval, may issue shares of
Preferred Stock with rights that could adversely affect the rights of the
holders of Common Stock or the Convertible Preferred Stock. The issuance of
shares of Preferred Stock under certain circumstances could have the effect of
delaying or preventing a change of control of SCI or other corporate action.
CONVERTIBLE PREFERRED STOCK
Each of the Convertible Preferred Stock shares outstanding has a
liquidation preference of $50.00 per share plus an amount equal to any
accumulated and unpaid dividends at the annual rate of $3.50 per share, or 7.0%
of such liquidation preference. Such dividends accrue and are cumulative from
the date of issuance and are payable quarterly. The Convertible Preferred Stock
is convertible at the option of the holder of the Convertible Preferred Stock at
any time, unless previously redeemed, into shares of Common Stock at an initial
conversion rate of 3.2573 shares of Common Stock for each share of Convertible
Preferred Stock, subject to adjustment in certain circumstances. SCI may reduce
the conversion price of the Convertible Preferred Stock by any amount for any
period of at least 20 days, so long as the decrease is irrevocable during such
period. The Convertible Preferred Stock is redeemable, at SCI's option, in whole
or in part, for shares of Common Stock, at any time after March 15, 1999,
initially at a price of $52.45 per share of Convertible Preferred Stock, and
thereafter at prices decreasing annually to $50.00 per share of Convertible
Preferred Stock on and after March 15, 2006, plus accrued and unpaid dividends.
The Common Stock to be issued is determined by dividing the redemption price by
the lower of the average daily closing price for Common Stock for the preceding
20 trading days or the closing price of Common Stock on the first business day
preceding the date of the redemption notice. Any fractional shares would be paid
in cash. There is no mandatory sinking fund obligation with respect to the
Convertible Preferred Stock. The holders of the Convertible Preferred Stock do
not have any voting rights, except as required by applicable law and in
connection with certain extraordinary events and except that, among other
things, whenever accrued and unpaid dividends on the Convertible Preferred Stock
are equal to or exceed the equivalent of six quarterly dividends payable on the
Convertible Preferred Stock, the holders of the Convertible Preferred Stock,
voting separately as a class with the holders of any other series of parity
stock upon which like voting rights have been conferred and are exercisable,
will be entitled to elect two directors to the board of directors of SCI until
dividend arrearage has been paid or amounts have been set apart for such
payment. The Convertible Preferred Stock is senior to the Common Stock with
respect to dividends and upon liquidation, dissolution or winding-up.
REDEEMABLE PREFERRED STOCK
SCI has authorized the issuance of an aggregate of 115,000 shares of
redeemable preferred stock to Crescent pursuant to the terms of the merger
agreement. SCI and Crescent are currently in litigation in a Nevada state court
with respect to the merger agreement and Crescent's obligation to purchase the
redeemable preferred stock. See "Business-Litigation."
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THE EXCHANGE OFFER
We sold the Old Notes on December 3, 1998 (the "Closing Date") to the
initial purchasers in a private offering. As a condition to the sale of the Old
Notes, SCI and the initial purchasers entered into the Registration Rights
Agreement on the Closing Date. The registration statement, of which this
prospectus is part, is intended to satisfy certain of our obligations under the
Registration Rights Agreement summarized below.
Pursuant to the Registration Rights Agreement, we agreed to file with the
SEC an exchange offer registration statement on the appropriate form under the
Securities Act with respect to the New Notes. Upon the effectiveness of the
exchange offer registration statement, we will offer to the holders of Old Notes
who are able to make certain representations the opportunity to exchange their
Old Notes for the New Notes. If we are not permitted to consummate the exchange
offer because the exchange offer is not permitted by applicable law or
Commission policy, or any noteholder notifies us within the specified time
period that it:
- is prohibited by law or SEC policy from participating in the exchange
offer; or
- that it may not resell the New Notes acquired by it in the exchange
offer to the public without delivering a prospectus and the prospectus
contained in the exchange offer registration statement is not
appropriate or available for such resales; or
- that it is a broker-dealer and owns Old Notes acquired directly from
us or an affiliate of ours,
we will file with the SEC a shelf registration statement to cover resales of the
Old Notes by the noteholders who satisfy certain conditions relating to the
provision of information in connection with the shelf registration statement.
The Registration Rights Agreement, dated as of December 3, 1998, provides
that we will:
- file an exchange offer registration statement with the SEC on or prior
to February 1, 1999;
- use our best efforts to have the exchange offer registration statement
declared effective by the SEC on or prior to April 2, 1999;
- unless the exchange offer would not be permitted by applicable law or
SEC policy, commence the exchange offer and use our best efforts to
issue on or prior to 30 business days (or longer if required by
applicable law) after the date on which the exchange offer
registration statement was declared effective by the SEC, New Notes in
exchange for all Old Notes tendered prior thereto in the exchange
offer and;
- if obligated, to file a shelf registration statement, and use our best
efforts to file a shelf registration statement with the SEC on or
prior to 60 days after such filing obligation arises and to cause the
shelf registration statement to be declared effective by the SEC as
soon as practicable thereafter (and in any event by April 30, 1999;
provided that such period shall be extended if necessary to provide us
with 30 days notice of its filing obligation).
If:
- we fail to file any of the registration statements required by the
Registration Rights Agreement on or before the date specified for such
filing, or
- any of such registration statements is not declared effective by the
SEC on or prior to the date specified for such effectiveness the
"Effectiveness Target Date;" or
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- we fail to consummate the exchange offer within 30 business days after
the Effectiveness Target Date with respect to the exchange offer
registration statement; or
- the shelf registration statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of the
transfer restricted securities during the periods specified in the
Registration Rights Agreement;
(each such event referred to in the clauses above a "Registration Default"),
then we will pay liquidated damages to each noteholder, with respect to the
first 90-day period immediately following the occurrence of such Registration
Default in an amount equal to $.05 per week per $1,000 principal amount of Old
Notes held by such holder. The amount of the liquidated damages will increase
by an additional $.05 per week per $1,000 principal amount constituting transfer
restricted securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of liquidated
damages of $.15 per week per $1,000 principal amount of Old Notes constituting
transfer restricted securities. We will pay all accrued liquidated damages on
each damages payment date (as defined in the Indenture) to the global note
holder by wire transfer of immediately available funds or by federal funds check
and to holders of certificated securities by mailing checks to their registered
addresses. Following the cure of all Registration Defaults, liquidated damages
will not accrue.
TRANSFER RESTRICTED SECURITIES
For purposes of the foregoing, transfer restricted securities means each
Old Note until:
- the date on which such Old Note has been exchanged by a person other
than a broker-dealer for a New Note in the exchange offer;
- following the exchange by a broker-dealer in the exchange offer of an
Old Note for a New Note, the date on which such New Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the exchange offer
registration statement;
- the date on which such Old Note has been effectively registered under
the Securities Act and disposed of in accordance with the shelf
registration statement; or
- the date on which such Old Note may be distributed to the public
pursuant to Rule 144 or another applicable resale exemption under the
Securities Act.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal, we will accept any and all of
the Old Notes validly tendered and not withdrawn prior to the expiration date
of the exchange offer. As of the date of this prospectus, $199.9 million
aggregate principal amount of the Old Notes is outstanding and no New Notes
are outstanding. This prospectus, together with the letter of transmittal,
is first being sent on or about ___________, 1999, to all noteholders known
to us. Our obligation to accept the Old Notes for exchange pursuant to the
exchange offer is subject to the conditions as set forth under "--Certain
Conditions to the Exchange Offer" below. We will issue $1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of
outstanding Old Notes accepted in the exchange offer. Noteholders may tender
some or all of their Old Notes pursuant to the exchange offer. See
"--Consequences of Failure to Exchange." However, the Old Notes may be
tendered only in integral multiples of $1,000.
The New Notes will evidence the same debt as the Old Notes for which they
are exchanged, and are entitled to the benefits of the Indenture. The form and
terms of the New Notes are the same as the form and terms of the Old Notes,
except that the New Notes have been registered under the Securities Act.
Therefore, the New Notes will not bear legends restricting their transfer.
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Noteholders do not have any appraisal or dissenters' rights under the
Indenture in connection with the exchange offer. We intend to conduct the
exchange offer in accordance with the applicable requirements of Regulation 14E
under the Exchange Act.
We shall be deemed to have accepted validly tendered Old Notes when, as,
and if we have given verbal or written notice of our acceptance to the exchange
agent. The exchange agent will act as agent for the tendering noteholders for
the purpose of receiving the New Notes.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, or the failure to satisfy other conditions to the exchange offer
or otherwise, we will return such unaccepted tenders of Old Notes without
expense to the noteholder of the Old Note, as promptly as practicable after the
expiration date of the exchange offer.
Noteholders whose Old Notes are not tendered or are tendered but not
accepted in the exchange offer will continue to hold such Old Notes and will be
entitled to all the rights and preferences and subject to the limitations
applicable to the Old Notes under the Indenture. Following completion of the
exchange offer, the noteholders will continue to be subject to the existing
restrictions upon transfer of the Old Notes and we will have no further
obligation to those noteholders to provide for the registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the exchange offer, the trading market for untendered,
and tendered but unaccepted, Old Notes could be adversely affected. See "Risk
Factors - Restrictions Upon Transfer of and Limited Trading Market for Old
Notes."
Noteholders who tender Old Notes in the exchange offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the exchange offer. We will pay all charges and expenses, other
than certain applicable taxes, in connection with the exchange offer. See
"--Fees and Expenses; Solicitation of Tenders."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term expiration date shall mean 5:00 p.m., New York City time on
__________, 1999, unless we extend the exchange offer. If we do extend the
exchange offer, the term expiration date shall mean the date and time to which
the exchange offer is extended.
In order to extend the expiration date of the exchange offer, we will
notify the exchange agent of any extension by verbal or written notice, mail to
the registered noteholders an announcement of that notice, and will make a
release to the Dow Jones News Services prior to 9:00 a.m., New York City time,
on the next business day after the previously scheduled expiration date of the
exchange offer.
We reserve the right at our sole discretion:
- to delay accepting any Old Notes;
- to extend the exchange offer;
- to terminate the exchange offer and not accept the Old Notes not
previously accepted if any of the conditions set forth below under
"--Certain Conditions to the Exchange Offer" shall have occurred and
shall not have been waived by us, by giving oral or written notice of
such delay, extension or termination to the exchange agent; or
- to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
noteholders. If the exchange offer is amended in a manner determined by us to
constitute a material change, we will promptly disclose such amendment by means
of a prospectus supplement that will be distributed to all noteholders, and we
will extend the exchange offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure to
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noteholders, if the exchange offer would otherwise expire during such five to
ten business day period. During any extension of the expiration date of the
exchange offer, all Old Notes previously tendered will remain subject to the
exchange offer and may be accepted for exchange by us.
We shall have no obligation to publish, advertise, or otherwise communicate
any such public announcement, other than by making a timely release to the Dow
Jones News Service.
INTEREST ON THE NEW NOTES
Interest accrues on the New Notes at the rate of 8-7/8% per annum and will
be payable in cash semiannually in arrears on each June 1 and December 1,
commencing June 1, 1999. No interest will be payable on the Old Notes on the
date of the exchange for the New Notes and therefore no interest will be paid
thereon to the noteholders at such time.
PROCEDURES FOR TENDERING THE OLD NOTES
When a beneficial owner of Old Notes tenders them to the Company as set
forth below and the Company accepts the Old Notes, the beneficial owner of the
Old Notes and the Company will be deemed to have entered into a binding
agreement upon the terms and subject to the conditions set forth in this
prospectus and the letter of transmittal.
Except as set forth below, if you wish to tender the Old Notes for exchange
pursuant to the exchange offer, you must transmit a properly completed and duly
executed letter of transmittal, including all other documents required by such
letter of transmittal, to the exchange agent at one of the addresses set forth
below under "Exchange Agent" on or prior to the expiration date of the exchange
offer. In addition:
- the exchange agent must receive certificates for such Old Notes along
with the letter of transmittal;
- the exchange agent must receive prior to the expiration date of the
exchange offer a timely confirmation of a book-entry transfer of such
Old Notes into the exchange agent's account at the Depository Trust
Company pursuant to the procedure for book-entry transfer described
below; or
- the noteholder must comply with the guaranteed delivery procedures
described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE NOTEHOLDER. IF SUCH
DELIVERY IS BY MAIL, WE RECOMMEND THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT
TIME TO ASSURE TIMELY DELIVERY. YOU SHOULD NOT SEND LETTERS OF TRANSMITTAL OR
OLD NOTES TO US.
Each signature on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered:
- by a registered noteholder who has not completed the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" in the letter of transmittal; or
- for the account of an eligible institution (as defined below).
In the event that a signature on a letter of transmittal or a notice of
withdrawal, as the case may be, is required to be guaranteed, such guarantee
must be by a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States or otherwise an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If
the Old Notes are registered in the name of a person other than the person
signing the letter of transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by, a written instrument or instruments of
transfer or exchange, in satisfactory
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form as determined by us in our sole discretion, duly executed by the registered
noteholder with the signature thereon guaranteed by an Eligible Institution.
If the letter of transmittal is signed by a person or persons other than
the registered noteholder or noteholders, the Old Notes must either be endorsed
by the registered noteholder with signature guaranteed by an Eligible
Institution or accompanied by appropriate powers of attorney with signature
guaranteed by an Eligible Institution. In either case, the Old Notes must be
signed exactly as the name or names of the registered noteholder or noteholders
that appear on the Old Notes.
If a trustee, executor, administrator, guardian, attorney-in-fact, officer
of a corporation or another acting in a fiduciary or representative capacity
signs the letter of transmittal or any Old Notes or powers of attorney, the
person signing should indicate in which capacity he or she is signing and,
unless waived by us, submit proper evidence satisfactory to us of his or her
authority to sign with the letter of transmittal.
By tendering, each noteholder will represent to us that, among other
things:
- the New Notes acquired pursuant to the exchange offer are being
acquired in the ordinary course of business of the person receiving
such New Notes, whether or not that person is the noteholder;
- neither the noteholder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of
such New Notes;
- if the noteholder is not a broker-dealer, or is a broker-dealer but
will not receive New Notes for its own account in exchange for the Old
Notes, neither the noteholder nor any such other person is engaged in
or intends to participate in the distribution of such New Notes; and
- neither the noteholder nor any such other person is an "affiliate" of
ours, as defined under Rule 405 of the Securities Act.
If the tendering noteholder is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, the noteholder will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY OR SCI DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt) and acceptance of the Old Notes
tendered for exchange, which determination shall be final and binding. We
reserve the absolute right to reject any and all tenders of any particular Old
Notes not properly tendered or to not accept any particular Old Notes which
acceptance might, in our judgment or our counsel, be unlawful. We also reserve
the absolute right in our sole discretion to waive any defects or irregularities
or conditions of the exchange offer as to any particular Old Notes either before
or after the expiration date of the exchange offer (including the right to waive
the ineligibility of any noteholder who seeks to tender Old Notes in the
exchange offer). The interpretation of the terms and conditions of the exchange
offer as to any particular Old Notes either before or after the expiration date
of the exchange offer (including the letter of transmittal and its instructions)
by us shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with the tenders of Old Notes for exchange must be
cured within a reasonable period of time as we shall determine. Neither the
Company, the exchange agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
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ACCEPTANCE OF THE OLD NOTES FOR EXCHANGE; DELIVERY OF THE NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange
offer, we will accept, promptly after the expiration date of the exchange
offer, all Old Notes properly tendered and will issue the New Notes promptly
after acceptance of the Old Notes. See "--Certain Conditions to the Exchange
Offer" below. For purposes of the exchange offer, we shall be deemed to have
accepted properly tendered Old Notes for exchange when, and if we have given
verbal or written notice of our acceptance to the exchange agent.
In all cases, issuance of the New Notes for the Old Notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of the following:
- certificates for such Old Notes or a timely confirmation of a
book-entry transfer of such Old Notes into the exchange agent's
account at the Depository Trust Company pursuant to the book-entry
transfer procedures described below;
- a properly completed and duly executed letter of transmittal; and
- all other required documents.
If any tendered Old Notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer or if certificates representing
the Old Notes are submitted for a greater principal amount than the
noteholder desires to exchange, those unaccepted or non-exchanged Old Notes
will be returned without expense to the tendering noteholder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the exchange
agent's account at the Depository Trust Company pursuant to the book-entry
transfer procedures described below, those non-exchanged Old Notes will be
credited to an account maintained with the Depository Trust Company) as
promptly as practicable after the expiration or termination of the exchange
offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with
respect to the Old Notes at the Depository Trust Company for purposes of the
exchange offer promptly after the date of this prospectus. Any financial
institution that is a participant in the Depository Trust Company's systems
may make book-entry delivery of the Old Notes by causing the Depository Trust
Company to transfer such Old Notes into the exchange agent's account at the
Depository Trust Company in accordance with the Depository Trust Company's
Automated Tender Offer Program ("ATOP") procedures for transfer. However,
the exchange for the Old Notes so tendered will only be made after timely
confirmation of such book-entry transfer of Old Notes into the exchange
agent's account, and timely receipt by the exchange agent of an Agent's
Message (as such term is defined in the next sentence) and any other
documents required by the letter of transmittal on or prior to the expiration
date of the exchange offer or pursuant to the guaranteed delivery procedures
described below. The term "Agent's Message" means a message, transmitted by
the Depository Trust Company and received by the exchange agent and forming a
part of a timely confirmation of a book-entry transfer, which states that the
Depository Trust Company has received an express acknowledgement from a
noteholder tendering Old Notes that are the subject of such timely
confirmation of a book-entry transfer that such noteholder has received and
agrees to be bound by the terms of the letter of transmittal, and that we may
enforce such agreement against such noteholder.
GUARANTEED DELIVERY PROCEDURES
If a registered noteholder of the Old Notes desires to tender such Old
Notes and the Old Notes are not immediately available, or time will not permit
such noteholder's Old Notes or other required documents to reach the exchange
agent before the expiration date of the exchange offer, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if:
- the tender is made through an Eligible Institution;
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- prior to the expiration date of the exchange offer, the exchange agent
receives from such Eligible Institution a properly completed and duly
executed letter of transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by us (by
telegram, telex, facsimile transmission, mail or hand delivery),
setting forth the name and address of the noteholder and the amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange ("NYSE") trading
days after the date of execution of the Notice of Guaranteed Delivery,
the certificates of all physically tendered Old Notes, in proper form
for transfer, or a timely confirmation of a book-entry transfer, as
the case may be, and any other documents required by the letter of
transmittal will be deposited by the Eligible Institution with the
exchange agent; and
- the certificates for all physically tendered Old Notes, in proper form
for transfer, or a timely confirmation of a book-entry transfer, as
the case may be, and all other documents required by the letter of
transmittal, are received by the exchange agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
You may withdraw your tender of the Old Notes at any time prior to the
expiration date of the exchange offer.
For a withdrawal to be effective, the exchange agent must receive a written
notice of withdrawal at one of the addresses set forth below under "Exchange
Agent." Any such notice of withdrawal must:
- specify the name of the person having tendered the Old Notes to be
withdrawn;
- identify the Old Notes to be withdrawn (including the principal amount
of such Old Notes); and
- (where certificates for Old Notes have been transmitted) specify the
name in which such Old Notes are registered, if different from that of
the withdrawing noteholder.
If certificates for Old Notes have been delivered or otherwise identified to the
exchange agent, then, prior to the release of such certificates, the withdrawing
noteholder must also submit the serial numbers of the particular certificates to
be withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such noteholder is an Eligible Institution. If Old
Notes have been tendered pursuant to the procedure for book-entry transfer
described above, any note of withdrawal must specify the name and number of the
account at the Depository Trust Company to be credited with the withdrawn Old
Notes and otherwise comply with the procedures of such facility. We will
determine all questions as to the validity, form and eligibility (including time
of receipt) of such notices, which shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Old Notes which have been tendered
for exchange but which are not exchanged for any reason will be returned to the
noteholder thereof without cost to such noteholder (or, in the case of Old Notes
tendered by book-entry transfer procedures described above, such Old Notes will
be credited to an account maintained with the Depository Trust Company for the
Old Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. You may retender your properly withdrawn Old
Notes by following one of the procedures described under "Procedures for
Tendering the Old Notes" above at any time on or prior to the expiration date of
the exchange offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue New Notes in exchange for, any Old
Notes and may terminate or amend the exchange offer, if at any time before the
acceptance of such Old Notes for exchange or the exchange of the New Notes for
such Old Notes, there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued by,
any court or governmental agency or other governmental regulatory or
administrative agency or commission:
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(1) seeking to restrain or prohibit the making or consummation of the
exchange offer or any other transaction contemplated by the exchange
offer, or assessing or seeking any damages as a result thereof, or
(2) resulting in a material delay in our ability to accept for exchange or
exchange some or all of the Old Notes pursuant to the exchange offer;
or
(3) any statute, rule, regulation, order or injunction shall be sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
exchange offer or any of the transactions contemplated by the exchange
offer by any government or governmental authority, domestic or
foreign; or
(4) any action shall have been taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or
foreign;
that in our sole judgment might directly or indirectly result in any of the
consequences referred to in (1) or (2) above or, in our sole judgment, might
result in the holders of New Notes having obligations with respect to resales
and transfers of New Notes which exceed those described in this prospectus, or
would otherwise make it inadvisable to proceed with the exchange offer.
If we determine in good faith that any of the conditions are not met, we
may:
- refuse to accept any Old Notes and return all tendered Old Notes to
exchanging noteholders;
- extend the exchange offer and retain all Old Notes tendered prior to
the expiration of the exchange offer, subject, however, to the rights
of noteholders to withdraw such Old Notes (see "--Withdrawal
Rights"); or
- waive certain of such unsatisfied conditions with respect to the
exchange offer and accept all properly tendered Old Notes which have
not been withdrawn or revoked. If such waiver constitutes a material
change to the exchange offer, we will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to all
noteholders.
Noteholders have certain rights and remedies against us under the
Registration Rights Agreement, including liquidated damages of up to $0.15 per
week per $1,000 principal amount of Old Notes, should we fail to consummate the
exchange offer within a certain period of time, notwithstanding a failure due to
the occurrence of any of the conditions stated above. Such conditions are not
intended to modify those rights or remedies in any respect.
The foregoing conditions are for our benefit and may be asserted by us in
good faith regardless of the circumstances giving rise to such condition or may
be waived by us in whole or in part at any time and from time to time in our
discretion. The failure by us at any time to exercise the foregoing rights
shall not be deemed a wavier of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
EXCHANGE AGENT
First Union National Bank has been appointed as exchange agent for the
exchange offer. You should direct your questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal to the exchange agent addressed as follows:
By registered or certified mail, by overnight courier, or by hand:
First Union National Bank
Corporate Trust Reorg. Dept
1525 West W.T. Harris Blvd.
Charlotte, NC 28288-1153
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Attention: Mike Klotz
Telephone: (704) 590-7408
Facsimile: (704) 590-7628
IF YOU DELIVER TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMIT
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, IT WILL NOT BE A
VALID DELIVERY.
FEES AND EXPENSES; SOLICITATION OF TENDERS
We will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, additional solicitation may be
made by telegraph, telephone or in person by our officers and regular
employees and our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection with the exchange offer.
The cash expenses to be incurred in connection with the exchange offer
will be paid by us and are estimated in the aggregate to be $106,500 which
includes fees and expenses of the exchange agent and Trustee and accounting
and legal fees.
We will pay all transfer taxes, if any, applicable to the exchange of
the Old Notes pursuant to the exchange offer. If, however, certificates
representing the New Notes or the Old Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered
noteholders tendered, or if a transfer tax is imposed for any reason other
than the exchange of the Old Notes pursuant to the exchange offer, then the
tendering noteholder must pay the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons). If a tendering
noteholder does not submit satisfactory evidence of payment of such taxes or
exemption therefrom to the exchange agent, the amount of such transfer taxes
will be billed directly to such tendering noteholder.
We have not authorized any person to give any information or to make any
representations in connection with the exchange offer other than those contained
in this prospectus. If given or made, such information or representations
should not be relied upon as having been authorized by us. Neither the delivery
of this prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in our
affairs since the respective dates as of which information is given in this
prospectus. The exchange offer is not being made to (nor will tenders be
accepted from or on behalf of) noteholders in any jurisdiction in which the
making of the exchange offer or the acceptance of this prospectus would not be
in compliance with the laws of such jurisdiction.
ACCOUNTING TREATMENT
We will record the New Notes at the same carrying value as the Old Notes,
which is face value, as recorded in our accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The costs of the exchange offer will be expensed over the term of
the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your Old Notes for New Notes pursuant to the
exchange offer, you will continue to be subject to the restrictions on transfer
of such Old Notes as set forth in the legend on the Old Notes. In general, you
may not offer to sell or sell the Old Notes, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. We do not
intend to register the Old Notes under the Securities Act. We believe that,
based upon interpretations contained in no-action letters issued to third
parties by the staff of the SEC, any noteholder may offer for resale, resell or
otherwise transfer the New Notes issued pursuant to the exchange offer in
exchange for the Old Notes (unless the
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noteholder is an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that:
- the noteholder acquires the New Notes in the ordinary course of its
business; and
- the noteholder has no arrangement with any person to participate in
the distribution of such Old Notes; and
- each broker-dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan
of Distribution."
If any noteholder (other than a broker-dealer described in the preceding
sentence) has any arrangement or understanding with respect to the distribution
of the New Notes to be acquired pursuant to the exchange offer, such noteholder
could not rely on the applicable interpretations of the staff of the SEC and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, to
comply with the securities laws of certain jurisdictions, if applicable, you may
not offer or sell the New Notes unless they have been registered or qualified
for sale in such jurisdiction or an exemption from registration or qualification
is available and is complied with.
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DESCRIPTION OF THE NEW NOTES
The Old Notes were issued and the New Notes will be issued under the
Indenture, dated as of December 3, 1998, between SCI, as issuer, and First Union
National Bank, as Trustee (the "Indenture"). The form and terms of the New
Notes will be substantially identical to those of the Old Notes except that the
New Notes will have been registered under the Securities Act and hence are not
subject to certain transfer restrictions, registration rights and related
liquidated damages applicable to the Old Notes. The Old Notes and the New Notes
are referred to collectively as the "Notes." The following summary includes a
description of all material provisions of the Indenture. The summary of the
Indenture and of the related documents hereunder, however, does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the Indenture and related documents, including the
definitions contained therein of certain terms and those terms made part of the
Indenture by reference to the Trust Indenture Act of 1939 as in effect on the
date of the Indenture. Capitalized terms used herein and not otherwise defined
in this prospectus have the meanings ascribed to them in the Indenture. In this
section entitled "Description of the New Notes," all references to the "Company"
refer to SCI.
GENERAL
The New Notes will be issued in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The New Notes will be
unsecured general obligations of SCI, limited to $199,900,000 aggregate
principal amount, and will mature on December 1, 2008. As of the date of the
Indenture, all of SCI's Subsidiaries will be Restricted Subsidiaries. Under
certain circumstances, SCI will be able to designate certain current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture.
INTEREST ON THE NEW NOTES
The New Notes will pay interest semiannually at a rate of 8-7/8% per annum
from the date of original issuance of the Old Notes until maturity.
Interest on the New Notes will accrue from the date of original issuance of
the Old Notes. Interest on the New Notes will be payable on June 1 and
December 1 of each year, commencing June 1, 1999 to the person in whose name the
New Note is registered (a "Noteholder") at the close of business on the
preceding May 15 or November 15, as the case may be.
Principal of and interest on the New Notes are payable at the offices of
the Paying Agent for the New Notes, located at the principal corporate offices
of the Trustee, PROVIDED that the payment of interest may be made at the
Company's option by check mailed to a Noteholder's registered address. The New
Notes are transferable at the offices of the Registrar for the New Notes,
located at the principal corporate offices of the Trustee.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"AFFILIATE" of any specified person means any other person:
(1) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such
specified person;
(2) which directly or indirectly through one or more intermediaries
beneficially owns or holds 10% or more of any class of the Voting
Stock of such specified person (or a 10% or greater equity interest in
such person which is not a corporation); or
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(3) of which 10% or more of any class of the Voting Stock (or, in the case
of a person which is not a corporation, 10% or more of the equity
interest) is beneficially owned or held directly or indirectly through
one or more intermediaries by such person.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.
"AMORTIZATION EXPENSE" means, for any period, amounts recognized during
such period as amortization of all goodwill and other assets classified as
intangible assets in accordance with GAAP.
"AVERAGE LIFE" means, as of the date of determination, with reference to
any Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal
payment of such Indebtedness multiplied by the amount of such
principal payment by
(2) the sum of all such principal payments.
"BANK FACILITY" means the Second Amended and Restated Reducing Revolving
and Term Loan Agreement dated as of November 6, 1998 by and among PSHC, BSI,
TSI, SSI, KCSC, SCRSI, Bank of Scotland and Societe Generale, as co-agents, Bank
of America National Trust and Savings Association, as managing agent and certain
lenders named therein, as amended, modified or refinanced from time to time,
provided that the managing agent for the lenders under such refinancing is a
banking institution with over $500 million in assets and subject to supervision
and examination by federal or state banking authorities.
"BSI" means Boulder Station, Inc.
"CAPITAL LEASE OBLIGATIONS" of a person means any obligation that is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; the stated maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty; and such obligation shall be deemed secured by a Lien on any property
or assets to which such lease relates.
"CAPITAL STOCK" means, with respect to any person, any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents (including partnerships or partnership interests) or ownership
interests (however designated) of such person, including each class of common
stock and preferred stock of such person, but excluding convertible
Indebtedness.
"CHANGE OF CONTROL" means an event or series of events by which:
(1) the Company sells, conveys, transfers or leases, directly or
indirectly, all or substantially all of the properties and assets of
the Company and its Restricted Subsidiaries to any person,
corporation, entity or group;
(2) any "person" (as such term is used in Section 13(d) and 14(d) of the
Exchange Act) (other than the Existing Equity Holders) is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly of securities
representing 40% or more of the combined voting power of the Company's
Voting Stock and at such time as the Existing Equity Holders together
shall fail to beneficially own, directly or indirectly, securities
representing at least the same percentage of the combined voting power
of the Company's Voting Stock as is "beneficially owned" by such
"person;"
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(3) the Company consolidates with or merges into another corporation, or
any corporation consolidates with or merges into the Company, in
either event pursuant to a transaction in which the outstanding Voting
Stock of the Company is changed into or exchanged for cash, securities
or other property, other than any such transactions between the
Company and its wholly-owned Restricted Subsidiaries, with the effect
that any "person" (other than the Existing Equity Holders) becomes the
"beneficial owner," directly or indirectly, of securities representing
40% or more of the combined voting power of the Company's Voting Stock
and at such time as the Existing Equity Holders together shall fail to
beneficially own, directly or indirectly, securities representing at
least the same percentage of the combined voting power of the
Company's Voting Stock as is "beneficially owned" by such "person;"
(4) during any period of 24 consecutive months, individuals who at the
beginning of such period constituted the Company's Board of Directors
(together with any new or replacement directors whose election by the
Company's Board of Directors, or whose nomination for election by the
Company's stockholders, was approved by a vote of at least a majority
of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the directors then in office; or
(5) the Company shall, as a result of any transaction or series of
transactions, cease to own all of the outstanding Capital Stock of, or
all or substantially all of the assets of PSHC, BSI, SCRSI, SGSI and
SWSI; provided that no Change of Control shall be deemed to occur if
the Company sells, in one transaction or a series of transactions,
stock or assets of such Subsidiaries having an aggregate book value,
determined in accordance with GAAP and net of related debt, which is
less than 5% of the aggregate book value of the net assets of the
Company and its consolidated Restricted Subsidiaries, determined in
accordance with GAAP. The meaning of the term "all or substantially
all of its properties and assets" is not determinable with absolute
certainty. Such term is likely to be interpreted by reference to
applicable state law in effect at the relevant time and the
interpretation will be dependent upon the facts and circumstances
existing at that time. It is therefore possible that Noteholders and
the Company (or different holders) will disagree as to whether or not
a Change of Control or Change of Control Triggering Event has
occurred.
"CHANGE OF CONTROL TRIGGERING EVENT" is defined as the occurrence of both:
(1) a Change of Control; and
(2) a Rating Decline.
"COMPLETION GUARANTEE AND KEEP-WELL AGREEMENT" means
(1) the guarantee by the Company or a Restricted Subsidiary of the
completion of the development, construction and opening of a new
gaming facility by an Affiliate of the Company;
(2) the agreement by the Company or a Restricted Subsidiary to advance
funds, property or services on behalf of an Affiliate of the Company
in order to maintain the financial condition of such Affiliate in
connection with the development, construction and opening of a new
gaming facility by such Affiliate; and
(3) performance bonds incurred in the ordinary course of business;
provided that, in the case of (1) and (2) above, such guarantee or
agreement is entered into in connection with obtaining financing for
such gaming facility or is required by a Gaming Authority.
"CONSOLIDATED COVERAGE RATIO" means, for any period, for any person, the
ratio of the aggregate amount of Operating Cash Flow of such person for such
period to the aggregate amount of Consolidated Interest Expense of such person
for such period.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest
expense of a person and its consolidated Restricted Subsidiaries, including:
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(1) interest expense attributable to Capital Lease Obligations;
(2) amortization of debt discount;
(3) capitalized interest;
(4) cash and noncash interest payments;
(5) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
(6) net costs under Interest Rate Protection Agreements (including
amortization of discount); and
(7) interest expense in respect of obligations of other persons deemed to
be Indebtedness of the Company or its Restricted Subsidiaries under
(5) or (6) above of the definition of Indebtedness.
"CONSOLIDATED NET INCOME" means, for any period, the net income of a person
and its consolidated Restricted Subsidiaries determined on a consolidated basis
in accordance with GAAP; provided, however, that there shall not be included in
such Consolidated Net Income:
(1) any net income (loss) of any person if such person is not a Restricted
Subsidiary, except that:
(a) the Company's equity in the net income of any such person
(including, without limitation, an Unrestricted Subsidiary) for
such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such
person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution to a Restricted
Subsidiary, to the limitations contained in (3) below); and
(b) the Company's equity in the net loss of any such person for such
period shall be included in determining such Consolidated Net
Income (subject, with respect to the net loss of an Unrestricted
Subsidiary, to (6) below);
(2) any net income (loss) of any person acquired by the Company or a
Restricted Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition;
(3) any net income (loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(a) the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash which could have
been distributed by such Restricted Subsidiary during such period
to the Company or another Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution to another Restricted Subsidiary, to the limitation
contained in this clause) unless at the time of computation no
cash would be permitted to be distributed; and
(b) the Company's equity in the net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain or loss realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated
Restricted Subsidiaries which is not sold or otherwise disposed of in
the ordinary course of business and any gain or loss realized upon the
sale or other disposition of any Capital Stock of any person;
(5) the cumulative effect of a change in accounting principles; and
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(6) the net loss of any Unrestricted Subsidiary.
"CONSOLIDATED NET WORTH" of any person means the total of the amounts shown
on the balance sheet of such person and its consolidated Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
any date selected by the Company not more than 90 days prior to the taking of
any action for the purpose of which the determination is being made (and
adjusted for any material events since such date), as:
(1) the par or stated value of all outstanding Capital Stock; plus
(2) paid-in capital or capital surplus relating to such Capital Stock;
plus
(3) any retained earnings or earned surplus, less:
(a) any accumulated deficit;
(b) any amounts attributable to Redeemable Stock; and
(c) any amounts attributable to Exchangeable Stock.
"DESIGNATED SENIOR INDEBTEDNESS" shall mean each issue of Senior
Indebtedness that:
(1) has an outstanding principal amount of at least $25,000,000 (including
the amount of all reimbursement obligations pursuant to letters of
credit thereunder and the maximum principal amount available to be
drawn thereunder, assuming in the case of the Bank Facility that all
conditions precedent to any such drawing could be satisfied); and
(2) has been designated as Designated Senior Indebtedness pursuant to an
Officer's Certificate of the Company received by the Trustee.
"EXCHANGEABLE STOCK" means any Capital Stock of a corporation that is
exchangeable or convertible into another security (other than into Capital Stock
of such corporation that is neither Exchangeable Stock or Redeemable Stock).
"EXISTING EQUITY HOLDERS" means Frank J. Fertitta III, Blake L. Sartini,
Delise F. Sartini, Lorenzo J. Fertitta, Glenn C. Christenson, Scott M Nielsen
and the Former Equity Holder and their executors, administrators or the legal
representatives of their estates, their heirs, distributees and beneficiaries,
any trust as to which any of the foregoing is a settlor or co-settlor and any
corporation, partnership or other entity which is an Affiliate of any of the
foregoing. Existing Equity Holders shall also mean any lineal descendants of
such persons, but only to the extent that the beneficial ownership of the Voting
Stock held by such lineal descendants was directly received (by gift, trust or
sale) from any such person.
"EXISTING INDEBTEDNESS" means the following:
(1) Note payable to GE Capital Corp., amended and restated as of May 31,
1995 in the original principal amount of approximately $16 million;
and
(2) Note payable to CIT Group Financing, dated as of October 21, 1994 in
the original principal amount of approximately $10 million.
"EXISTING SENIOR SUBORDINATED NOTES" means the $198,000,000 10-1/8% Senior
Subordinated Notes of the Company due 2006 and the $150,000,000 9-3/4% Senior
Subordinated Notes of the Company due 2007.
"FF&E FINANCING" means Indebtedness which is non-recourse to the borrower,
the proceeds of which will be used to finance the acquisition or lease by the
Company or its Restricted Subsidiaries of furniture, fixtures or equipment
("FF&E") used in the operation of its business and secured by a Lien on such
FF&E.
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"FORMER EQUITY HOLDER" means Frank J. Fertitta, Jr.
"GAAP" means generally accepted accounting principles as in effect in the
United States on the date that the Old Notes were issued.
"GAMING AUTHORITY" means the Nevada Gaming Commission, the Nevada Gaming
Control Board or any agency of any state, county, city or other political
subdivision which has, or may at any time after the date of the Indenture have,
jurisdiction over all or any portion of the gaming activities of the Company or
any of its Subsidiaries or any successor to such authority.
"GAMING LICENSE" of any person means every license, franchise or other
authorization on the date of the Indenture or thereafter required to own, lease,
operate or otherwise conduct the gaming operations of such person, including,
without limitation, all such licenses granted under the Nevada Gaming Control
Act as from time to time amended, or any successor provision at law, the
regulations of the Gaming Authorities and other applicable laws.
"GOVERNMENTAL AUTHORITY" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
any city or other political subdivision or otherwise and whether now or
hereafter in existence, or any officer or official thereof.
"GVSI" means Green Valley Station, Inc.
"GVV" means Green Valley Ventures.
"INDEBTEDNESS" of any person means, without duplication:
(1) the principal of and premium (if any) in respect of:
(a) indebtedness of such person for money borrowed; and
(b) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such person is
responsible or liable;
(2) all Capital Lease Obligations of such person;
(3) all obligations of such person issued or assumed as the deferred
purchase price of property, assets or services, all conditional sale
obligations and all obligations under any title retention agreement
(but excluding operating leases and trade accounts payable arising in
the ordinary course of business);
(4) all obligations of such person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in (1) through
(3) above) entered into in the ordinary course of business of such
person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than
the third Business Day following receipt by such person of a demand
for reimbursement following payment on the letter of credit);
(5) all obligations of the type referred to in (1) through (4) above of
other persons and all dividends of other persons for the payment of
which, in either case, such person is responsible or liable as
obligor, guarantor or otherwise; and
(6) all obligations of the type referred to in (1) through (5) above of
other persons secured by any Lien on any property or asset of such
person (whether or not such obligation is assumed by such person), the
amount of such obligation being deemed to be the lesser of the value
of such property or asset or the amount of the obligation so secured.
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"INTEREST RATE PROTECTION AGREEMENT" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company or any Subsidiary against
fluctuations in interest rates.
"INVESTMENT GRADE" designates a rating of BBB- or higher by S&P or Baa3 or
higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the
event that the Company shall select any other Rating Agency, the equivalent of
such ratings by such Rating Agency shall be used.
"KCSC" means Kansas City Station Corporation.
"LEGAL REQUIREMENTS" means, with respect to any project, all laws, statutes
and ordinances (including building codes and zoning and environmental laws,
regulations and ordinances), and all rules, orders, rulings, regulations,
directives and requirements of all Governmental Authorities, which are now or
which may hereafter be in existence, and which are applicable to the Company or
any Affiliate thereof in connection with the construction or development of any
project or the operation of its business, or any part thereof, including,
without limitation, the Nevada Gaming Control Act, as modified by any variances,
special use permits, waivers, exceptions or other exemptions which may from time
to time be applicable to the Company or any Affiliate thereof.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including any agreement to give any security interest). For the purposes of the
Indenture, a person shall be deemed to own subject to a Lien any asset that it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, Capital Lease Obligation or other title retention
agreement (other than operating leases) relating to such asset.
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"NET PROCEEDS" means, with respect to any issuance, sale or contribution in
respect of Capital Stock, the aggregate proceeds of such issuance, sale or
contribution, including the fair market value (as determined by the Board of
Directors and net of any associated debt) of property other than cash, received
by the Company, net of attorneys' fees, accountants' fees, underwriters' fees,
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof; PROVIDED, HOWEVER, that if such fair
market value as determined by the Board of Directors of property other than cash
is greater than $15 million, the determination of fair market value thereof
shall be based upon an opinion from an independent nationally recognized firm
experienced in the appraisal of similar types of transactions.
"OPERATING CASH FLOW" means, for any period, for any person, the aggregate
amount of Consolidated Net Income of such person before Consolidated Interest
Expense, income taxes, depreciation expense, Amortization Expense and any
noncash amortization of debt issuance cost. Notwithstanding the foregoing, the
Consolidated Interest Expense, income taxes, depreciation expense, Amortization
Expense and any noncash amortization of debt issuance cost of a subsidiary of a
person shall be added to Consolidated Net Income to compute Operating Cash Flow
in the same proportion that the net income of such subsidiary was included in
calculating the Consolidated Net Income of such person.
"PERMITTED REFINANCING INDEBTEDNESS" means Indebtedness of the Company or a
Restricted Subsidiary:
(1) issued in exchange for, or the proceeds from the issuance and sale or
disbursement of which are used to substantially concurrently repay,
redeem, refund, refinance, discharge or otherwise retire for value, in
whole or in part (collectively, "repay"); or
(2) constituting an amendment, modification or supplement to, or a
deferral or renewal of (collectively, an "amendment"), any
Indebtedness of the Company or a Restricted Subsidiary (and any
penalties, fees and expenses actually incurred by the Company or such
Restricted Subsidiary in connection with the repayment or amendment
thereof) existing immediately after the original issuance of the Old
Notes or incurred pursuant to clauses (3), (6), (7) and (8) (subject
to proviso (c)(III) of this clause (2) below) under the heading
"Limitation on Indebtedness" below, in a principal amount (or, if such
Permitted Refinancing
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Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon the acceleration thereof, with an
original issue price) not in excess of:
(a) the principal amount of the Indebtedness so refinanced (or, if
such Permitted Refinancing Indebtedness refinances Indebtedness
under an agreement providing a commitment for subsequent
borrowings, with a maximum commitment not to exceed the maximum
commitment under such agreement); plus
(b) unpaid accrued interest on such Indebtedness; plus
(c) penalties, fees and expenses actually incurred by the Company or
such Restricted Subsidiary, as the case may be, in connection
with the repayment or amendment thereof; provided that:
(I) Permitted Refinancing Indebtedness of the Company that
repays or constitutes an amendment to Subordinated
Indebtedness shall not have an Average Life less than the
Indebtedness to be so refinanced at the time of such
incurrence, and shall contain subordination and default
provisions no less favorable in any material respect to
the Noteholders than those contained in such repaid or
amended Indebtedness;
(II) notwithstanding the foregoing, any Permitted Refinancing
Indebtedness incurred to repay all of the Notes then
outstanding shall not be limited in principal amount or
otherwise if the Company, contemporaneously with such
issuance, irrevocably deposits with the Trustee or Paying
Agent an amount of the proceeds of such Permitted
Refinancing indebtedness sufficient to redeem or repay
each installment of the outstanding principal amount of
the Notes on, and all interest accrued to, the date fixed
for such repayment, together with irrevocable instructions
to redeem and repay the Notes on the stated redemption
date; and
(III) to the extent that Permitted Refinancing Indebtedness
includes Indebtedness incurred in connection with
the refinancing of the Bank Facility (whether or not such
Indebtedness is existing on or after the date of the
Indenture) and the managing agent for the lenders under
such refinancing Indebtedness is a person other than a
banking institution with over $500 million in assets and
subject to supervision and examination by federal or state
banking authorities, the provisions of clause (8) under
the heading "Limitation on Indebtedness" below shall
terminate and be of no further force and effect with
respect to such refinancing Indebtedness.
"PSHC" means Palace Station Hotel & Casino, Inc.
"QUALIFIED NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries:
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness);
(b) is directly or indirectly liable (as a guarantor or otherwise);
or
(c) constitutes the lender; and
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Indebtedness of the Company or any of
its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries, other than by a pledge by the Company or
a
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Restricted Subsidiary of the stock of an Unrestricted Subsidiary;
provided, however, that the Company or any of its Restricted
Subsidiaries may:
(a) execute a Completion Guarantee and Keep-Well Agreement for an
Unrestricted Subsidiary whose sole purpose is to develop,
construct and operate a new gaming facility; or
(b) make a loan to an Unrestricted Subsidiary if such loan is
permitted under the covenant entitled "Limitation on Restricted
Payments and Restricted Investments" at the time of the
incurrence of such loan, and such actions referred to in the
foregoing clauses (a) and (b) shall not constitute Indebtedness
which is not Qualified Non-Recourse Debt.
"RATING AGENCIES" means
(1) S&P and Moody's; or
(2) if S&P or Moody's or both shall not make a rating of the Notes
publicly available, a nationally recognized securities rating agency
or agencies, as the case may be, selected by the Company, which shall
be substituted for S&P or Moody's or both, as the case may be.
"RATING CATEGORY" means:
(1) with respect to S&P, any of the following categories: BB, B, CCC, CC,
C and D (or equivalent successor categories); and
(2) with respect to Moody's, any of the following categories: Ba, B, Caa,
Ca, C and D (or equivalent successor categories); and
(3) the equivalent of any such category of S&P or Moody's used by another
Rating Agency. In determining whether the rating of the Notes has
decreased by one or more gradation, gradations within Rating
Categories (+ and - for S&P; 1, 2 and 3 for Moody's; or the equivalent
gradations for another Rating Agency) shall be taken into account
(e.g., with respect to S&P, a decline in a rating from BB+ to BB, as
well as from BB- to B+, will constitute a decrease of one gradation).
"RATING DATE" means the date which is 90 days prior to the earlier of:
(1) a Change of Control; or
(2) public notice of the occurrence of a Change of Control or of the
intention by the Company to effect a Change of Control.
"RATING DECLINE" shall be deemed to occur if, within 90 days of public
notice of the occurrence of a Change of Control (which period shall be extended
so long as the rating of the Notes is under publicly announced consideration for
possible downgrade by either of the Rating Agencies):
(1) in the event the Notes are rated by either Rating Agency on the Rating
Date as Investment Grade the rating of the Notes by both Rating
Agencies shall be below Investment Grade; or
(2) in the event the Notes are rated below Investment Grade by both Rating
Agencies on the Rating Date, the rating of the Notes by either Rating
Agency shall be decreased by one or more gradations (including
gradations within Rating Categories as well as between Rating
Categories).
"REDEEMABLE STOCK" means any Capital Stock that by its terms or otherwise
(other than in consideration of Capital Stock that is not Redeemable Stock), is,
or upon the happening of an event would be, required to be redeemed or
repurchased pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, at any time prior to
the first anniversary of the stated maturity of the Notes.
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<PAGE>
"RELATED PERSON" of any person means:
(1) (a) if such person is a corporation, any person who is a director,
officer or employee:
(I) of such person;
(II) of any subsidiary of such person; or
(III) of any Affiliate of such person; or
(b) if such person is an individual, any immediate family member or
lineal descendent of such person or spouse of such immediate
family member or of such lineal descendant; or
(2) any Affiliate of any person included in (1) above and any person who
is a director, officer or employee of such Affiliate.
"RESTRICTED SUBSIDIARY" of a person means any subsidiary of the referent
person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Corporation and its successors.
"SCRSI" means St. Charles Riverfront Station, Inc.
"SENIOR INDEBTEDNESS" means:
(1) all obligations of the Company now or hereafter existing to pay the
principal of, and interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization to the
extent a claim for post-filing interest is allowed in such
proceedings) on, any Indebtedness (other than Capital Lease
Obligations) of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed, guaranteed or in
effect guaranteed by the Company;
(2) Indebtedness of the Company represented by Capital Lease Obligations
if the instrument creating or evidencing the same expressly provides
that such Indebtedness shall be senior in right of payment to the
Notes; and
(3) Indebtedness of the Company with respect to Interest Rate Protection
Agreements.
Notwithstanding the foregoing, Senior Indebtedness shall not include:
(a) any Indebtedness, if the instrument creating or evidencing the
same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior in right of payment to
the Notes;
(b) in the case of each Note, the other Notes;
(c) the Existing Senior Subordinated Notes;
(d) Indebtedness of the Company to, or guaranteed on behalf of, an
Affiliate of the Company (other than a Restricted Subsidiary);
(e) Indebtedness to trade creditors incurred or assumed in the
ordinary course of business in connection with obtaining goods,
materials or services;
(f) Indebtedness represented by Exchangeable Stock or Redeemable
Stock;
(g) any liability for federal, state, local or other taxes owed or
owing by the Company;
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(h) Indebtedness incurred in violation of the Indenture provisions
summarized below under "Limitation on Indebtedness;" and
(i) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of the Company.
"SGSI" means Southwest Gaming Services, Inc.
"SSI" means Sunset Station, Inc.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Company (whether
outstanding on the date of the Indenture or thereafter incurred) which is
subordinate or junior in right of payment to the Notes.
"SUBSIDIARY" of a person means any corporation, association, partnership,
limited liability company or other business entity of which 50% or more of the
Voting Stock is at the time of determination owned or controlled, directly or
indirectly, by such person or by one or more of the other subsidiaries of that
person (or a combination thereof); provided that with respect to any such
corporation, association, partnership, limited liability company or other
business entity of which no more than 50% of the total Voting Stock is so owned
or controlled, then such corporation, association, partnership, limited
liability company or other business entity shall not be deemed to be a
subsidiary of such person unless such person has the power to direct the
policies or management of such corporation, association, partnership, limited
liability company or other business entity.
"SUBSIDIARY" means any subsidiary of the Company.
"SWSI" means Southwest Services, Inc.
"TSI" means Texas Station, Inc.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary (other than PSHC, BSI,
SCRSI, KCSC, TSI, SGSI and SWSI or any successor to any of them) that at the
time of determination shall be designated by the Board of Directors of the
Company as an Unrestricted Subsidiary of the Company by a Board Resolution and
any Subsidiary of an Unrestricted Subsidiary, but only to the extent and so long
as such Subsidiary (and any Subsidiary of such Subsidiary):
(1) has no Indebtedness other than Qualified Non-Recourse Debt;
(2) is a person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation:
(a) to subscribe for additional equity interests; or
(b) to maintain or preserve such person's financial condition or to
cause such person to achieve any specified levels of operating
results; and
(3) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; provided, however, that either:
(a) the Subsidiary to be so designated has total assets of $1,000 or
less; or
(b) if such Subsidiary has assets greater than $1,000, that such
designation would be permitted under the covenant entitled
"Limitation on Restricted Payments and Restricted Investments;"
PROVIDED, FURTHER, however, that the Company or any of its
Restricted Subsidiaries may execute a Completion Guarantee and
Keep-Well Agreement for an Unrestricted Subsidiary whose sole
purpose is to develop, construct and operate a new gaming
facility, and the execution and performance (if such performance
is permitted under the covenants entitled "Limitation on
Indebtedness" and "Limitation on Restricted Payments and
Restricted Investments") of such Completion Guarantee and
Keep-Well Agreement shall not prevent a Subsidiary from becoming
or remaining an Unrestricted Subsidiary.
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Any such designation by the Board of Directors shall be evidenced to the Trustee
by filing with the Trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described below under the caption "Limitation on Restricted Payments
and Restricted Investments." If, at any time, any Unrestricted Subsidiary would
fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date (and, if such Indebtedness
is not permitted to be incurred as of such date under the covenant described
below under the caption "Limitation on Indebtedness," the Company shall be in
Default of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if:
(4) such Indebtedness is permitted under the covenant described under the
caption "Limitation on Indebtedness;" and
(5) no Default or Event of Default would be in existence following such
designation.
"VOTING STOCK" means any class of Capital Stock of any person then
outstanding normally entitled (without regard to the occurrence of any
contingency) to vote in elections of directors, managers, managing partners or
trustees.
OPTIONAL REDEMPTION
The New Notes will not be redeemable prior to December 1, 2003. Thereafter,
the New Notes will be redeemable, at the Company's option, in whole or in part,
upon not less than 30 days' nor more than 60 days' notice mailed to each
Noteholder to be redeemed at the Noteholder's address of record, on any date on
which the New Notes are outstanding on or after December 1, 2003 and prior to
maturity.
The New Notes will be redeemable at the following redemption prices
(expressed as percentages of principal amount), plus accrued and unpaid interest
to the redemption date, if redeemed during the 12-month period beginning
December 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICES
---- -----------------
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . . . . . 103.328%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . 102.219%
2005 . . . . . . . . . . . . . . . . . . . . . . . . . 101.109%
2006 and thereafter . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
SELECTION FOR REDEMPTION
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes or portions thereof that will be redeemed as provided in the Indenture on
a pro rata basis or by lot. Unless the Company defaults in making the redemption
payment, on and after the redemption date, interest will cease to accrue on the
Notes or portions of them called for redemption.
SUBORDINATION
The New Notes are subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all existing and future Senior
Indebtedness. Except with respect to limitations on the aggregate amount of
consolidated Indebtedness that the Company may incur, the Indenture does not
limit the ability of the Company to incur additional Senior Indebtedness or
restrict the ability of the Company to transfer assets to and among its
Restricted Subsidiaries. In the event of bankruptcy, liquidation or
reorganization of the Company, the assets of the Company will be available to
make payments on the New Notes only after all Senior Indebtedness has been paid
in full, and there may not be sufficient assets remaining to pay amounts due on
the New Notes.
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Under certain circumstances, as described below, holders of Senior
Indebtedness may block payments on the New Notes. In addition, all of the
Company's operating assets are owned by Subsidiaries of the Company. Any claims
of the Noteholders against the assets of Subsidiaries would effectively be
subordinate to all existing and future indebtedness and other liabilities
(including trade payables) of such Subsidiaries.
Upon any payment or distribution of cash, securities or other property to
creditors of the Company in a liquidation (total or partial), reorganization or
dissolution of the Company, whether voluntary or involuntary, or in a
bankruptcy, reorganization, insolvency, receivership, assignment for the benefit
of creditors, marshalling of assets or similar proceeding, the payment of the
principal of, interest on, or other distribution with respect to, the New Notes
will be subordinated in right of payment, as set forth in the Indenture, to the
prior payment in full of all Senior Indebtedness. In the event that:
(1) any Designated Senior Indebtedness is not paid when due; or
(2) any other default on Designated Senior Indebtedness occurs and in the
case of this clause (2) the maturity of such Designated Senior
Indebtedness is accelerated in accordance with its terms, no direct or
indirect payment may be made under the New Notes unless, in either
case:
(a) such default has been cured or waived and any such acceleration
has been rescinded; or
(b) such Designated Senior Indebtedness has been paid in full.
In addition, during the continuance of any other event of default with respect
to Designated Senior Indebtedness that permits acceleration of the maturity
thereof, no direct or indirect payment may be made under the New Notes for a
period of 180 days (the "Payment Blockage Period") commencing on the earlier of:
(3) the date the Trustee receives written notice of such default from a
Representative with respect to, or the holders of a majority in
principal amount of, any issue of Designated Senior Indebtedness; or
(4) if such event of default results from the acceleration of the New
Notes, the date of such acceleration.
Not more than one Payment Blockage Period may be commenced with respect to the
New Notes during any period of 360 consecutive days. In no event will a Payment
Blockage Period extend beyond 179 days from the date the payment upon or in
respect of the New Notes was due, and there must be 180 days in any 360- day
period in which no Payment Blockage Period is in effect as to the Company. For
all purposes of this paragraph, no default or event of default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Indebtedness initiating such Payment
Blockage Period shall be, or be made, the basis for the commencement of a
subsequent Payment Blockage Period by the Representative or requisite holders of
such Designated Senior Indebtedness whether or not within a period of 360
consecutive days unless such default or event of default shall have been cured
or waived for a period of not less than 90 consecutive days. The failure to make
a payment pursuant to the New Notes because of the restrictions described in
this paragraph shall not be construed as preventing the occurrence of a Default
and such restrictions shall not have any effect on the right to accelerate the
maturity of the New Notes.
The provisions described in the two preceding paragraphs shall not prevent
or delay:
(5) the Company from redeeming any New Notes if required by any Gaming
Authority as described under "Mandatory Disposition Pursuant to Gaming
Laws" or from otherwise purchasing any New Notes pursuant to any Legal
Requirement relating to the gaming business of the Company or its
Subsidiaries; or
(6) the receipt by the Noteholders of payments of principal and interest
on the New Notes, as described under "Satisfaction and Discharge of
the Indenture," from the application of any money or United States
Government Obligations held in trust by the Trustee.
On a pro forma basis at September 30, 1998 after giving effect to the Old
Notes offering, the application of the net proceeds therefrom, the exchange
offer and the execution of, and incurrence of indebtedness under, the Bank
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Facility, the Company would have had approximately $376.2 million of senior
indebtedness, which consisted of guarantees of indebtedness incurred by the
Company's subsidiaries, $348 million of senior subordinated indebtedness that
ranked equally with the Notes and the Company's subsidiaries would have had
outstanding $70.3 of other liabilities. The Company has no indebtedness
outstanding to which the New Notes are senior, and the Company has no plans to
issue any such indebtedness. See "Description of Certain Indebtedness and
Capital Stock."
CHANGE OF CONTROL AND RATING DECLINE
Upon the occurrence of a Change of Control Triggering Event, each
Noteholder shall have the right to require that the Company repurchase all or
any part of such Noteholder's Notes at a repurchase price in cash equal to 101%
of the principal amount thereof, plus accrued interest to the date of
repurchase. Within 30 days following the date of a Change of Control Triggering
Event, the Company shall mail a notice to each Noteholder with a copy to the
Trustee stating:
(1) that a Change of Control Triggering Event has occurred and that such
Noteholder has the right to require the Company to repurchase all or
any part of such Noteholder's New Notes at a repurchase price in cash
equal to 101% of the principal amount, plus accrued interest to the
date of repurchase thereof;
(2) the circumstances and relevant facts regarding such Change of Control
Triggering Event (including information with respect to pro forma
historical income, cash flow and capitalization after giving effect to
such Change of Control Triggering Event); and
(3) the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed) (the "Repurchase
Date").
Noteholders electing to have New Notes repurchased will be required to surrender
the New Notes, with an appropriate, duly completed form, to the Company at the
address specified in the notice at least three Business Days prior to the
Repurchase Date. Noteholders will be entitled to withdraw their election if the
Paying Agent receives, not later than three Business Days prior to the
Repurchase Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Noteholder, the principal amount of the New Notes which
were delivered for repurchase by the Noteholder and a statement that such holder
is withdrawing such holder's election to have such New Notes repurchased.
The source of funds for any repurchase of New Notes upon a Change of
Control Triggering Event will be the Company's cash or cash generated from
operations or other sources, including borrowings, sales of assets or equity.
However, there can be no assurance that sufficient funds will be available at
the time of any Change of Control Triggering Event to make any required
repurchases. In addition, the ability to repurchase the New Notes upon a Change
of Control Triggering Event would be limited by the Bank Facility and may be
limited by the terms of other then-existing Senior Indebtedness. See
"Description of Certain Indebtedness and Capital Stock-Amended Bank Facility."
There can be no assurance that the Company will be able to fund the repurchase
of New Notes upon a Change of Control Triggering Event within the limitations
imposed by the Bank Facility and by the terms of other then-existing Senior
Indebtedness. The Indenture requires the Company, if any consent under the Bank
Facility is necessary to permit the repurchase of New Notes as described in the
preceding paragraph, to:
(4) repay in full all Indebtedness under the Bank Facility or offer to
repay in full all Indebtedness under the Bank Facility; or
(5) obtain the requisite consent under the Bank Facility.
Although the failure to comply with the covenant set forth in the preceding
sentence will not excuse the failure to repurchase the New Notes upon a Change
of Control Triggering Event, the terms described above in "Subordination" may
prevent payment of the purchase price due following a Change of Control
Triggering Event (whether at the Repurchase Date or upon acceleration of the New
Notes). There can be no assurance that the Company will be able, as required by
the Indenture, to repay the Bank Facility or obtain any consent under the Bank
Facility necessary to permit the repurchase of the New Notes upon a Change of
Control Triggering Event. However, any default by the Company in payment of
principal when the same becomes due and payable upon a Noteholder's exercise of
the repurchase offer
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following a Change of Control Triggering Event will be deemed an Event of
Default (as a remedy for which Noteholders would be entitled to receive the
purchase price due upon a Change of Control Triggering Event).
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws, to the extent such rules and laws are applicable, in the
event that a Change of Control Triggering Event occurs and the Company is
required to repurchase New Notes.
The existence of a Noteholder's right to require the Company to repurchase
such Noteholder's New Note upon the occurrence of a Change of Control Triggering
Event may deter a third party from acquiring the Company in a transaction which
would constitute a Change of Control.
LIMITATION ON INDEBTEDNESS
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or suffer to
exist, or otherwise in any manner become or remain liable, directly or
indirectly, with respect to any Indebtedness, except, without duplication, for:
(1) the incurrence by the Company's Unrestricted Subsidiaries of Qualified
Non-Recourse Debt, PROVIDED, HOWEVER, that if any such Indebtedness
ceases to be Qualified Non-Recourse Debt of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of the Company;
(2) FF&E Financing incurred by the Company or its Restricted Subsidiaries;
(3) the Notes;
(4) all Existing Senior Subordinated Notes and all Existing Indebtedness;
(5) provided no Event of Default shall have occurred and be continuing,
other Indebtedness of the Company and its Restricted Subsidiaries in
an amount not to exceed $15,000,000 in aggregate principal amount;
(6) additional Indebtedness of the Company and its Restricted
Subsidiaries, if at the time of the incurrence of such Indebtedness,
the pro forma Consolidated Coverage Ratio of the Company, calculated
cumulatively for the four most recent consecutive fiscal quarters of
the Company and ending prior to the date of incurrence (the "Reference
Period") is not less than 2.00 to 1.00, after giving effect to:
(a) the incurrence of such Indebtedness as if such Indebtedness was
incurred at the beginning of the Reference Period and (if
applicable) the application of the net proceeds thereof to
refinance other Indebtedness as if the application of such
proceeds occurred at the beginning of the Reference Period; and
(b) the acquisition or disposition of any company or business
acquired or disposed of by the Company or any Restricted
Subsidiary since the first day of the Reference Period, including
any acquisition or disposition which will be consummated
contemporaneously with the incurrence of such Indebtedness, as if
such acquisition or disposition occurred at the beginning of the
Reference Period;
(7) Permitted Refinancing Indebtedness;
(8) Indebtedness incurred under the Bank Facility not to exceed the
greater of:
(a) $200 million; or
(b) 1.5 times Operating Cash Flow calculated cumulatively for the
four most recent consecutive fiscal quarters of the Company
immediately preceding the date on which such Indebtedness is
incurred, provided that the exception in this clause (8) shall
not be applicable to any Indebtedness incurred in refinancing the
Bank Facility if the managing agent for the lenders of such
refinancing Indebtedness
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is a person other than a banking institution with over
$500 million in assets and subject to supervision and examination
by federal or state banking authorities;
(9) Interest Rate Protection Agreements of the Company or any Restricted
Subsidiary covering solely Indebtedness of the Company or any
Restricted Subsidiary which is otherwise permitted to be incurred
pursuant to this paragraph;
(10) Indebtedness to the Company or a wholly-owned Restricted Subsidiary;
(11) to the extent that such incurrence does not result in the incurrence
by the Company or any Restricted Subsidiary of any obligation for the
payment of borrowed money of others, Indebtedness incurred solely as a
result of the execution by the Company or its Restricted Subsidiaries
of a Completion Guarantee and Keep-Well Agreement; provided, however,
that the foregoing exception shall not be applicable to Indebtedness
incurred in connection with the performance by the Company or its
Restricted Subsidiaries of a Completion Guarantee and Keep-Well
Agreement; or
(12) Indebtedness incurred under the 9-5/8% Senior Subordinated Notes due
2003 provided that in the case of this clause (12):
(a) on December 3, 1998, such notes shall have been irrevocably
called for redemption;
(b) amounts sufficient to repay the principal, premium and accrued
interest thereon through the redemption date have been
irrevocably deposited with the trustee for the 9-5/8% Senior
Subordinated Notes due 2003 pursuant to the indenture relating to
the 9-5/8% Senior Subordinated Notes due 2003; and
(c) instructions by the Company have been given to the trustee to
redeem and repay such notes on the redemption date provided for
in the notice of redemption and such instructions state that they
are irrevocable.
LIMITATION ON CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company will not permit any Restricted Subsidiary to issue any Capital
Stock to any person (other than to the Company or any wholly-owned Restricted
Subsidiary) that shall entitle the holder of such Capital Stock to a preference
in right of payment in the event of liquidation, dissolution or winding-up of
such Restricted Subsidiary or with respect to dividends of such Restricted
Subsidiary.
LIMITATION ON RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly:
(1) declare or pay any dividend on, or make any distribution in respect
of, or purchase, redeem or retire for value, any Capital Stock of the
Company or of any Restricted Subsidiary, other than, in the case of
the Company, through the issuance (as a dividend or stock split
thereon or in exchange therefor) solely of the Company's own Capital
Stock (excluding Exchangeable Stock or Redeemable Stock) and, in the
case of a Restricted Subsidiary, with respect to shares of its Capital
Stock that are owned solely by the Company or a wholly-owned
Restricted Subsidiary;
(2) make any principal payment on, or redeem, repurchase, defease or
otherwise acquire or retire for value, prior to scheduled principal
payment or maturity, Subordinated Indebtedness; or
(3) incur, create, assume or suffer to exist any guarantee of Indebtedness
of, or make any loan or advancement to, or other investment in, any
Affiliate or Related Person of the Company or a Restricted Subsidiary,
other than the Company or a Restricted Subsidiary (such payments or
any other actions described in (1) and (2), a "Restricted Payment,"
and in (3), a "Restricted Investment") unless:
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(a) at the time of and after giving effect to the proposed Restricted
Payment or Restricted Investment, no Event of Default (and no
event that, after notice or lapse of time, or both, would become
an Event of Default) shall have occurred and be continuing; and
(b) at the time of and after giving effect to the proposed Restricted
Payment or Restricted Investment (the value of which, if in a
form other than cash, shall be determined in good faith by the
Board of Directors, whose determination shall be conclusive and
evidenced by a board resolution), the aggregate amount, of all
Restricted Payments and Restricted Investments declared or made
after June 2, 1993, shall not exceed the sum of, without
duplication:
(I) 50% of the cumulative Consolidated Net Income of the
Company (or if such cumulative Consolidated Net Income
shall be a loss, 100% of such loss) accrued after June 2,
1993, less any negative extraordinary charges not
reflected in Consolidated Net Income; plus
(II) an amount equal to the Net Proceeds received by the
Company from the issuance and sale (other than to a
Subsidiary) after June 2, 1993 of Capital Stock (excluding
Exchangeable Stock, Redeemable Stock and Capital Stock
issued in exchange for previously outstanding shares of
Capital Stock if such exchange did not constitute a
Restricted Payment); plus
(III) $15,000,000; plus
(IV) an amount equal to 50% of any dividends received by and
100% of any Restricted Investments which are returned or
repaid to (in each case, to the extent not included in
Consolidated Net Income of the Company), the Company or a
wholly-owned Restricted Subsidiary after the date of the
Indenture from an Unrestricted Subsidiary of the Company;
PROVIDED, HOWEVER, that Net Proceeds received from the
sale of the stock of PSHC, BSI, TSI, SSI, KCSC, SCRSI,
SGSI or SWSI, or any successor or assignee thereof, by the
Company shall not be included in clause (II) above, and
PROVIDED, FURTHER, that the foregoing provisions will not
prevent the following Restricted Payments or Restricted
Investments:
(A) payment of any dividend within 60 days after the date
of its declaration if at the date of declaration such
payment would be permitted by the foregoing
provisions; and
(B) Restricted Investments, which together with all other
Restricted Investments since June 2, 1993, do not
exceed $20,000,000 in the aggregate, provided that
after giving effect to each such Restricted
Investment (as if it had occurred on the first day of
such period) the pro forma Consolidated Coverage
Ratio of the Company, calculated cumulatively for the
four most recent consecutive fiscal quarters of the
Company and ending prior to the date of the latest
Restricted Investment, shall be greater than 2.00 to
1.00.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; PROVIDED
that in no event shall the business currently operated by PSHC, BSI, SCRSI,
KCSC, SGSI or SWSI be transferred to or held by an Unrestricted Subsidiary. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
fair market value of such Investments at the date of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, conduct any business or enter into any transaction or
series of related transactions (including the purchase, sale, lease or exchange
of any property or the rendering of any service), pursuant to which the Company
or any Restricted Subsidiary shall
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receive or render value exceeding $1,000,000, with any Affiliate or Related
Person of the Company or of the Existing Equity Holders (other than the Company
or a wholly-owned Restricted Subsidiary of the Company), unless
(1) the terms of such business, transaction or series of related
transactions are:
(a) set forth in writing; and
(b) fair and reasonable to the Company or such Restricted Subsidiary,
and no less favorable to the Company or such Restricted
Subsidiary, as the case may be, as terms that would be obtainable
at the time for a comparable transaction or series of related
transactions with an unrelated third person; and
(2) the disinterested directors of the Board of Directors of the Company
have, by resolution, determined in good faith that such business or
transaction or series of related transactions meets the criteria set
forth in (1)(b) above, which determination shall be conclusive; and
(3) with respect to any transaction or series of related transactions
otherwise permitted under this paragraph pursuant to which the Company
or any Restricted Subsidiary shall receive or render value exceeding
$15,000,000, such transaction or series of related transactions shall
not be permitted unless, prior to consummation thereof, the Company
shall have received an opinion, from an independent nationally
recognized firm experienced in the appraisal or similar review of
similar types of transactions, that such transaction or series of
related transactions is on terms which are fair, from a financial
point of view, to the Company or such Restricted Subsidiary.
Notwithstanding the foregoing, the Company or any of its Restricted
Subsidiaries shall be entitled to provide management services to an
Unrestricted Subsidiary whose sole purpose is to develop, construct
and operate a new gaming facility, provided that the Company or such
Restricted Subsidiary, as the case may be, is reimbursed by the
Unrestricted Subsidiary for all costs and expenses (including without
limitation payroll) it incurs in providing such services.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distribution on its Capital Stock or
any other interest or participation in, or measured by, its profits,
or pay any interest or principal due on Indebtedness owed to the
Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, other than:
(a) any such encumbrance or restriction imposed by any Gaming
Authority;
(b) any encumbrance or restriction existing on the date of the
Indenture contained in any Existing Indebtedness;
(c) any encumbrance or restriction existing on the date of the
Indenture contained in the Bank Facility relating to Indebtedness
that does not exceed the greater of:
(I) $200 million; or
(II) 1.5 times Operating Cash Flow calculated cumulatively for
the four most recent consecutive fiscal quarters of the
Company immediately preceding the date on which such
indebtedness is incurred;
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(d) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
(other than Indebtedness incurred in anticipation of, as
consideration in, or to provide all or any portion of the funds
utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became
a Subsidiary of the Company) incurred by such Restricted
Subsidiary on or prior to the date on which such Restricted
Subsidiary became a Restricted Subsidiary of the Company and
outstanding on such date;
(e) any pledge by the Company or a Restricted Subsidiary of the stock
of an Unrestricted Subsidiary if such pledge is made in
connection with the incurrence of Qualified Non-Recourse Debt by
such Unrestricted Subsidiary; and
(f) any encumbrance or restriction pursuant to an agreement relating
to Indebtedness issued to repay or amend Indebtedness referred to
in subclauses (b), (c), (d) or (f) of this clause (3), PROVIDED,
HOWEVER, that any such encumbrance or restriction is no less
favorable to the Noteholders than encumbrances and restrictions
contained in agreements relating to the Indebtedness so repaid or
amended, and PROVIDED FURTHER, that in the event that
Indebtedness is issued to repay or amend the Bank Facility, the
aggregate principal amount of such Indebtedness shall not exceed
the greater of:
(I) $200 million; or
(II) 1.5 times Operating Cash Flow calculated cumulatively for
the four most recent consecutive fiscal quarters of the
Company immediately preceding the date on which such
Indebtedness is issued. See "Description of Certain
Indebtedness and Capital Stock-Amended Bank Facility."
PROVISION OF FINANCIAL INFORMATION
The Company will file with the Trustee and provide Noteholders within 15
days after it files them with the SEC copies of the quarterly and annual reports
and of the information, documents and other reports (or copies of such portions
of any of the foregoing as the SEC may by rules and regulations prescribe) which
the Company files with the SEC pursuant to Sections 13(a) and 13(c) or 15(d) of
the Exchange Act. The Company will continue to file with the SEC and the
Trustee, and provide to Noteholders, on the same timely basis such reports,
information and other documents as the Company would be required to file with
the SEC as if the Company were subject to the requirements of such Sections
13(a) and 13(c) or 15(d) of the Exchange Act, notwithstanding that the Company
may no longer be subject to Section 13(a) and 13(c) or 15(d) of the Exchange Act
and that the Company would be entitled not to file such reports, information and
other documents with the SEC. In addition, if the Company has any Unrestricted
Subsidiaries at such time, it shall also file with the Trustee, and provide to
the Noteholders, on the same timely basis, all quarterly and annual financial
statements (which information may be unaudited) that would be required by Forms
10-Q and 10-K if the Company did not have such Unrestricted Subsidiaries.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge with or into any other entity
(other than with a wholly-owned Restricted Subsidiary, provided the Company is
the continuing corporation) or sell, convey, assign, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets
(determined on a consolidated basis for the Company and its Restricted
Subsidiaries taken as a whole) to any entity, unless:
(1) either:
(a) the Company shall be the continuing corporation; or
(b) the entity (if other than the Company) formed by such
consolidation or into which the Company is merged or the entity
that acquires, by sale, conveyance, assignment, transfer, lease
or disposition, all or substantially all of the properties and
assets of the Company shall be a corporation, partnership or
trust organized and validly existing under the laws of the United
States or any state thereof or the District of Columbia, and
shall expressly assume by a supplemental indenture, the due and
punctual payment of the principal of and premium, if any, and
interest on all the Notes and the performance
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and observance of every covenant of the Indenture on the part of
the Company to be performed or observed;
(2) immediately thereafter, no Event of Default (and no event that, after
notice or lapse of time, or both, would become an Event of Default)
shall have occurred and be continuing;
(3) immediately after giving effect to any such transaction involving the
incurrence by the Company or any Restricted Subsidiary, directly or
indirectly, of additional Indebtedness (and treating any Indebtedness
not previously an obligation of the Company or any of its Restricted
Subsidiaries incurred in connection with or as a result of such
transaction as having been incurred at the time of such transaction),
the Company (if it is the continuing corporation) or such other entity
could incur at least $1.00 of additional Indebtedness pursuant to
clause (6) under the heading "Limitation on Indebtedness" above; and
(4) immediately thereafter, the Company (if it is the continuing
corporation) or such other entity shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction.
RESTRICTION ON LAYERING DEBT
The Company will not incur any Indebtedness that is subordinate or junior
in right of payment to Senior Indebtedness and senior in any respect in right of
payment to the Notes.
EVENTS OF DEFAULT
An "Event of Default" is deemed to occur if:
(1) the Company defaults in the payment of interest on any Note when the
same becomes due and payable and such default continues for a period
of 30 days following the due date, whether or not such payment is
prohibited by the provisions described under "Subordination;"
(2) the Company defaults in the payment of the principal of any Note when
the same becomes due and payable at maturity, upon optional redemption
of the Notes by the Company, upon exercise by the Noteholder of the
put option upon a Change of Control Triggering Event, upon declaration
or otherwise, whether or not such payment is prohibited by the
provisions described under "Subordination;"
(3) the Company fails to observe, perform or comply with any of the
provisions described under "Consolidation, Merger and Sale of Assets;"
(4) the Company fails to observe, perform or comply with any of its other
agreements or covenants in, or provisions of, the Notes or the
Indenture and such failure to observe, perform or comply continues for
a period of 60 days after receipt by the Company of notice of Default
from the Trustee or the holders of at least 25% in principal amount of
the Notes;
(5) the Company fails, after any applicable grace period, to make any
payment of principal of, premium in respect of, or interest on, any
Indebtedness when due, or any Indebtedness of the Company or any of
its Restricted Subsidiaries is accelerated because of a default and
the aggregate principal amount of such Indebtedness with respect to
which any such failure to pay or acceleration has occurred exceeds
$10,000,000 or its foreign currency equivalent;
(6) any encumbrance or restriction of the type described under "Limitation
on Dividends and Other Payment Restrictions Affecting Subsidiaries"
becomes applicable to any Restricted Subsidiary;
(7) certain events of bankruptcy or insolvency of the Company or any of
its Restricted Subsidiaries occur;
(8) one or more judgments, orders or decrees are rendered against the
Company or any of its Restricted Subsidiaries in an aggregate amount
in excess of $10,000,000 (to the extent not covered by insurance)
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and are not discharged for a period of 60 days during which a stay of
enforcement of such judgments, orders or decrees, by reason of a
pending appeal or otherwise, is not in effect; or
(9) any Gaming License of the Company or any of its Restricted
Subsidiaries is revoked, terminated or suspended or otherwise ceases
to be effective, resulting in the cessation or suspension of operation
for a period of more than 90 days of the casino business of any
casino-hotel owned, leased or operated directly or indirectly by the
Company or any of its Restricted Subsidiaries (other than any
voluntary relinquishment of a Gaming License if such relinquishment
is, in the reasonable, good faith judgment of the Board of Directors
of the Company, evidenced by a resolution of such Board, both
desirable in the conduct of the business of the Company and its
Restricted Subsidiaries, taken as a whole, and not disadvantageous in
any material respect to the Noteholders).
If an Event of Default (other than an Event of Default respecting events of
bankruptcy, insolvency, receivership or reorganization) occurs and is
continuing, the Trustee by notice to the Company, or the holders of at least 25%
in principal amount of the outstanding Notes, by notice to the Company and the
Trustee, may declare to be immediately due and payable the unpaid principal of
and all accrued interest and premium, if any, on the Notes. If an Event of
Default respecting events of bankruptcy, insolvency, receivership or
reorganization occurs, such an amount shall become immediately due and payable
without any declaration or other act on the part of the Trustee or any
Noteholder. The holders of a majority in principal amount of the then
outstanding Notes, by notice to the Trustee, may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived, except non-
payment of principal or interest that has become due solely because of the
acceleration. The holders of a majority in principal amount of the then
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a continuing Default or Event of
Default in the payment of the principal of any Note.
The Company will file annually with the Trustee an Officers' Certificate
regarding compliance by the Company with the terms thereof and specifying any
Defaults of which the signers may have knowledge.
WAIVER AND MODIFICATION OF THE INDENTURE
The Company and the Trustee may amend the Indenture or the Notes without
the consent of any Noteholders to:
(1) cure any ambiguity, defect or inconsistency;
(2) comply with the provision of the Indenture relating to mergers and
consolidations of the Company;
(3) provide for uncertificated New Notes in addition to certificated
Notes;
(4) make any change that does not adversely affect the rights of any
Noteholder; or
(5) comply with the Trust Indenture Act.
The Company and the Trustee may amend any provisions of the Indenture or
the Notes with the written consent of the holders of at least a majority in
principal amount of the Notes then outstanding. The holders of a majority in
principal amount of the outstanding Notes may waive compliance by the Company
with any such provision. The terms of the Bank Facility require the consent of
the lenders thereunder before the Company may amend, modify or supplement the
Indenture, except for amendments which do not require the consent of any
Noteholder under the Indenture.
However, without the consent of each Noteholder affected, no amendment or
waiver of any provision of the Indenture may:
(6) reduce the amount of Notes whose holders must consent to an amendment
or waiver;
(7) reduce the rate or change the time of payment of interest on any
Notes;
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(8) reduce the principal or change the fixed maturity of any Notes or
alter the redemption provisions with respect thereto;
(9) make any Notes payable in money other than that stated in the Notes;
(10) make any change in provisions of the Indenture relating to waivers of
compliance with, or past defaults of, the Indenture or the Notes, or
the right of Noteholders to receive payments of principal, premium or
interest; or
(11) waive a default in payment of the principal of, or interest on, any
Notes.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will be discharged upon payment or redemption of all the
Notes issued thereunder. In addition, upon deposit with the Trustee of money or
noncallable United States Government Obligations sufficient for full payment of
such New Notes and delivery to the Trustee of a satisfactory Opinion of Counsel
regarding federal income tax consequences to the Noteholders, all obligations
under the Indenture, other than with respect to compensation and indemnity of
the Trustee and certain other obligations, will be discharged.
CONCERNING THE TRUSTEE
First Union National Bank is the Trustee under the Indenture. First Union
National Bank is also the trustee under the indentures for the Existing Senior
Subordinated Notes.
The Indenture contains certain limitations on the right of the Trustee,
should it be or become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions with the Company; however, if it acquires any conflicting interest
(as defined), it must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or the Indenture, is
unduly prejudicial to the rights of other Noteholders or would involve the
Trustee in personal liability. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its powers, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the Noteholders, unless they shall have
offered to the Trustee satisfactory indemnity.
MANDATORY DISPOSITION PURSUANT TO GAMING LAWS
If a record or a beneficial owner of a Note is required by any Gaming
Authority to be found suitable, the owner shall apply for a finding of
suitability within 30 days after the request of such Gaming Authority or within
such earlier time prescribed by such Gaming Authority. The applicant for a
finding of suitability must pay all costs of the investigation for such finding
of suitability. If a holder or beneficial owner is required to be found suitable
and is not found suitable by such Gaming Authority:
(1) such owner shall, upon request of the Company, dispose of such owner's
Notes within 30 days or within that time prescribed by such Gaming
Authority, whichever is earlier; or
(2) the Company may, at its option, redeem such owner's Notes at the
lesser of
(a) the principal amount thereof; or
(b) the price at which the Notes were acquired by such owner,
together with, in either case, accrued interest to the date of
the finding of unsuitability by such Gaming Authority. See
"Regulation and Licensing."
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one Global Note (the "New Global Note"). The New Global Note will be
deposited on the date of the closing of the exchange of the Old Notes for the
New Notes (the "Closing Date") with, or on behalf of, The Depository Trust
Company, New York, New York (the "Depository") and registered in the name of
Cede & Co., as nominee of the Depository (such nominee being referred to herein
as the "Global Note Holder").
New Notes that are issued as described below under "--Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
such Certificated Securities may, unless the New global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the New
Global Note representing the principal amount of New Notes being transferred.
DEPOSITORY PROCEDURES
The Depository has advised the Company that the Depository is a
limited-purpose trust company that was created to hold securities for its
participating organizations (collectively, the "Participants") and to facilitate
the clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers (including
the Initial Purchasers), banks and trust companies, clearing corporations and
certain other organizations. Access to the Depository's system is also available
to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of the Depository only through the Participants or the Indirect
Participants.
The Company expects that pursuant to procedures established by the
Depository:
(1) upon deposit of the New Global Note, the Depository will credit the
accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of the New Global Note; and
(2) ownership of the New Notes evidenced by the New Global Note will be
shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depository (with respect to the
interests of the Participants), the Participants and the Indirect
Participants. Prospective purchasers are advised that the laws of some
states require that certain persons take physical delivery in
definitive form of securities that they own.
Consequently, the ability to transfer New Notes evidenced by the New Global Note
will be limited to such extent.
So long as the Global Note Holder is the registered owner of any New Notes,
the Global Note Holder will be considered the sole Holder under the Indenture of
any New Notes evidenced by the New Global Note. Beneficial owners of New Notes
evidenced by the New Global Note will not be considered the owners or holders
thereof under the Indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the Trustee thereunder.
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records of the Depository or for maintaining, supervising
or reviewing any records of the Depository relating to the New Notes.
Payments in respect of the principal of, premium, if any, and interest on
any New Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names New Notes, including the New Global Note, are registered as the
owners thereof for the purpose of receiving such payments. Consequently, neither
the Company nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of New Notes. The Company
believes, however, that it is currently the policy of the Depository to
immediately credit the accounts of the relevant Participants with such payments,
in amounts proportionate to their respective holdings of beneficial interests in
the relevant security as shown on the records of the Depository. Payments by the
Participants and
102
<PAGE>
the Indirect Participants to the beneficial owners of New Notes will be governed
by standing instructions and customary practice and will be the responsibility
of the Participants or the Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the New Global Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). If:
(1) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depositary and the Company is
unable to locate a qualified successor within 90 days; or
(2) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of New Notes in the form of Certificated
Securities under the Indenture, then, upon surrender by the Global
Note Holder of its New Global Note, Notes in such form will be issued
to each person that the Global Note Holder and the Depository identify
as being the beneficial owner of the related New Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of New
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the New Notes
represented by the New Global Note (including principal, premium, if any, and
interest, if any) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Securities, the Company will make all payments of principal, premium, if any,
and interest, if any, by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each such Holder's registered address.
103
<PAGE>
CERTAIN FEDERAL TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences resulting from the exchange offer and from the ownership of the New
Notes. It deals only with New Notes held as capital assets and not with special
classes of noteholders, such as dealers in securities or currencies, life
insurance companies, tax exempt entities, and persons that hold a New Note in
connection with an arrangement that completely or partially hedges the New Note.
The discussion is based upon the Internal Revenue Code of 1986, as amended, and
regulations, rulings and judicial decisions thereunder as of the date hereof.
Such authorities may be repealed, revoked or modified so as to produce federal
income tax consequences different from those discussed below.
NOTEHOLDERS TENDERING THEIR OLD NOTES OR PROSPECTIVE PURCHASERS OF NEW
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL
INCOME TAX AND ANY STATE OR LOCAL INCOME OR FRANCHISE TAX CONSEQUENCES IN THEIR
PARTICULAR SITUATIONS AND ANY CONSEQUENCES UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
The exchange of New Notes for the Old Notes pursuant to the exchange offer
will not be treated as an "exchange" for United States federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. Rather, the New Notes received by a
noteholder will be treated as a continuation of the Old Notes in the hands of
such noteholder. As a result, there will be no United States federal income tax
consequences to noteholders exchanging the Old Notes for the New Notes pursuant
to the exchange offer. The noteholder must continue to include stated interest
in income as if the exchange had not occurred. The adjusted basis and holding
period of the New notes for any noteholder will be the same as the adjusted
basis and holding period of the Old Notes. Similarly, there would be no United
States federal income tax consequences to a holder of Old Notes that does not
participate in the exchange offer.
UNITED STATES HOLDERS
For purposes of this discussion, a "United States Holder" means:
(1) a citizen or resident of the United States;
(2) a partnership, corporation or other entity created or organized in or
under the law of the United States or of any State of the United
States;
(3) an estate the income of which is subject to United States federal
income tax regardless of its source;
(4) a trust, if either:
(a) a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more
United States persons have the authority to control all
substantial decisions of the trust; or
(b) the trust was in existence on August 20, 1996 and elected to be
treated as a United States person at all times thereafter;
(5) any other person that is subject to United States federal income tax
on interest income derived from a Note as a result of such income
being effectively connected with the conduct by such person of a trade
or business within the United States; or
(6) certain former citizens of the United States whose income and gain on
the New Notes will be subject to U.S. income tax.
104
<PAGE>
PAYMENTS OF INTEREST
Payments of stated interest on a New Note will constitute "qualified
stated interest" (as defined below under "Original Issue Discount") and will
be taxable to a United States Holder as ordinary interest income at the time
it is received or accrued, depending on the noteholder's method of accounting
for tax purposes.
Under certain circumstances, notes may be treated as issued with original
issue discount. We believe the notes will not be issued with original issue
discount because they satisfy a statutory de minimis exception. If the notes are
issued with original issue discount, United States Holders will have to include
original issue discount in income before the receipt of cash attributable to
such income.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments of
principal and interest on a New Note and the proceeds of the sale of a New Note
before Maturity within the United States to, and to the accrual of original
issue discount on a New Note with respect to, non-corporate United States
Holders. A 31% "backup withholding" tax will apply to such payments and to
payments with respect to original issue discount if the United States Holder
fails to provide an accurate taxpayer identification number or to report all
interest and dividends required to be shown on its federal income tax returns.
UNITED STATES ALIEN HOLDERS
As used herein, a "United States Alien" is a person or entity that, for
United States federal income tax purposes, is not a United States Holder.
PAYMENTS TO UNITED STATES ALIENS
Under current United States federal income and estate tax law:
(1) payments of principal and interest on a New Note by SCI or any paying
agent to a noteholder that is a United States Alien will not be
subject to withholding of United States federal income tax, provided
that, such interest is not effectively connected with the conduct of a
trade or business within the United States by such United States Alien
and the noteholder:
(a) does not actually or constructively own 10% or more of the
combined voting power of all classes of stock of SCI;
(b) is not a controlled foreign corporation related to SCI through
stock ownership; and
(c) provides a statement, under penalties of perjury (such as Form
W-8), to SCI that the holder is a United States Alien and
provides its name and address;
(2) a noteholder that is a United States Alien will not be subject to
United States federal income tax on gain realized on the sale,
exchange or redemption of such Note, unless:
(a) the gain is effectively connected with the conduct of a trade or
business within the United States by the United States Alien; or
(b) in the case of a United States Alien who is a nonresident alien
individual and holds the New Note as a capital asset, such holder
is present in the United States for 183 or more days in the
taxable year and certain other requirements are met; and
(3) a New Note will not be subject to United States federal estate tax as
a result of the death of a noteholder who is not a citizen or resident
of the United States at the time of death, provided that:
105
<PAGE>
(a) such noteholder did not at the time of death actually or
constructively own 10% or more of the combined voting power of
all classes of stock of SCI; and,
(b) at the time of such noteholder's death, payments of interest on
such Note would not have been effectively connected with the
conduct by such noteholder of a trade or business in the United
States.
United States information reporting requirements and backup withholding tax
will not apply to payments on a New Note made outside the United States by SCI
or any paying agent (acting in its capacity as such) to a noteholder that is a
United States Alien provided that a statement described in (1)(c) above has been
received and neither SCI nor its paying agent has actual knowledge that the
payee is not a United States Alien.
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of a New Note effected outside
the United States by a foreign office of a "broker" (as defined in applicable
Treasury regulations), provided that such broker:
(1) is a United States Alien;
(2) derives less than 50% of its gross income for certain periods from the
conduct of a trade or business in the United States; and
(3) is not a controlled foreign corporation as to the United States
(a person described in (1), (2) and (3) above being hereinafter referred to as a
"foreign controlled person"). Payment of the proceeds of the sale of a New Note
effected outside the United States by a foreign office of any broker that is not
a foreign controlled person will not be subject to backup withholding tax, but
will be subject to information reporting requirements unless such broker has
documentary evidence in its records that the beneficial owner is a United States
Alien and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption.
New regulations governing backup withholding and information reporting are
generally scheduled to become effective for payments made after December 31,
1999. Rules under these regulations will have essentially the same substantive
effect, but will unify current certification procedures and forms.
106
<PAGE>
PLAN OF DISTRIBUTION
This prospectus, as it may be amended or supplemented from time to time,
may be used by a Broker-Dealer (a "Participating Broker-Dealer") in connection
with the resale of the New Notes received in exchange for the Old Notes where
such Old Notes were acquired for its own account as a result of market-making
activities or other trading activities. Each such Participating Broker-Dealer
that participates in the exchange offer that receives the New Notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. We have agreed that
for a period of one year after the date when the registration statement becomes
effective, we will use our best efforts to make this prospectus, as amended or
supplemented, available to any Participating Broker-Dealer for use in connection
with any such resale.
We will not receive any proceeds from any sale of New Notes by
Participating Broker-Dealers. New Notes received by Participating Broker-Dealers
for their own account pursuant to the exchange offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
Participating Broker-Dealer and/or the purchasers of any such New Notes. Any
Participating Broker-Dealer that resells New Notes that were received by it for
its own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of one year after the expiration date of the exchange offer,
we will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any Participating Broker-Dealer that requests
such documents in the letter of transmittal.
This prospectus has been prepared for use in connection with the exchange
offer and may be used by the initial purchasers in connection with the offers
and sales related to market-making transactions in the New Notes. The initial
purchasers may act as principals or agents in such transactions. Such sales
will be made at prices related to prevailing market prices at the time of sale.
We will not receive any of the proceeds of such sales. The initial purchasers
have no obligation to make a market in the New Notes and may discontinue their
market-making activities at any time without notice, at their sole discretion.
LEGAL MATTERS
Certain legal matters with regard to the validity of the New Notes will be
passed upon for us by Milbank, Tweed, Hadley & McCloy, Los Angeles, California
and Schreck Morris, Las Vegas, Nevada.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements as of March 31, 1998 and 1997 and for
the three years in the period ended March 31, 1998, included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
107
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Condensed Consolidated Balance Sheets (unaudited)
as of September 30, 1998 and March 31, 1998........................... F-2
Condensed Consolidated Statements of Operations (unaudited)
for the Six months ended September 30, 1998 and 1997.................. F-3
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Six months ended September 30, 1998 and 1997.................. F-4
Notes to Condensed Consolidated Financial Statements (unaudited)....... F-5
Report of Independent Public Accountants............................... F-9
Consolidated Balance Sheets as of March 31, 1998 and 1997.............. F-10
Consolidated Statements of Operations for the years ended
March 31, 1998, 1997 and 1996......................................... F-11
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1998, 1997 and 1996......................................... F-12
Consolidated Statements of Cash Flows for the years ended
March 31, 1998, 1997 and 1996......................................... F-13
Notes to Consolidated Financial Statements............................. F-14
</TABLE>
F-1
<PAGE>
STATION CASINOS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 50,402 $ 50,158
Accounts and notes receivable, net................... 11,651 12,288
Inventories.......................................... 4,510 4,209
Prepaid gaming taxes................................. 9,285 6,763
Prepaid expenses and other........................... 15,476 14,073
----------- -----------
TOTAL CURRENT ASSETS.............................. 91,324 87,491
Property and equipment, net............................. 1,143,947 1,132,719
Land held for development............................... 24,286 24,268
Other assets, net....................................... 54,730 55,738
----------- -----------
TOTAL ASSETS...................................... $1,314,287 $1,300,216
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................... $ 155,054 $ 97,931
Accounts payable..................................... 14,107 16,498
Accrued payroll and related.......................... 21,518 21,896
Construction contracts payable....................... 8,580 10,534
Accrued interest payable............................. 15,482 16,776
Accrued expenses and other........................... 37,418 33,874
----------- -----------
TOTAL CURRENT LIABILITIES......................... 252,159 197,509
Long-term debt, less current portion.................... 753,787 802,295
Deferred income taxes, net.............................. 18,651 13,525
----------- -----------
TOTAL LIABILITIES................................. 1,024,597 1,013,329
----------- -----------
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01; authorized
5,000,000 shares; 2,070,000 convertible
preferred shares issued and outstanding.......... 103,500 103,500
Common stock, par value $.01; authorized
90,000,000 shares; 35,311,792 and 35,310,623
shares issued and outstanding..................... 353 353
Additional paid-in capital........................... 167,216 167,180
Deferred compensation-restricted stock............... (282) (528)
Retained earnings.................................... 18,903 16,382
----------- -----------
TOTAL STOCKHOLDERS' EQUITY........................ 289,690 286,887
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $1,314,287 $1,300,216
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-2
<PAGE>
STATION CASINOS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING REVENUES:
Casino.................................................. $332,565 $282,700
Food and beverage....................................... 68,307 63,577
Room.................................................... 19,307 17,218
Other................................................... 31,261 28,676
-------- --------
Gross revenues....................................... 451,440 392,171
Less promotional allowances............................. (31,742) (24,558)
-------- --------
Net revenues......................................... 419,698 367,613
-------- --------
OPERATING COSTS AND EXPENSES:
Casino.................................................. 163,331 137,592
Food and beverage....................................... 42,884 44,862
Room.................................................... 7,480 6,481
Other................................................... 12,500 13,481
Selling, general and administrative..................... 89,801 81,896
Corporate expenses...................................... 9,983 7,748
Depreciation and amortization........................... 35,185 33,169
Preopening expenses..................................... - 10,866
-------- --------
361,164 336,095
-------- --------
OPERATING INCOME........................................... 58,534 31,518
-------- --------
OTHER INCOME (EXPENSE):
Interest expense, net................................... (44,408) (35,713)
Merger and related legal costs.......................... (2,943) -
Other................................................... (565) (4,996)
-------- --------
(47,916) (40,709)
-------- --------
Income (loss) before income taxes.......................... 10,618 (9,191)
Income tax (provision) benefit............................. (4,475) 3,258
-------- --------
Net income (loss).......................................... 6,143 (5,933)
Preferred stock dividends.................................. (3,622) (3,622)
-------- --------
Net income (loss) applicable to common stock............... $ 2,521 $ (9,555)
-------- --------
-------- --------
Basic and diluted earnings (loss) per common share......... $ 0.07 $ (0.27)
-------- --------
-------- --------
Weighted average common shares outstanding................. 35,312 35,310
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-3
<PAGE>
STATION CASINOS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 6,143 $ (5,933)
-------- ---------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization......................... 35,185 33,169
Amortization of debt discount and issuance costs...... 2,956 3,282
Merger and related legal costs........................ 2,943 -
Increase in deferred income taxes..................... 4,474 7,290
Preopening expenses................................... - 10,866
Changes in assets and liabilities:
Decrease (increase) in accounts and notes
receivable, net................................... 637 (4,635)
Increase in inventories and prepaid expenses and
other current assets. (3,574) (5,161)
Decrease in accounts payable........................ (2,391) (4,723)
Increase in accrued expenses and other current
liabilities........................................ 1,872 13,896
Other, net.......................................... (1,083) 6,593
-------- ---------
Total adjustments.............................. 41,019 60,577
-------- ---------
Net cash provided by operating activities......... 47,162 54,644
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................... (44,732) (100,029)
Decrease in construction contracts payable............. (1,954) (74,904)
Preopening expenses.................................... - (8,550)
Other, net............................................. 671 525
-------- ---------
Net cash used in investing activities............. (46,015) (182,958)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under bank facility, net...................... (68,000) (63,000)
Borrowings under Sunset loan agreement, net............ - 57,000
Proceeds from the issuance of notes payable............ 80,000 15,730
Principal payments on notes payable.................... (6,953) (19,631)
Proceeds from the issuance of senior subordinated
notes, net............................................ - 144,287
Dividends paid......................................... (3,622) (3,622)
Other, net............................................. (2,328) (1,049)
-------- ---------
Net cash (used in) provided by financing
activities....................................... (903) 129,715
-------- ---------
CASH AND CASH EQUIVALENTS:
Increase in cash and cash equivalents.................. 244 1,401
Balance, beginning of period........................... 50,158 42,522
-------- ---------
Balance, end of period................................. $ 50,402 $ 43,923
-------- ---------
-------- ---------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest, net of amounts capitalized..... $ 43,019 $ 24,510
Cash paid for income taxes............................. $ 10 $ -
Property and equipment purchases financed by debt...... $ 2,918 $ 3,532
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-4
<PAGE>
STATION CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Station Casinos, Inc. (the "Company"), a Nevada Corporation, is an
established multi-jurisdictional gaming and entertainment enterprise that
currently owns and operates four major casino properties in Las Vegas,
Nevada, a gaming and entertainment complex in St. Charles, Missouri and a
gaming and entertainment complex in Kansas City, Missouri. The Company also
owns and provides slot route management services in Southern Nevada.
The accompanying condensed consolidated financial
statements include the accounts of Station Casinos, Inc. and its wholly-owned
subsidiaries, Palace Station Hotel & Casino, Inc. ("Palace Station"), Boulder
Station, Inc. ("Boulder Station"), Texas Station, Inc. ("Texas Station"),
Sunset Station, Inc. ("Sunset Station"), St. Charles Riverfront Station, Inc.
("Station Casino St. Charles"), Kansas City Station Corporation ("Station
Casino Kansas City"), and the Southwest Companies. The Company also owns and
operates a small casino, Wild, Wild West, which opened in July 1998 and owns
a 50% interest in Town Center Amusements, Inc., d.b.a. Barley's Casino &
Brewing Company. All significant intercompany accounts and transactions have
been eliminated.
The accompanying condensed consolidated financial statements
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate
to make the information presented not misleading. In the opinion of
management, all adjustments (which include normal recurring adjustments)
necessary for a fair presentation of the results for the interim periods have
been made. The results for the three and six months ended September 30, 1998
are not necessarily indicative of results to be expected for the full fiscal
year. These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998.
Certain amounts in the six months ended September 30, 1997
consolidated financial statements have been reclassified to be consistent
with the current year presentation. These reclassifications had no effect on
net income.
F-5
<PAGE>
STATION CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
2. LONG-TERM DEBT
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------- ------------
<S> <C> <C>
Reducing revolving credit facility, secured by substantially
all of the assets of Palace Station, Boulder Station, Texas
Station, Sunset Station, Station Casino St. Charles and
Station Casino Kansas City, $285.2 million limit at
September 30, 1998, reducing quarterly by $22.4 million until
September 2000 when the remaining principal balance is due,
interest at a margin above the bank's prime rate or the
Eurodollar Rate (8.25% at September 30, 1998)......................... $ 256,000 $324,000
Supplemental revolving facility, secured by the same assets as
the reducing revolving credit facility, payable interest only
monthly, principal due March 31, 1999, interest at a margin
above the bank's prime rate or the Eurodollar rate (8.31% at
September 30, 1998)................................................... 80,000 -
9 5/8% senior subordinated notes, payable interest only semi-annually,
principal due June 1, 2003, net of unamortized discount of $5.5
million at September 30, 1998......................................... 187,487 187,051
9 3/4% senior subordinated notes, payable interest only semi-annually,
principal due April 15, 2007, net of unamortized discount of $5.2
million at September 30, 1998......................................... 144,816 144,629
10 1/8% senior subordinated notes, payable interest only semi-annually,
principal due March 15, 2006, net of unamortized discount of $1.0
million at September 30, 1998......................................... 196,956 196,908
Notes payable to banks and others, collateralized by slot machines
and related equipment, monthly installments including interest
ranging from 7.53% to 11.50% at September 30, 1998.................... 9,974 8,499
Capital lease obligations, collateralized by furniture and equipment..... 3,441 4,191
Other long-term debt..................................................... 30,167 34,948
--------- --------
Total long-term debt............................................... 908,841 900,226
Current portion of long-term debt........................................ (155,054) (97,931)
--------- --------
Total long-term debt, less current portion......................... $ 753,787 $802,295
--------- --------
--------- --------
</TABLE>
In June 1998, the Company amended its secured amended and restated
reducing revolving loan agreement (the "Bank Facility"). This amendment
modifies the maximum funded debt to EBITDA (adjusted for preopening expenses)
ratio, including annualized EBITDA (adjusted for preopening expenses) for any
new venture, as defined, open less than a year, for the Company on a
consolidated basis to 5.50 to 1.00 for the fiscal quarter ended June 30,
1998, 5.40 to 1.00 for the fiscal quarter ending September 30, 1998, 5.20 to
1.00 for the fiscal quarter ending December 31, 1998, 5.00 to 1.00 for the
fiscal quarter ending March 31, 1999, 4.25 to 1.00 for the fiscal quarter
ending June 30, 1999, 4.00 to 1.00 for the fiscal quarter ending September
30, 1999 and 3.75 to 1.00 thereafter. The funded debt to EBITDA ratio was
4.92 to 1.00 as of September 30, 1998.
In September 1998, the Company executed a supplemental secured
revolving loan agreement with a group of banks for $80 million (the
"Supplemental Facility"). The Supplemental Facility is supplemental to and
related to the Bank Facility. The liens and security interests securing the
Supplemental Facility rank equal with the liens and security interests
securing the Bank Facility and contain the same financial and other
covenants. The Supplemental Facility bears interest at the same rate as the
Bank Facility plus 25 basis points and is payable monthly. The Supplemental
Facility matures in March 1999.
In October 1998, the Company received commitments for $425 million
for an amended and restated reducing revolving credit facility (the "Amended
Facility"). These commitments are subject to satisfactory documentation which
is expected to be completed during calendar year 1998. This facility will
amend the Company's existing Bank Facility and will refinance the
Supplemental Facility (described above). The Amended Facility will be funded
in two tranches (a revolving tranche and a term tranche). The revolving
tranche will be a $350 million reducing revolving credit facility maturing in
September 2003. The term tranche will be a $75 million term loan maturing in
December 2005. The Amended Facility will contain certain financial and other
covenants including a maximum funded debt to EBITDA
F-6
<PAGE>
ratio, a minimum fixed charge coverage ratio, limits on capital expenditures
and investments, limits on indebtedness, minimum consolidated net worth
requirements, limits on payments of dividends, and a maximum basket for the
repurchase of equity securities.
3. OTHER MATTERS
PREOPENING EXPENSES
Prior to the opening of a facility, all operating expenses,
including incremental salaries and wages, related thereto are capitalized as
preopening expenses. In June 1997, Sunset Station Hotel & Casino opened.
During the six months ended September 30, 1997, $10.9 million of preopening
expense primarily related to Sunset Station were expensed.
EXPIRED OPTION PAYMENTS
In June 1997, approximately $5.0 million of certain expired option
payments to lease or acquire land for future development, which had
previously been capitalized, were expensed. Such amounts are included in
other income/expense in the accompanying condensed consolidated statements of
operations for the six months ended September 30, 1997.
PALACE STATION FIRE AND FLOOD
On July 20, 1998, Palace Station suffered damage to its casino and
hotel tower as a result of a thunderstorm in the Las Vegas Valley. In
November 1998, the repairs to the casino were completed and all of the rooms
in the 21-story hotel tower were fully functional. Losses associated with the
property damage and business interruption are covered under the Company's
insurance policies. As of September 30, 1998, the insurance company has
advanced $6 million to the Company on this claim. Any business interruption
proceeds have been reflected in other operating revenue in the accompanying
condensed consolidated statements of operations. The Company expects no
significant losses from the business interruption or property claims,
however, no assurance as to the final settlement can be made. In addition,
the Company's business interruption insurance coverage related to this
incident terminates in November 1999.
4. COMMITMENTS AND CONTINGENCIES
On January 16, 1998, the Company entered into an Agreement and Plan
of Merger, as amended (the "Merger Agreement") with Crescent Real Estate
Equities Company, a Texas real estate investment trust ("Crescent"). The
Merger Agreement provides for the merger (the "Merger") of the Company and
Crescent at the time of effectiveness of the Merger in accordance with the
Merger Agreement (the "Effective Time"). The Merger Agreement is currently
the subject of litigation between Crescent and the Company. During the three
months ended September 30, 1998, the Company wrote off $2.9 million of costs
incurred related to the Merger (which are included in other expense in the
accompanying condensed consolidated statements of operations). The Company
also expects to incur ongoing litigation costs associated with the current
lawsuits involving the Merger Agreement.
On July 27, 1998, the Company and Crescent announced the
postponement of the previously announced joint annual and special meeting of
the Company's stockholders. The meeting was postponed to address concerns
related to the Merger expressed by holders of the Company's preferred stock.
The Company subsequently requested that Crescent purchase $20 million of the
Company's $100 Redeemable Preferred Stock issuable under the Merger Agreement
(the "Redeemable Preferred Stock"). The Merger Agreement provides that, if
the Company is not in material breach of its covenants, representations or
warranties under the Merger Agreement, Crescent is required to fund up to
$115 million of Redeemable Preferred Stock even if the Merger Agreement has
been terminated. Crescent advised the Company that Crescent took the position
that our postponing the meeting was a breach of the Merger Agreement.
On July 30, 1998, the Company filed suit against Crescent in Clark
County District Court, State of Nevada, seeking declaratory relief. The suit
asserts, among other things, that postponement of the meeting did not breach
the Merger Agreement, that the Company had received Crescent's consent to
postponement of the meeting and was otherwise in full compliance with its
obligations under the Merger Agreement.
On August 11, 1998, the Company requested that Crescent purchase the
additional $95 million of Redeemable Preferred Stock. Also on August 11,
1998, the Company amended its complaint in Nevada state court to include
claims regarding Crescent's breaches of the Merger Agreement. The Company's
lawsuit against Crescent seeks damages for Crescent's breaches and specific
performance requiring Crescent to fulfill its obligation under the Merger
Agreement to purchase $115 million of Redeemable Preferred Stock.
On December 22, 1998, Crescent filed its answer and counterclaims
the Company's suit pending in the Nevada state court. The answer generally
denied the Company's claims, and the counterclaims sought damages and
declaratory relief alleging that the Company breached the Merger Agreement by
canceling and failing to reschedule the August 4, 1998 stockholders meeting.
The suit sought declaratory judgment that the Company's actions with respect
to the meeting, together with certain alleged misrepresentations in the
Merger
F-7
<PAGE>
Agreement, relieve Crescent of its obligation under the Merger Agreement to
purchase an aggregate $115 million of the Redeemable Preferred Stock. For the
same reasons, Crescent alleged that it was excused from further performance
under the Merger Agreement. Crescent did not specify the amount of damages it
sought. Discovery is ongoing in this action.
We anticipate that Crescent will seek the $54 million break-up fee
as part of its counterclaims. On August 12, 1998, Crescent had announced that
it intended to assert a claim for damages for the $54 million break-up fee
under the Merger Agreement or its equivalent and for expenses.
On August 7, 1998, Crescent filed suit against the Company in the
United States District Court, Northern District of Texas, seeking damages and
declaratory relief. The suit alleged that the Company breached the Merger
Agreement by canceling and failing to reschedule the August 4, 1998
stockholders meeting. The suit sought a declaratory judgment that the
Company's actions with respect to the meeting, together with certain alleged
misrepresentations in the Merger Agreement, relieve Crescent of its
obligation under the Merger Agreement to purchase an aggregate $115 million
of the Redeemable Preferred Stock. For the same reasons, Crescent alleged
that it was excused from further performance under the Merger Agreement.
Crescent did not specify the amount of damages it sought. Simultaneously with
the filing of its suit, Crescent sent notice of termination of the Merger
Agreement to the Company. The Company believes that Crescent, and not the
Company, breached the Merger Agreement.
On December 15, 1998, Crescent's suit against the Company pending in
the United States District Court for the Northern District of Texas was
dismissed for lack of jurisdiction. On December 21, 1998, Crescent served the
Company with a notice of appeal of the dismissal.
While the Company believes that Crescent has breached the Merger
Agreement and that Crescent's allegations are without merit, as with any
litigation, no assurance as to the outcome of such litigation can be made at
this time.
A suit seeking status as a class action and a derivative action was
filed by plaintiff, Crandon Capital Partners, on August 7, 1998, in Clark
County District Court, State of Nevada, naming the Company and its Board of
Directors as defendants. The lawsuit, which was filed as a result of the
failed merger between the Company and Crescent, alleges, among other things,
a breach of fiduciary duty owed to the shareholders/class members. The
lawsuit seeks damages allegedly suffered by the shareholders/class members as
a result of the transactions with Crescent, as well as all costs and
disbursements of the lawsuit. The Company and the Board of Directors do not
believe the suit has merit and intend to defend themselves vigorously.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Station Casinos, Inc.:
We have audited the accompanying consolidated balance sheets of
Station Casinos, Inc. (a Nevada corporation) and subsidiaries as of March 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Station Casinos,
Inc. and subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
April 23, 1998 (except for Notes 3 and 13,
as to which the date is
December 22, 1998 and Note 6
as to which the date is
November 23, 1998)
F-9
<PAGE>
STATION CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------
1998 1997
---------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 50,158 $ 42,522
Accounts and notes receivable, net.................. 12,288 7,852
Inventories......................................... 4,209 3,473
Prepaid gaming taxes................................ 6,763 4,291
Prepaid expenses and other.......................... 14,073 11,231
---------- ----------
TOTAL CURRENT ASSETS............................. 87,491 69,369
Property and equipment, net............................ 1,132,719 1,069,052
Land held for development.............................. 24,268 26,354
Other assets, net...................................... 55,738 69,343
---------- ----------
TOTAL ASSETS..................................... $1,300,216 $1,234,118
---------- ----------
---------- ----------
CURRENT LIABILITIES:
Current portion of long-term debt................... $ 97,931 $ 18,807
Accounts payable.................................... 16,498 21,106
Accrued payroll and related......................... 21,896 13,460
Construction contracts payable...................... 10,534 94,835
Accrued interest payable............................ 16,776 10,625
Accrued expenses and other current liabilities...... 33,874 26,433
---------- ----------
TOTAL CURRENT LIABILITIES........................ 197,509 185,266
Long-term debt, less current portion................... 802,295 742,156
Deferred income taxes, net............................. 13,525 7,848
---------- ----------
TOTAL LIABILITIES................................ 1,013,329 935,270
---------- ----------
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01; authorized
5,000,000 shares; 2,070,000 convertible
preferred shares issued and outstanding.......... 103,500 103,500
Common stock, par value $.01; authorized
90,000,000 shares; 35,310,623 and
35,318,057 shares issued and outstanding......... 353 353
Additional paid-in capital.......................... 167,180 167,397
Deferred compensation-restricted stock.............. (528) (1,225)
Retained earnings................................... 16,382 28,823
---------- ----------
TOTAL STOCKHOLDERS' EQUITY....................... 286,887 298,848
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $1,300,216 $1,234,118
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
<PAGE>
STATION CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-------------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
OPERATING REVENUES:
Casino......................................... $600,847 $450,013 $358,495
Food and beverage.............................. 131,365 92,220 73,057
Room........................................... 37,330 27,420 23,614
Other.......................................... 53,494 48,957 39,099
-------- -------- --------
Gross revenues.............................. 823,036 618,610 494,265
Less promotional allowances.................... (53,426) (35,095) (27,408)
-------- -------- --------
Net revenues................................ 769,610 583,515 466,857
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Casino......................................... 291,102 203,857 150,805
Food and beverage.............................. 89,928 68,994 57,659
Room........................................... 13,461 10,318 9,147
Other.......................................... 24,658 23,927 24,902
Selling, general and administrative............ 172,258 120,285 97,466
Corporate expenses............................. 15,633 18,284 15,979
Restructuring charge........................... - 2,016 -
Development expenses........................... 104 1,302 3,960
Depreciation and amortization.................. 67,414 44,589 35,039
Preopening expenses............................ 10,866 31,820 2,436
-------- -------- --------
685,424 525,392 397,393
-------- -------- --------
OPERATING INCOME.................................. 84,186 58,123 69,464
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net.......................... (78,826) (36,698) (30,563)
Write-off of costs to elect REIT status........ (2,914) - -
Other.......................................... (6,566) (47) 1,150
-------- -------- --------
(88,306) (36,745) (29,413)
-------- -------- --------
Income (loss) before income taxes and
extraordinary item............................... (4,120) 21,378 40,051
Income tax (provision) benefit.................... 966 (7,615) (14,579)
-------- -------- --------
Income (loss) before extraordinary item........... (3,154) 13,763 25,472
Extraordinary item/loss on early retirement
of debt, net of applicable income tax benefit.... (2,042) - -
-------- -------- --------
Net income (loss)................................. (5,196) 13,763 25,472
Preferred stock dividends......................... (7,245) (7,245) (53)
-------- -------- --------
Net income (loss) applicable to common stock...... $(12,441) $6,518 $25,419
-------- -------- --------
-------- -------- --------
Weighted average common shares outstanding........ 35,309 35,316 33,918
-------- -------- --------
-------- -------- --------
Basic and diluted earnings (loss) per
common share:
Earnings (loss) before extraordinary item...... $ (0.09) $ 0.39 $ 0.75
Extraordinary item............................. $ (0.06) $ - $ -
Earnings (loss) applicable to common stock..... $ (0.35) $ 0.18 $ 0.75
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-11
<PAGE>
STATION CASINOS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DEFERRED RETAINED
ADDITIONAL COMPENSATION- EARNINGS TOTAL
PREFERRED COMMON PAID-IN RESTRICTED (ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL STOCK DEFICIT) EQUITY
--------- ------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1995... $ - $301 $ 93,592 $(2,893) $(3,114) $ 87,886
Issuance of common stock
(Note 7)................... - 52 77,309 - - 77,361
Issuance of preferred stock
(Note 7)................... 90,000 (3,278) - - 86,722
Amortization of deferred
compensation............... - - - 1,082 - 1,082
Preferred stock dividends.. - - - - (53) (53)
Net income................. - - - - 25,472 25,472
-------- ---- -------- ------- ------- --------
Balances, March 31, 1996... 90,000 353 167,623 (1,811) 22,305 278,470
Issuance of preferred stock
(Note 7)................... 13,500 - (405) - - 13,095
Exercise of stock options.. - - 179 - - 179
Amortization of deferred
compensation............... - - - 586 - 586
Preferred stock dividends.. - - - - (7,245) (7,245)
Net income................. - - - - 13,763 13,763
-------- ---- -------- ------- ------- --------
Balances, March 31, 1997... 103,500 353 167,397 (1,225) 28,823 298,848
Exercise of stock options.. - - 26 - - 26
Cancellation of restricted
stock................... - - (243) 243 - -
Amortization of deferred
compensation............... - - - 454 - 454
Preferred stock dividends.. - - - - (7,245) (7,245)
Net loss................... - - - - (5,196) (5,196)
-------- ---- -------- ------- ------- --------
Balances, March 31, 1998... $103,500 $353 $167,180 $ (528) $16,382 $286,887
-------- ---- -------- ------- ------- --------
-------- ---- -------- ------- ------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-12
<PAGE>
STATION CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
--------------------------------
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................. $ (5,196) $ 13,763 $ 25,472
-------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.................................. 67,414 44,589 35,039
Amortization of debt discount and issuance costs............... 6,443 5,279 3,141
Write-off of expired land options.............................. 5,011 - -
Loss on early retirement of debt............................... 2,668 - -
Write-off of costs to elect REIT status........................ 2,914 - -
Preopening expenses............................................ 10,866 31,820 2,436
Increase (decrease) in deferred income taxes................... 2,854 (3,752) 8,995
Changes in assets and liabilities:
Increase in accounts and notes receivable, net.............. (4,845) (1,151) (522)
Increase in inventories and prepaid expenses and other...... (3,228) (3,751) (2,428)
(Decrease) increase in accounts payable..................... (4,608) 10,015 (2,710)
Increase in accrued expenses and other current liabilities.. 23,160 13,723 4,822
Other, net..................................................... 1,502 1,268 3,708
--------- --------- --------
Total adjustments...................................... 110,151 98,040 52,481
--------- --------- --------
Net cash provided by operating activities................. 104,955 111,803 77,953
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................... (130,853) (505,735) (279,340)
Proceeds from sale of land, property and equipment............. 4,925 8,900 6,578
Land held for development...................................... (766) (36) (5,018)
Other long-term assets......................................... 244 (15,772) (1,638)
(Decrease) increase in construction contracts payable.......... (84,301) 66,956 21,460
Preopening expenses............................................ (8,551) (31,820) (2,436)
Other, net..................................................... (105) (1,501) (6,541)
--------- --------- --------
Net cash used in investing activities..................... (219,407) (479,008) (266,935)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under bank facility, net................. 47,000 277,000 (65,000)
Borrowings (payments) under Sunset loan agreement, net......... (46,000) 46,000 -
Proceeds from notes payable.................................... 16,239 2,250 42,438
Principal payments on notes payable............................ (27,030) (30,444) (34,958)
Proceeds from the issuance of common stock..................... - - 78,246
Proceeds from the issuance of senior subordinated notes........ 144,287 - 191,292
Proceeds from the issuance of preferred stock.................. - 13,095 87,300
Dividends paid on preferred stock.............................. (7,245) (6,985) -
Debt issuance costs and other, net............................. (5,163) (6,057) (12,429)
--------- --------- --------
Net cash provided by financing activities................. 122,088 294,859 286,889
--------- --------- --------
CASH AND CASH EQUIVALENTS:
Increase (decrease) in cash and cash equivalents............... 7,636 (72,346) 97,907
Balance, beginning of year..................................... 42,522 114,868 16,961
--------- --------- --------
Balance, end of year........................................... $ 50,158 $ 42,522 $ 114,868
--------- --------- --------
--------- --------- --------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest, net of amounts capitalized............. $ 66,691 $ 28,577 $ 27,817
Cash paid for income taxes, net................................ $ 92 $ 9,250 $ 8,668
Property and equipment purchases financed by debt.............. $ 3,532 361 $ 28,405
Assets sold for notes receivable............................... $ - $ 1,550 $ -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-13
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
BASIS OF PRESENTATION AND ORGANIZATION
Station Casinos, Inc. (the "Company"), a Nevada Corporation, is an
established multi-jurisdictional gaming and entertainment enterprise that
currently owns and operates four hotel/casino properties in Las Vegas,
Nevada, a gaming and entertainment complex in St. Charles, Missouri and a
gaming and entertainment complex in Kansas City, Missouri. The Company also
owns and provides slot route management services in southern Nevada.
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Palace Station Hotel & Casino,
Inc. ("Palace Station"), Boulder Station, Inc. ("Boulder Station"), Texas
Station, Inc. ("Texas Station"), Sunset Station, Inc. ("Sunset Station"), St.
Charles Riverfront Station, Inc. ("Station Casino St. Charles"), Kansas City
Station Corporation ("Station Casino Kansas City"), and Southwest Gaming
Services, Inc. ("SGSI"). The Company also owns a 50% interest in Town Center
Amusements, Inc. d.b.a. Barley's Casino & Brewing Company. The Company
accounts for this investment using the equity method of accounting. All
significant intercompany balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments purchased with an
original maturity of 90 days or less.
INVENTORIES
Inventories are stated at the lower of cost or market; cost being
determined on a first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets or the terms of the capitalized lease, whichever
is less. Costs of major improvements are capitalized, while costs of normal
repairs and maintenance are charged to expense as incurred.
CAPITALIZATION OF INTEREST
The Company capitalizes interest costs associated with debt incurred
in connection with major construction projects. Interest capitalization
ceases once the project is complete. When no debt is specifically identified
as being incurred in connection with such construction projects, the Company
capitalizes interest on amounts expended on the project at the Company's
weighted average cost of borrowed money. Interest capitalized for the fiscal
years ended March 31, 1998, 1997 and 1996 was approximately $12.8 million,
$21.1 million and $6.1 million, respectively.
DEBT ISSUANCE COSTS
Debt issuance costs incurred in connection with the issuance of
long-term debt are capitalized and amortized to interest expense over the
terms of the related debt agreements.
PREOPENING EXPENSES
During the construction of and prior to the opening of a facility,
all operating expenses, including incremental salaries and wages directly
related thereto, are capitalized as preopening expenses. The construction
phase typically covers a period of 12 to 24 months. The majority of
preopening costs are incurred in the three months prior to opening. The
Company expenses preopening expenses immediately
F-14
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
upon the opening of the related facility. During the fiscal year ended March
31, 1996, the Company incurred preopening expenses of $2.4 million related to
new projects for Texas Station and Barley's Casino & Brewing Company and
expansion projects at Boulder Station and Station Casino St. Charles. During
the fiscal year ended March 31, 1997, the Company incurred preopening
expenses of $31.8 million, substantially related to the opening of Station
Casino Kansas City. During the fiscal year ended March 31, 1998, the Company
incurred preopening expenses of $10.9 million, substantially related to the
opening of Sunset Station.
REVENUES AND PROMOTIONAL ALLOWANCES
In accordance with industry practice, the Company recognizes as
casino revenues the net win from gaming activities, which is the difference
between gaming wins and losses. All other revenues are recognized as the
service is provided. Revenues include the retail value of accommodations and
food and beverage provided on a complimentary basis to customers. The
estimated departmental costs of providing such promotional allowances are
included in casino costs and expenses and consist of the following (amounts
in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Food and beverage............. $40,573 $27,418 $23,483
Room.......................... 3,027 1,439 1,203
Other......................... 2,828 1,263 653
------- ------- -------
Total...................... $46,428 $30,120 $25,339
------- ------- -------
------- ------- -------
</TABLE>
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK
In 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." This statement replaces
previously reported earnings per share ("EPS") with basic EPS and diluted
EPS. Basic EPS is computed by dividing net income (loss) applicable to common
stock by the weighted average common shares outstanding during the period.
Diluted EPS reflects the additional dilution for all potentially dilutive
securities such as stock options and convertible preferred stock. Diluted EPS
is not presented separately because the exercise of stock options and the
conversion of the convertible preferred stock does not have a dilutive effect
on the per share amounts.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," both of which are
effective for fiscal years beginning after December 15, 1997. Management
estimates that these SFAS's will have no impact on the Company's results of
operations or financial position.
The Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No.
98-5 "Reporting the Costs of Start-up Activities." The provisions of SOP 98-5
are effective for fiscal years beginning after December 15, 1998 and require
that the costs associated with start-up activities (including preopening
costs of casinos) be expensed as incurred. Management estimates that this SOP
will have no impact on the Company's results of operations or financial
position.
F-15
<PAGE>
2. ACCOUNTS AND NOTES RECEIVABLE
Components of accounts and notes receivable are as follows (amounts
in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Casino............................................... $ 6,407 $ 3,698
Hotel................................................ 1,525 1,331
Other................................................ 6,117 3,876
------- -------
14,049 8,905
Allowance for doubtful accounts...................... (1,761) (1,053)
------- -------
Accounts and notes receivable, net................ $12,288 $ 7,852
------- -------
------- -------
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of March 31,
1998 and 1997 (amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31,
ESTIMATED LIFE --------------------------
(YEARS) 1998 1997
-------------- ----------- -----------
<S> <C> <C> <C>
Land................................................. - $ 37,856 $ 17,114
Land leases acquired................................. 48-52 4,685 4,395
Buildings and leasehold improvements................. 31-45 706,519 554,294
Boats and barges..................................... 20-45 123,774 123,774
Furniture, fixtures and equipment.................... 3-7 237,518 192,546
Construction in progress............................. - 185,865 283,792
----------- -----------
1,296,217 1,175,915
Accumulated depreciation and amortization............ (163,498) (106,863)
----------- -----------
Property and equipment, net....................... $1,132,719 $1,069,052
----------- -----------
----------- -----------
</TABLE>
At March 31, 1998 and 1997, substantially all property and equipment
of the Company is pledged as collateral for long-term debt. Included in
construction in progress at March 31, 1998, is approximately $131.2 million
(net of construction period interest) related to an expansion project at
Station Casino St. Charles. Since March 31, 1998, construction on the Station
Casino St. Charles expansion project has been halted. The Company currently
intends to complete and operate these new facilities as originally designed.
In the event certain costs incurred to date are deemed to possess little or
no value, the Company would recognize an impairment loss in the period such
determination is made.
The Company does not anticipate that any major construction activity
on the expansion project will resume before the end of calendar year 1999.
4. LAND HELD FOR DEVELOPMENT
The Company has acquired several parcels of land in various
jurisdictions as part of the Company's development activities. The Company's
decision whether to proceed with any new gaming opportunity is dependent upon
future economic and regulatory factors, the availability of financing and
competitive and strategic considerations. As many of these considerations are
beyond the Company's control, no assurances can be made that the Company will
be able to obtain appropriate licensing or be able to secure additional,
acceptable financing in order to proceed with any particular project. At
March 31, 1998 and 1997, the Company had invested $20.6 million and $22.6
million, respectively, in land which had been acquired for potential gaming
projects in jurisdictions where gaming has been approved. In addition, at
March 31, 1998 and 1997, the Company had invested $3.7 million in land in
certain jurisdictions where gaming has not yet been approved. No assurances
can be made that these jurisdictions will approve gaming in the future.
F-16
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1997, $5.0 million of certain expired option payments to
lease or acquire land for future development, which had previously been
capitalized, were expensed. Such amounts are included in other income
(expense) in the accompanying consolidated statements of operations for the
year ended March 31, 1998.
5. LONG-TERM DEBT
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
STATION CASINOS, INC. (EXCLUDING SUNSET STATION):
Reducing revolving credit facility, secured by substantially
all of the assets of Palace Station, Boulder Station, Texas
Station, Sunset Station, Station Casino St. Charles and
Station Casino Kansas City, $330 million limit at March 31,
1998, reducing quarterly by varying amounts until September 2000
when the remaining principal balance is due, interest at a
margin above the bank's prime rate or the Eurodollar Rate
(8.16% at March 31, 1998).................................................. $324,000 $277,000
95/8% senior subordinated notes, payable interest only semi-annually,
principal due June 1, 2003, net of unamortized discount of $5.9
million at March 31, 1998.................................................. 187,051 186,248
93/4% senior subordinated notes, payable interest only semi-annually,
principal due April 15, 2007, net of unamortized discount of
$5.4 million at March 31, 1998............................................. 144,629 -
101/8% senior subordinated notes, payable interest only semi-annually,
principal due March 15, 2006, net of unamortized discount of
$1.1 million at March 31, 1998............................................. 196,908 196,818
Notes payable to banks and others, collateralized by slot machines and
related equipment, monthly installments including interest at 7.8%
at March 31, 1998.......................................................... 8,499 15,952
Capital lease obligations, collateralized by furniture and equipment.......... 4,191 7,703
Other long-term debt.......................................................... 34,948 31,242
-------- --------
Sub-total.................................................................. 900,226 714,963
SUNSET STATION, INC.:
$110 million Sunset Station first mortgage construction/term loan
agreement, secured by substantially all of the assets of Sunset
Station, interest at a margin of 375 basis points above the
Eurodollar Rate due September 2000......................................... - 46,000
-------- --------
Total long-term debt....................................................... 900,226 760,963
Current portion of long-term debt............................................. (97,931) (18,807)
-------- --------
Total long-term debt, less current portion................................. $802,295 $742,156
-------- --------
-------- --------
</TABLE>
In June 1993, the Company completed an offering at par of $110
million in 95/8% senior subordinated notes due in June 2003. In May 1994, the
Company completed an offering of $83 million in senior subordinated notes
that have equal priority with the existing $110 million senior subordinated
notes, and have identical maturities and covenants as the original issue. The
$83 million senior subordinated notes have a coupon rate of 95/8% and were
priced to yield 11.5% to maturity. The discount on the $83 million senior
subordinated notes has been recorded as a reduction to long-term debt in the
accompanying consolidated balance sheets.
In March 1996, the Company completed an offering of $198 million of
senior subordinated notes due in March 2006, that have equal priority with
the existing $193 million of senior subordinated notes. The $198 million
senior subordinated notes have a coupon rate of 101/8% and were priced to
yield 10.24% to maturity. The discount on the $198 million senior
subordinated notes has been recorded as a reduction to long-term debt in the
accompanying consolidated balance sheets.
In April 1997, the Company completed an offering of $150 million of
senior subordinated notes due in April 2007, that have equal priority with
the Company's existing senior subordinated notes. The $150 million senior
subordinated notes have a coupon rate of 93/4% and were priced to yield
10.37% to maturity. The discount on the $150 million senior subordinated
notes has been recorded as a reduction to long-term debt in the accompanying
consolidated balance sheets.
The indentures governing the Company's senior subordinated notes
("the Indentures") contain certain customary financial and other covenants,
which among other things, govern the Company's and certain of its
subsidiaries' ability to incur indebtedness (except, as
F-17
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
specifically allowed) unless after giving effect thereto, a 2.0 to 1.0 pro
forma Consolidated Coverage Ratio (as defined in the Indentures) has been
met. As of March 31, 1998, the Company's Consolidated Coverage Ratio was 1.91
to 1.00.
The Company's secured, amended and restated reducing revolving
credit facility dated as of March 19, 1996, and amended as of August 1997
(the "Bank Facility") provides for borrowings up to an aggregate principal
amount of $330 million, as of March 31, 1998. The Bank Facility is secured by
substantially all the assets of Palace Station, Boulder Station, Texas
Station, Sunset Station, Station Casino St. Charles and Station Casino Kansas
City (collectively, the "Borrowers"). The Company and SGSI guarantee the
borrowings under the Bank Facility (collectively the "Guarantors"). The Bank
Facility matures on September 30, 2000 and reduces quarterly by $22.4 million
for each fiscal quarter ending June 30, 1998 through March 31, 2000.
Borrowings under the Bank Facility bear interest at a margin above the bank's
prime rate or Eurodollar Rate, as selected by the Company. The margin above
such rates, and the fee on the unfunded portions of the Bank Facility, will
vary quarterly based on the combined Borrower's and the Company's
consolidated ratio of funded debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA").
The Bank Facility contains certain financial and other covenants.
These include a maximum funded debt to EBITDA ratio for the Borrowers
combined of 2.75 to 1.00 for each fiscal quarter through June 30, 1998, and
2.50 to 1.00 for each fiscal quarter thereafter, a minimum fixed charge
coverage ratio for the preceding four quarters for the Borrowers combined of
1.35 to 1.00 for each fiscal quarter through June 30, 1998, and 1.50 to 1.00
for periods thereafter, a limitation on indebtedness, and limitations on
capital expenditures. As of March 31, 1998, the Borrowers funded debt to
EBITDA ratio was 1.83 to 1.00 and the fixed charge coverage ratio for the
fiscal year ended March 31, 1998 was 1.65 to 1.00. A tranche of the Bank
Facility contains a minimum tangible net worth requirement for Palace Station
(as defined) and certain restrictions on distributions of cash from Palace
Station to the Company. As of March 31, 1998, Palace Station's tangible net
worth exceeded the requirement by approximately $8.1 million. These covenants
limit Palace Station's ability to make payments to the Company, a significant
source of anticipated cash for the Company.
In addition, the Bank Facility has financial covenants relating to
the Company. These include prohibitions on dividends on or redemptions of the
Company's common stock, restrictions on repayment of any subordinated debt,
limitations on indebtedness beyond existing indebtedness, the Company's
senior subordinated notes and up to $25 million of purchase money
indebtedness, minimum consolidated net worth requirements for the Company of
$165 million plus post October 1, 1995 preopening expenses, 95% of post
October 1, 1995 net income (not reduced by net losses) and 100% of net equity
offering proceeds, and limitations on capital expenditures. As of March 31,
1998, the Company's consolidated net worth exceeded the requirement by
approximately $19.7 million. The Bank Facility includes a maximum funded debt
to EBITDA (adjusted for preopening expenses) ratio, including annualized
EBITDA (adjusted for preopening expenses) for any new venture, as defined,
open less than a year, for the Company on a consolidated basis of 5.75 to
1.00 for the fiscal quarters ended December 31, 1997 and March 31, 1998, 5.00
to 1.00 for the fiscal quarter ending June 30, 1998, 4.75 to 1.00 for the
fiscal quarter ending September 30, 1998, 4.50 to 1.00 for the fiscal quarter
ending December 31, 1998, 4.25 to 1.00 for each fiscal quarter through June
30, 1999, 4.00 to 1.00 for the fiscal quarter ending September 30, 1999, and
3.75 to 1.00 thereafter. The Company expects that it will need to obtain a
modification under the Bank Facility for future quarters under this test and
expects to receive such modification by the end of June 1998. For the quarter
ended December 31, 1997, the Company obtained a one time waiver modifying the
funded debt to EBITDA ratio to a maximum of 5.90 to 1.00.
On March 31, 1998, the Company repaid amounts due under the Sunset
Note, as defined below, with borrowings under the Bank Facility. In
connection with this transaction, the Company obtained a one-time waiver for
the quarter ended March 31, 1998, which provides for a maximum funded debt to
EBITDA ratio of 5.75 to 1.00, provided that Annualized Adjusted EBITDA, (as
defined) of Sunset Station is included in the denominator of such ratio.
Pursuant to the waiver, the funded debt to EBITDA ratio was 5.40 to 1.00 as
of March 31, 1998. Under the Bank Facility, Sunset Station had been
designated an Unrestricted Subsidiary (as defined) and therefore excluded
from the calculation of this ratio. In May 1998, the Bank Facility was
amended to designate Sunset Station as a Restricted Subsidiary (as defined).
The Bank Facility also prohibits the Company from holding cash and cash
equivalents in excess of the sum of the amounts necessary to make the next
scheduled interest or dividend payments on the Company's senior subordinated
notes and preferred stock, the amounts necessary to fund casino bankroll in
the ordinary course of business and $2.0 million. The Guarantors waive
certain defenses and rights of subrogation and reimbursement. The Bank
Facility contains customary events of default and remedies and is
cross-defaulted to the Company's senior subordinated notes and the Change of
Control Triggering Event as defined in the indentures governing the senior
subordinated notes.
On September 25, 1996, Sunset Station, a wholly-owned subsidiary of
the Company, entered into a Construction/Term Loan Agreement (the "Sunset
Loan Agreement") with Bank of America National Trust and Savings Association,
Bank of Scotland, Societe Generale and each of the other lenders party to
such agreement, pursuant to which Sunset Station received a commitment for
$110 million to finance the remaining development and construction costs of
Sunset Station. The Company also entered into an operating lease for
F-18
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
certain furniture, fixtures and equipment with a cost of up to $40 million to
be subleased to Sunset Station as part of the Sunset Station project (See
Note 6).
The Sunset Loan Agreement included a first mortgage term note in the
amount of $110 million (the "Sunset Note") which was non-recourse to the
Company, except as to certain construction matters pursuant to a completion
guarantee dated as of September 25, 1996, executed by the Company on behalf
of Sunset Station and except that the Company had pledged all of the stock of
Sunset Station as security for the Sunset Loan Agreement. As of March 31,
1998, the Sunset Note had been repaid. The early retirement resulted in an
extraordinary loss of $2.0 million, net of the applicable income tax benefit.
In order to manage the interest rate risk associated with the Sunset
Note, Sunset Station entered into an interest rate swap agreement with Bank
of America National Trust and Savings Association. This agreement swaps the
variable rate interest pursuant to the Sunset Note to a fixed rate of 9.58%
(5.83% fixed plus the Sunset Note margin), on $35 million notional amount as
of January 1997 increasing to $60 million at March 1997, $90 million at June
1997, $100 million at September 1997 and then decreasing to $95 million at
June 1998. The agreement expires in December 1998. The difference paid or
received pursuant to the swap agreement is accrued as interest rates change
and recognized as an adjustment to interest expense on the Sunset Note.
Sunset Station is exposed to credit risk in the event of non-performance by
the counterparty to the agreement. The Company believes the risk of
non-performance by the counterparty is minimal. At the time of the early
retirement of the Sunset Note, the Borrowers under the Bank Facility accepted
the interest rate swap on substantially identical terms to those of the
Sunset Note. As of March 31, 1998, the market value of this interest rate
swap was $(0.1) million. There are no hedging gains or losses explicitly
deferred.
The estimated fair value of the Company's long-term debt at March
31, 1998, was approximately $931.9 million, compared to its book value of
approximately $900.2 million. The estimated fair value amounts were based on
quoted market prices on or about March 31, 1998, for the Company's debt
securities that are publicly traded. For debt securities that are not
publicly traded, fair value was estimated based on the quoted market prices
for similar issues or the current rates offered to the Company for debt
having the same remaining maturities.
Scheduled maturities of long-term debt are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING MARCH 31,
- ----------------------------
<S> <C>
1999.................................... $ 97,931
2000.................................... 100,978
2001.................................... 103,290
2002.................................... 65,821
2003.................................... 365
Thereafter.............................. 531,841
--------
Total................................ $900,226
--------
--------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
BOULDER STATION LEASE
The Company entered into a ground lease for 27 acres of land on
which Boulder Station is located. The Company leases this land from a trust
pursuant to a long-term ground lease. The trustee of this trust is Bank of
America NT&SA, the beneficiary of which is KB Enterprises, an affiliated
company owned by Frank J. Fertitta, Jr. and Victoria K. Fertitta (the
"Related Lessor"), the parents of Frank J. Fertitta III, Chairman of the
Board and Chief Executive Officer of the Company. The lease has a term of 65
years with monthly payments of $125,000 through June 1998. In July 1998 and
every ten years thereafter, the rent will be adjusted by a cost of living
factor. In July 2003, and every ten years thereafter, the rent will be
adjusted to the product of the fair market value of the land and the greater
of (i) the then prevailing annual rate of return for comparably situated
property or (ii) 8% per year. In no event will the rent for any period be
less than the immediately prior period. Pursuant to the ground lease, the
Company has an option, exercisable at five-year intervals beginning in June
1998, to purchase the land at fair market value. The Company's leasehold
interest in the property is subject to a lien to secure borrowings under the
Bank Facility.
F-19
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TEXAS STATION LEASE
The Company entered into a ground lease for 47 acres of land on
which Texas Station is located. The Company leases this land from a trust
pursuant to a long-term ground lease. The trustee of this trust is Bank of
America NT&SA, the beneficiary of which is Texas Gambling Hall & Hotel, Inc.
an affiliate company of the Related Lessor. The lease has a term of 65 years
with monthly rental payments of $150,000 through July 2000. In July 2000, and
every ten years thereafter, the rent will be adjusted to the product of the
fair market value of the land and the greater of (i) the then prevailing
annual rate of return being realized for owners of comparable land in Clark
County or (ii) 8% per year. The rent will be further adjusted by a cost of
living factor after the first ten years and every ten years thereafter. In no
event will the rent for any period be less than the immediately prior period.
Pursuant to the ground lease, the Company will have an option, exercisable at
five-year intervals beginning in May 2000, to purchase the land at fair
market value. The Company's leasehold interest in the property is subject to
a lien to secure borrowings under the Bank Facility.
SUNSET STATION LEASE
In June 1994, the Company entered into a lease agreement for
approximately 47.5 acres of land on which Sunset Station is located. The
lease has a term of 65 years with monthly rental payments of $120,000,
adjusted on each subsequent five-year anniversary by a cost of living factor.
On the seventh anniversary of the lease, the Company has an option to
purchase this land for $23.8 million. Additionally, on the seventh
anniversary of the lease, the lessor has an option to sell this land to the
Company for $21.8 million.
STATION CASINO KANSAS CITY LEASE
The Company has entered into a joint venture which owns the land on
which Station Casino Kansas City is located. At March 31, 1998, $3.1 million
related to this investment is included in other assets, net in the
accompanying consolidated balance sheets.
In April 1994, Station Casino Kansas City entered into an agreement
with the joint venture to lease this land. The agreement requires monthly
payments of $85,000 through March 31, 1998, and $90,000 through the remainder
of the lease term. The lease expires March 31, 2006, with an option to extend
the lease for up to eight renewal periods of ten years each, plus one
additional seven year period. Commencing April 1, 1998 and every anniversary
thereafter, the rent shall be adjusted by a cost of living factor. In
connection with the joint venture agreement, the Company received an option
providing for the right to acquire the joint venture partner's interest in
this joint venture. The Company has the option to acquire this interest at
any time after April 1, 2002 through April 1, 2011, for $11.7 million,
however, commencing April 1, 1998, the purchase price will be adjusted by a
cost of living factor of not more than 5% or less than 2% per annum. At March
31, 1998, $2.6 million paid by the Company in consideration for this option
is included in other assets, net in the accompanying consolidated balance
sheets.
SOUTHERN FLORIDA
In October 1994, the Company entered into an agreement to form a
limited partnership with the existing operator of a pari-mutuel facility in
southern Florida. In the event casino gaming is approved by the voters of
Florida by October 2000 and in the event the site is licensed by the state,
the Company will be obligated to make capital contributions to the
partnership totaling $35 million, reduced by credits for amounts previously
contributed to any Florida gaming referendum campaign.
EQUIPMENT LEASE
In connection with the Sunset Loan Agreement, the Company entered
into an operating lease for furniture, fixtures and equipment (the
"Equipment") with a cost of up to $40 million, dated as of September 25,
1996, (the "Sunset Operating Lease") with First Security Trust Company of
Nevada. The Sunset Operating Lease expires in October 2000 and carries a
lease rate of 225 basis points above the Eurodollar Rate. As of March 31,
1998, $35.7 million of this facility had been drawn and no further draws
pursuant to the lease will be made. The Company has entered into a sublease
with Sunset Station for the Equipment pursuant to an operating lease with
financial terms substantially similar to the Sunset Operating Lease. In the
event that Sunset Station elects to purchase the Equipment, the Company has
provided a funding commitment up to the amount necessary for such purchase
pursuant to the Supplemental Loan Agreement (subject to the limitations on
funding contained in the Supplemental Loan Agreement).
In connection with the Sunset Operating Lease, the Company also
entered into a participation agreement, dated as of September 25, 1996, (the
"Participation Agreement") with the trustee, as lessor under the Sunset
Operating Lease, and holders of beneficial interests in the Lessor Trust (the
"Holders"). Pursuant to the Participation Agreement, the Holders advanced
funds to the trustee for the purchase by the
F-20
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
trustee of, or to reimburse the Company for, the purchase of the Equipment,
which is being leased to the Company, and in turn subleased to Sunset
Station. Pursuant to the Participation Agreement, the Company also agreed to
indemnify the Lessor and the Holders against certain liabilities.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases several parcels of land and equipment used in its
operations at Palace Station, Boulder Station, Texas Station, Sunset Station,
Station Casino St. Charles and Station Casino Kansas City. Leases on various
parcels ranging from 13 acres to 171 acres have terms expiring between March
2006 and July 2060. Future minimum lease payments required under these
operating leases and other noncancelable operating leases are as follows for
the fiscal years ending March 31, (amounts in thousands):
FUTURE MINIMUM LEASE PAYMENTS
<TABLE>
<S> <C>
1999..................................... $ 15,574
2000..................................... 14,773
2001..................................... 34,871
2002..................................... 6,768
2003..................................... 6,768
Thereafter............................... 278,472
---------
Total................................. $357,226
---------
---------
</TABLE>
Rent expense totaled approximately $12.4 million, $5.4 million and
$6.5 million for the years ended March 31, 1998, 1997 and 1996, respectively.
Rents of $0.3 million and $2.2 million were capitalized in connection with
the construction of Sunset Station and Station Casino Kansas City for the
fiscal years ended March 31, 1998 and 1997, respectively.
LEGAL MATTERS
On January 16, 1997, the Company's gaming license in Kansas City was
formally issued for its facility, which is located in a man-made basin filled
with water piped in from the surface of the Missouri River. In reliance on
numerous approvals from the Missouri Gaming Commission specific to the
configuration and granted prior to the formal issuance of its gaming license,
the Company built and opened the Station Casino Kansas City facility. The
license issued to the Company and the resolutions related thereto
specifically acknowledge that the Missouri Gaming Commission had reviewed and
approved this configuration. On November 25, 1997, the Supreme Court of
Missouri, in a case challenging the gaming licenses of certain competitors of
Station Casino St. Charles located in Maryland Heights, Missouri, ruled that
gaming may occur only in artificial spaces that are contiguous to the surface
stream of the Missouri and Mississippi Rivers. On November 3, 1998, the
citizens of the State of Missouri approved a Constitutional amendment which
was proposed by initiative petition, that retroactively legalized lotteries,
gift enterprises and games of chance aboard excursion gambling boats and
floating facilities, like the Company's, that are located within artificial
spaces containing water that are within 1,000 feet of the closest edge of the
main channel of the Mississippi or Missouri Rivers. This amendment to the
Constitution became effective on November 23, 1998. The Missouri Gaming
Commission has stayed its preliminary orders of disciplinary action against
licensees that operate within artificial basins, and has dismissed the
preliminary orders for disciplinary action with respect to all applicable
licensees except KCSC. The Missouri Gaming Commission has not dismissed the
disciplinary proceeding against KCSC because it is investigating an alleged
violation by KCSC that is related to the placement of our gaming facilities
in an artificial basin. While we anticipate that the disciplinary action with
respect to KCSC will be dismissed, we cannot be sure that the Missouri Gaming
Commission will take such action or that the Missouri Gaming Commission will
not impose a fine or other penalty against us in connection with such
dismissal.
In addition, the Company is a litigant in legal matters arising in
the normal course of business. In the opinion of management, all pending
legal matters are either adequately covered by insurance or, if not insured,
will not have a material adverse effect on the financial position or the
results of operations of the Company.
7. STOCKHOLDERS' EQUITY
In July 1995, the Company completed a public offering of 5,175,000
shares of common stock at $16 per share generating net proceeds of
approximately $78.2 million, before deducting $0.8 million of offering costs
paid by the Company. The proceeds from this
F-21
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
offering were primarily used to acquire the assets of Texas Station located
in North Las Vegas, which commenced operations July 12, 1995. The seller of
the assets is a wholly-owned subsidiary of a trust of which the Related
Lessor is the sole trustee (the "Seller"). The purchase price of such assets
was an amount equal to the Seller's out-of-pocket costs incurred in
connection with the financing, development and construction of the
hotel/casino through the closing date. At closing, the Company paid $62.8
million to the Seller and assumed various liabilities and contracts to
complete construction of the facility. The total cost of the property was
approximately $84.9 million. The land on which the Texas Station facility is
situated is being leased to the Company by the Seller pursuant to a long-term
ground lease (See Note 6).
In March 1996, the Company completed a public offering of 1,800,000
shares of convertible preferred stock (the "Convertible Preferred Stock") at
$50.00 per share generating net proceeds of approximately $87.3 million,
before deducting $0.6 million of offering costs paid by the Company. In April
1996, the underwriters exercised their option to purchase an additional
270,000 shares of the Convertible Preferred Stock generating net proceeds to
the Company of approximately $13.1 million. The Convertible Preferred Stock
is convertible at an initial conversion rate of 3.2573 shares of common stock
for each share of Convertible Preferred Stock. The Convertible Preferred
Stock is redeemable, at the option of the Company in whole or in part, for
shares of the Company's common stock at any time after March 15, 1999,
initially at a redemption price of $52.45 per share and thereafter at prices
decreasing annually to $50.00 per share of Convertible Preferred Stock on and
after March 15, 2006, plus accrued and unpaid dividends. The common shares to
be issued is determined by dividing the redemption price by the lower of the
average daily closing price for the Company's common stock for the preceding
20 trading days or the closing price of the Company's common stock on the
first business day preceding the date of the redemption notice. Any
fractional shares would be paid in cash. Dividends on the Convertible
Preferred Stock of $3.50 per share annually, accrue and are cumulative from
the date of issuance. The Convertible Preferred Stock has a liquidation
preference of $50.00 per share, plus accrued and unpaid dividends.
RIGHTS PLAN
On October 6, 1997, the Company declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of Common Stock.
The dividend was paid on October 21, 1997. Each Right entitles the registered
holder to purchase from the Company on one-hundredth of a share of Series A
Preferred Stock, par value $0.01 per share ("Preferred Shares") of the
Company at a price of $40.00 per one one-hundredth of a Preferred Share,
subject to adjustment. The Rights are not exercisable until the earlier of 10
days following a public announcement that a person or group of affiliated or
associated persons have acquired beneficial ownership of 15% or more of the
outstanding Common Stock ("Acquiring Person") or 10 business days (or such
later date as may be determined by action of the Board of Directors prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer, the consummation of which would
result in the beneficial ownership by a person or group of 15% or more of the
outstanding Common Stock.
The Rights will expire on October 21, 2007. Acquiring Persons do not
have the same rights to receive Common Stock as other holders upon exercise
of the Rights. Because of the nature of the Preferred Shares' dividend,
liquidation and voting rights, the value of one one-hundredth interest in a
Preferred Share purchasable upon exercise of each Right should approximate
the value of one Common Share. In the event that any person or group of
affiliated or associated persons becomes an Acquiring Person, the proper
provisions will be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter become
void), will thereafter have the rights to receive upon exercise that number
of Common Shares having a market value of two times the exercise price of the
Right. In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold after a person or group has become an Acquiring
Person, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon exercise thereof, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the
Right. Because of the characteristics of the Rights in connection with a
person or group of affiliated or associated persons becoming an Acquiring
Person, the Rights may have the effect of making an acquisition of the
Company more difficult and may discourage such an acquisition.
8. RELATED PARTIES
The Company has employed McNabb/McNabb/DeSoto/Salter & Co. ("MMDS")
to provide advertising and marketing research services. Certain stockholders
of the Company owned a 50% interest in MMDS. During the fiscal years ended
March 31, 1997 and 1996, the Company paid MMDS $27.2 million, and $17.4
million respectively, for advertising, market research and other costs
related to these activities, a significant portion of which was passed on to
venders of MMDS. In management's opinion, these transactions were conducted
with terms as fair to the Company as could have been obtained from
unaffiliated companies. In April 1997, the Company purchased the assets of
MMDS for approximately $0.8 million.
F-22
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. BENEFIT PLANS
STOCK COMPENSATION PROGRAM
The Company has adopted a Stock Compensation Program (the "Program")
which includes (i) an Incentive Stock Option Plan for the grant of incentive
stock options, (ii) a Compensatory Stock Option Plan providing for the grant of
non-qualified stock options, and (iii) a Restricted Shares Plan providing for
the grant of restricted shares of common stock. Officers, key employees,
directors (whether employee directors or non-employee directors) and independent
contractors or agents of the Company and its subsidiaries are eligible to
participate in the program. However, only employees of the Company and its
subsidiaries are eligible to receive incentive stock options.
A maximum of 6,307,000 shares of common stock have been reserved for
issuance under the Program. Options are granted at the current market price
at the date of grant. The plan provides for a variety of vesting schedules,
ranging from immediate to twenty percent a year for five years, to be
determined at the time of grant. All options have an exercise period of ten
years from the date of grant.
The Program will terminate ten years from the date of adoption,
unless terminated earlier by the Board of Directors, and no options or
restricted shares may be granted under the Program after such date.
Summarized information for the Program is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- -------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding Beginning of the Year.... 4,432,182 $15.22 2,697,012 $16.24 2,372,100 $19.05
Granted........................... 1,799,742 $ 7.50 2,160,822 $14.01 1,593,305 $13.42
Exercised......................... (4,012) $12.24 (14,711) $12.16 (46) $12.00
Canceled.......................... (1,160,460) $11.59 (410,941) $15.70 (1,268,347) $17.95
---------- --------- ----------
Outstanding End of the Year.......... 5,067,452 $13.30 4,432,182 $15.22 2,697,012 $16.24
---------- --------- ----------
---------- --------- ----------
Exercisable at End of Year........... 1,485,971 $17.28 1,408,893 $16.50 993,032 $16.67
---------- --------- ----------
---------- --------- ----------
Options Available for Grant.......... 1,050,279 1,689,561 649,942
---------- --------- ----------
---------- --------- ----------
</TABLE>
The following table summarizes information about the options
outstanding at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ------------------------
RANGE OF EXERCISE PRICES WEIGHTED
AVERAGE NUMBER WEIGHTED
NUMBER REMAINING WEIGHTED EXERCISABLE AVERAGE
OUTSTANDING AT CONTRACTUAL AVERAGE AT MARCH 31, EXERCISE
MARCH 31, 1998 LIFE EXERCISE PRICE 1998 PRICE
-------------- ----------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 7.50 - $ 9.88.............. 1,630,742 9.4 $ 7.55 5,300 $ 8.93
$11.63 - $15.00.............. 2,272,710 7.8 $14.04 534,521 $12.60
$18.00 - $22.00.............. 1,164,000 5.0 $19.90 946,150 $19.97
--------- ---------
5,067,452 7.7 $13.30 1,485,971 $17.28
--------- ---------
--------- ---------
</TABLE>
F-23
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Restricted stock grants in the amount of 170,500 shares were issued
during the fiscal year ended March 31, 1995. The effect of these grants is to
increase the issued and outstanding shares of the Company's common stock and
decrease the number of shares available for grant in the plan. Deferred
compensation is recorded for the restricted stock grants equal to the market
value of the Company's common stock on the date of grant. The deferred
compensation is amortized over the period the restricted stock vests and
recorded as compensation expense in selling, general, and administrative
expense in the accompanying consolidated statements of operations.
The Company applies APB Opinion No. 25 and related interpretations
in accounting for the Program. Accordingly, compensation expense recognized
was different than what would have been otherwise recognized under the fair
value based method defined in SFAS No. 123, "Accounting for Stock-Based
Compensation". Had compensation expense for the plans been determined in
accordance with SFAS No. 123, the effect on the Company's net income (loss)
applicable to common stock and basic earnings (loss) per common share would
have been as follows (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
------------------------------
1998 1997 1996
--------- ------ -------
<S> <C> <C> <C>
Net income (loss) applicable to common stock:
As reported............................................ $(12,441) $6,518 $25,419
Proforma............................................... $(14,455) $3,640 $23,562
Basic and diluted earnings (loss) per common share:
As reported............................................ $(0.35) $ 0.18 $ 0.75
Proforma............................................... $(0.41) $ 0.10 $ 0.69
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing method with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
------------------------------
1998 1997 1996
--------- ------ -------
<S> <C> <C> <C>
Expected dividend yield................................... - - -
Expected stock price volatility........................... 46.20% 45.50% 45.50%
Risk-free interest rate................................... 6.03% 6.46% 6.04%
Expected average life of options (years).................. 4.84 3.92 3.05
Expected fair value of options granted.................... $3.38 $5.64 $4.91
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied
to options granted prior to April 1, 1995, the resulting pro forma net income
may not be representative of that to be expected in future years.
In May 1995, the Board of Directors of the Company authorized the
repricing of 1,156,900 options with option prices ranging from of $13.00 to
$20.00. Options held by certain members of the Company's Board of Directors,
including the Chairman and Chief Executive Officer of the Company were not
repriced. The effect of the repricing of all the subject options was the
cancellation of 1,116,500 options and the reissuance of 872,680 options
("replacement options") with a price of $12.00 (market value at date of the
repricing) which are included in granted and canceled options in the table
above. The number of replacement options was determined, based upon a
valuation model, so that the value of the replacement options was equivalent
to the value of the options originally granted.
401(K) PLANS
The Company has a defined contribution 401(k) plan, which covers all
employees who meet certain age and length of service requirements and allows
an employer contribution up to 25 percent of the first four percent of each
participating employee's compensation. Plan participants can elect to defer
before tax compensation through payroll deductions. These deferrals are
regulated under Section 401(k) of the Internal Revenue Code. The Company's
matching contribution was approximately $499,000, $442,000 and $293,000 for
the fiscal years ended March 31, 1998, 1997 and 1996, respectively.
F-24
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EXECUTIVE COMPENSATION PLANS
The Company has employment agreements with certain of its executive
officers. These contracts provide for, among other things, an annual base
salary with annual adjustments and supplemental long-term disability and
supplemental life insurance benefits in excess of the Company's normal
coverage for employees. The Company elected to self-insure with respect to
the long-term disability benefits. In addition, the Company has adopted a
Supplemental Executive Retirement Plan for its Chief Executive Officer and a
Supplemental Management Retirement Plan for certain key executives as
selected by the Human Resources Committee of the Company's Board of
Directors. Other executive plans include a Deferred Compensation Plan and a
Long-Term Stay-On Performance Incentive Plan. The expenses related to these
plans are included in corporate expenses in the accompanying consolidated
statements of operations.
11. RESTRUCTURING CHARGE
In March 1997, the Company introduced a plan designed to reduce
costs and improve efficiency of operations. This plan resulted in a one-time
charge to earnings in the fourth quarter of fiscal 1997 totaling $2,016,000,
primarily related to employee severance payments.
12. INCOME TAXES
The Company files a consolidated federal income tax return. The
(provision) benefit for income taxes for financial reporting purposes
consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Income tax (provision) benefit from
continuing operations............................. $ 966 $(7,615) $(14,579)
Tax benefit from extraordinary loss
on early retirement of debt....................... 626 - -
------ ------- --------
$1,592 $(7,615) $(14,579)
------ ------- --------
------ ------- --------
</TABLE>
The (provision) benefit for income taxes attributable to income (loss)
from continuing operations consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Current:
Federal......................................... $ 18,083 $(7,708) $ (4,784)
State........................................... - 1,834 (374)
-------- -------- --------
18,083 (5,874) (5,158)
Deferred........................................... (16,491) (1,741) (9,421)
-------- -------- --------
Total income taxes.............................. $ 1,592 $(7,615) $(14,579)
-------- -------- --------
-------- -------- --------
</TABLE>
F-25
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The income tax (provision) benefit differs from that computed at the
federal statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Federal statutory rate........................ 35.0% (35.0)% (35.0)%
State income taxes, net of federal benefit.... - 5.5 (0.6)
Lobbying and political........................ (7.0) (1.5) (0.8)
Meals and entertainment....................... (3.7) (0.3) (0.6)
Credits earned, net........................... 3.6 1.4 0.8
Other, net.................................... (4.5) (5.7) (0.2)
---- ----- -----
Effective tax rate............................ 23.4% (35.6)% (36.4)%
---- ----- -----
---- ----- -----
</TABLE>
The tax effects of significant temporary differences representing net
deferred tax assets and liabilities are as follows (amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Current:
Accrued vacation, bonuses and group insurance.................. $ 5,279 $ 2,981
Prepaid gaming taxes........................................... (1,437) (1,341)
Other.......................................................... 2,882 2,261
-------- --------
Total current..................................................... 6,724 3,901
-------- --------
Long-term:
Preopening and other costs, net of amortization................ 15,182 15,077
State deferred taxes........................................... 2,010 1,907
Net operating loss............................................. 15,361 -
Alternative minimum tax credits................................ 8,453 9,000
-------- --------
Total long-term................................................... 41,006 25,984
-------- --------
Total deferred tax assets......................................... 47,730 29,885
-------- --------
Deferred tax liabilities:
Long-term:
Temporary differences related to property and equipment........ (53,605) (32,583)
Other.......................................................... (926) (1,249)
-------- --------
Total deferred tax liabilities.................................... (54,531) (33,832)
-------- --------
Net............................................................... $ (6,801) $ (3,947)
-------- --------
-------- --------
</TABLE>
The excess of the alternative minimum tax over the regular Federal
income tax is a tax credit which can be carried forward indefinitely to
reduce future regular Federal income tax liabilities. The Company did not
record a valuation allowance at March 31, 1998 or 1997 relating to recorded
tax benefits because all benefits are likely to be realized.
13. MERGER AGREEMENT
On January 16, 1998, the Company entered into an Agreement and Plan
of Merger, as amended (the "Merger Agreement") with Crescent Real Estate
Equities Company, a Texas real estate investment trust ("Crescent"). The
Merger Agreement provides for the merger (the "Merger") of the Company and
Crescent at the time of effectiveness of the Merger in accordance with the
Merger Agreement (the
F-26
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
"Effective Time"). The Merger Agreement is currently the subject of
litigation between Crescent and the Company. During the three months ended
September 30, 1998, the Company wrote off $2.9 million of costs incurred
related to the Merger (which are included in other expense in the
accompanying condensed consolidated statements of operations). The Company
also expects to incur ongoing litigation costs associated with the current
lawsuits involving the Merger Agreement.
On July 27, 1998, the Company and Crescent announced the
postponement of the previously announced joint annual and special meeting of
the Company's stockholders. The meeting was postponed to address concerns
related to the Merger expressed by holders of the Company's preferred stock.
The Company subsequently requested that Crescent purchase $20 million of the
Company's $100 Redeemable Preferred Stock issuable under the Merger Agreement
(the "Redeemable Preferred Stock"). The Merger Agreement provides that, if
the Company is not in material breach of its covenants, representations or
warranties under the Merger Agreement, Crescent is required to fund up to
$115 million of Redeemable Preferred Stock even if the Merger Agreement has
been terminated. Crescent advised the Company that Crescent took the position
that our postponing the meeting was a breach of the Merger Agreement.
On July 30, 1998, the Company filed suit against Crescent in Clark
County District Court, State of Nevada, seeking declaratory relief. The suit
asserts, among other things, that postponement of the meeting did not breach
the Merger Agreement, that the Company had received Crescent's consent to
postponement of the meeting and was otherwise in full compliance with its
obligations under the Merger Agreement.
On August 11, 1998, the Company requested that Crescent purchase the
additional $95 million of Redeemable Preferred Stock. Also on August 11,
1998, the Company amended its complaint in Nevada state court to include
claims regarding Crescent's breaches of the Merger Agreement. The Company's
lawsuit against Crescent seeks damages for Crescent's breaches and specific
performance requiring Crescent to fulfill its obligation under the Merger
Agreement to purchase $115 million of Redeemable Preferred Stock.
On December 22, 1998, Crescent filed its answer and counterclaims
the Company's suit pending in the Nevada state court. The answer generally
denied the Company's claims, and the counterclaims sought damages and
declaratory relief alleging that the Company breached the Merger Agreement by
canceling and failing to reschedule the August 4, 1998 stockholders meeting.
The suit sought declaratory judgment that the Company's actions with respect
to the meeting, together with certain alleged misrepresentations in the
Merger Agreement, relieve Crescent of its obligation under the Merger
Agreement to purchase an aggregate $115 million of the Redeemable Preferred
Stock. For the same reasons, Crescent alleged that it was excused from
further performance under the Merger Agreement. Crescent did not specify the
amount of damages it sought. Discovery is ongoing in this action.
We anticipate that Crescent will seek the $54 million break-up fee
as part of its counterclaims. On August 12, 1998, Crescent had announced that
it intended to assert a claim for damages for the $54 million break-up fee
under the Merger Agreement or its equivalent and for expenses.
On August 7, 1998, Crescent filed suit against the Company in the
United States District Court, Northern District of Texas, seeking damages and
declaratory relief. The suit alleged that the Company breached the Merger
Agreement by canceling and failing to reschedule the August 4, 1998
stockholders meeting. The suit sought a declaratory judgment that the
Company's actions with respect to the meeting, together with certain alleged
misrepresentations in the Merger Agreement, relieve Crescent of its
obligation under the Merger Agreement to purchase an aggregate $115 million
of the Redeemable Preferred Stock. For the same reasons, Crescent alleged
that it was excused from further performance under the Merger Agreement.
Crescent did not specify the amount of damages it sought. Simultaneously with
the filing of its suit, Crescent sent notice of termination of the Merger
Agreement to the Company. The Company believes that Crescent, and not the
Company, breached the Merger Agreement.
On December 15, 1998, Crescent's suit against the Company pending in
the United States District Court for the Northern District of Texas was
dismissed for lack of jurisdiction. On December 21, 1998, Crescent served the
Company with a notice of appeal of the dismissal.
While the Company believes that Crescent has breached the Merger
Agreement and that Crescent's allegations are without merit, as with any
litigation, no assurance as to the outcome of such litigation can be made at
this time.
A suit seeking status as a class action and a derivative action was
filed by plaintiff, Crandon Capital Partners, on August 7, 1998, in Clark
County District Court, State of Nevada, naming the Company and its Board of
Directors as defendants. The lawsuit, which was filed as a result of the
failed merger between the Company and Crescent, alleges, among other things,
a breach of fiduciary duty owed to the shareholders/class members. The
lawsuit seeks damages allegedly suffered by the shareholders/class members as
a result of the
F-27
<PAGE>
STATION CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
transactions with Crescent, as well as all costs and disbursements of the
lawsuit. The Company and the Board of Directors do not believe the suit has
merit and intend to defend themselves vigorously.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
BASIC
INCOME NET INCOME EARNINGS
(LOSS) (LOSS) (LOSS)
OPERATING BEFORE APPLICABLE APPLICABLE
NET INCOME INCOME TO COMMON TO COMMON
REVENUES (LOSS) TAXES STOCK STOCK
-------- --------- --------- ---------- ----------
(amounts in thousands, except per common share amounts)
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1998
First quarter...................................... $173,516 $ 8,178 $(12,846) $(10,101) $(0.29)
Second quarter..................................... $194,097 $ 23,340 $ 3,655 $546 $ 0.02
Third quarter...................................... $197,196 $ 24,984 $ 5,299 $1,613 $ 0.05
Fourth quarter..................................... $204,801 $ 27,684 $ (228) $ (4,499) $(0.13)
YEAR ENDED MARCH 31, 1997
First quarter...................................... $135,440 $ 22,813 $ 14,581 $ 7,648 $ 0.22
Second quarter..................................... $138,034 $ 23,809 $ 15,847 $ 8,307 $ 0.24
Third quarter...................................... $133,767 $ 21,536 $ 13,789 $ 6,944 $ 0.20
Fourth quarter..................................... $176,274 $(10,035) $(22,839) $(16,381) $(0.46)
YEAR ENDED MARCH 31, 1996
First quarter...................................... $ 94,145 $ 13,043 $ 5,530 $ 3,511 $ 0.12
Second quarter..................................... $119,850 $ 17,666 $ 11,459 $ 7,257 $ 0.21
Third quarter...................................... $122,929 $ 18,969 $ 11,509 $ 7,360 $ 0.21
Fourth quarter..................................... $129,933 $ 19,786 $ 11,553 $ 7,291 $ 0.21
</TABLE>
F-28
<PAGE>
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or to make any representations not contained in this prospectus
in connection with the exchange offer made by this prospectus and you must
not rely on any such information or representations as having been authorized
by us. Neither the delivery of this prospectus nor any sale made hereunder
will, under any circumstances, create any implication that there has been no
change in our affairs since the date as of which information is given in this
prospectus. This prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such
solicitation.
-------------------
DEALER PROSPECTUS
DELIVERY OBLIGATION
UNTIL ______, 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO ANY
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$199,900,000
Station Casinos, Inc.
[LOGO]
Offer to Exchange
8 7/8% Senior Subordinated Notes due 2008
---------------
PROSPECTUS
---------------
[DATE]
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of Chapter 78 of the Nevada Revised Statutes and the
Company's Articles of Incorporation and Bylaws contain provisions for
indemnification of officers and directors of the Company and in certain cases
employees and other persons. The Bylaws require the Company to indemnify such
persons to the full extent permitted by Nevada law. Each such person will be
indemnified in any proceeding if such person acted in good faith and in a
manner which such person reasonably believed to be in, or not opposed to, the
best interests of the Company. Indemnification would cover expenses,
including attorney's fees, judgments, fines and amounts paid in settlement.
The Company's Bylaws also provide that the Company's Board of Directors
may cause the Company to purchase and maintain insurance on behalf of any
present or past director or officer insuring against any liability asserted
against such person incurred in the capacity of director or officer or
arising out of such status, whether or not the Company would have the power
to indemnify such person. The Company maintains directors' and officers'
liability insurance.
The Company has entered into an indemnification agreement (the
"Indemnification Agreement") with each director and certain officers,
employees and agents of the Company. Each Indemnification Agreement provides
for, among other things: (i) indemnification to the fullest extent permitted
by law against any and all expenses, judgments, fines, penalties and amounts
paid in settlement of any claim against any indemnified party (the
"Indemnitee") unless it is determined, as provided in the Indemnification
Agreement, that indemnification is not permitted under laws and (ii) prompt
advancement of expenses to any Indemnitee in connection with his or her
defense against any claim.
In addition, the Purchase Agreement provides for indemnification by the
Initial Purchasers of the Registrant, its directors and officers against
certain liabilities, including liabilities under the Securities Act and the
Exchange Act.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULE TABLES
(a) Exhibits:
A list of exhibits included as part of this registration statement is
set forth in the Exhibit Index that immediately precedes such exhibits and is
incorporated herein by reference.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required, are inapplicable or the required information
has already been provided elsewhere in the registration statement
(c) None
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d)of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules
and regulations prescribed by the Commission under Section 305(b)(2) of the
Act.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within business one day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a post
effective amendment all information concerning a transaction, and the company
being acquired involved herein, that was not subject of and included in the
registration statement when it became effective.
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Frank J.
Fertitta III, Glenn C. Christenson and Scott M Nielsen, and each of them, his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him or her and in his or her name, place
and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and any
registration statement of the Company to be filed after the date hereof
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, and to take such actions in, and
file with the appropriate authorities in, whatever states said
attorneys-in-fact and agents, and each of them, shall determine, such
applications, statements, consents, and other documents, as may be necessary
or expedient to register securities of the Company for sale, granting unto
said attorneys-in-fact and agents full power and authority to do so and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof and the registrant hereby
confers like authority on its behalf. This Registration Statement and Power
of Attorney, pursuant to the requirement of the Securities Act of 1933, as
amended, have been signed below by the following persons in the capacities
and on the dates indicated.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Las
Vegas, State of Nevada, on this 26th day of January, 1999.
STATION CASINOS, INC.
By: /s/ Glenn C. Christenson
----------------------------
Name: Glenn C. Christenson
Title: Executive Vice President,
Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank J. Fertitta III Chairman of the Board, President January 26, 1999
- --------------------------- and Chief Executive Officer
Frank J. Fertitta III (Principal Executive Officer)
/s/ Glenn C. Christenson Executive Vice President, Chief January 26, 1999
- --------------------------- Financial Officer, Chief
Glenn C. Christenson Administrative Officer, Treasurer
and Director (Principal Financial
and Accounting Officer)
/s/ Blake L. Sartini Executive Vice President, Chief January 26, 1999
- --------------------------- Operating Officer and Director
Blake L. Sartini
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Lorenzo J. Fertitta Director January 26, 1999
- ---------------------------
Lorenzo J. Fertitta
/s/ Delise F. Sartini Director January 26, 1999
- ---------------------------
Delise F. Sartini
/s/ R. Hal Dean Director January 26, 1999
- ---------------------------
R. Hal Dean
/s/ Lowell H. Lebermann, Jr. Director January 26, 1999
- ---------------------------
Lowell H. Lebermann, Jr.
</TABLE>
<PAGE>
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements (including related notes to Consolidated
Financial Statements) filed in Part II of this report are listed below:
Condensed Consolidated Balance Sheets (unaudited) as of September 30,
1998 and March 31, 1998
Condensed Consolidated Statements of Operations (unaudited) for the Six
months ended September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows (unaudited) for the Six
months ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements (unaudited)
Report of Independent Public Accountants
Consolidated Balance Sheets as of March 31, 1998 and 1997
Years Ended March 31, 1998, 1997 and 1996:
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a) 2. None
(a) 3. Exhibits
INDEX TO EXHIBITS
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EXHIBIT
NUMBER DESCRIPTION
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2.1 Agreement and Plan of Reorganization dated as of February 1, 1993 among
Frank J. Fertitta, Jr., as Trustee of the Frank J. Fertitta and Victoria
K. Fertitta Revocable Family Trust dated June 17, 1989, Frank J.
Fertitta III, Blake L. Sartini, Delise F. Sartini and Lorenzo J.
Fertitta. (Incorporated herein by reference to Registration Statement
No. 33-59302)
2.2 Agreement and Plan of Merger, dated as of January 16, 1998 among
Crescent Real Estate Equities Company and Station Casinos, Inc.
(Incorporated herein by reference to the Company's Form 8-K dated
January 27, 1998)
2.3 Amendment No. 1 dated as of February 17, 1998 to Agreement and Plan of
Merger (Incorporated herein by reference to the Company's Form 10-K for
the fiscal year ended March 31, 1998)
2.4 Amendment No. 2 dated as of June 14, 1998, to Agreement and Plan of
Merger (Incorporated herein by reference to the Company's Form 8K dated
June 17, 1998)
3.1 Amended and Restated Articles of Incorporation of the Registrant.
(Incorporated herein by reference to Registration Statement
No. 33-76156)
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3.2 Restated Bylaws of the Registrant. (Incorporated herein by reference to
Registration Statement No. 33-76156)
4.1 Form of Subordinated Note of the Registrant (1998 Issue) (included in
Exhibit 4.5)
4.2 Form of Subordinated Note of the Registrant (1997 Issue) (Incorporated
herein by reference to the Company's Form 8-K dated April 3, 1997)
4.3 Form of Subordinated Note of the Registrant (1996 Issue). (Incorporated
herein by reference to the Company's Form 8-K dated March 25, 1996)
4.4 Form of Subordinated Note of the Registrant (1994 Issue) (Incorporated
herein by reference to Registration Statement No. 33-76156)
4.5 Indenture dated as of December 3, 1998 between the Registrant and First
Union National Bank as Trustee.
4.6 Indenture dated as of April 3, 1997 between Registrant and First Union
National Bank as Trustee (Incorporated by reference to the Company's
Form 8-K dated April 3, 1997)
4.7 Indenture dated as of March 29, 1996 between the Registrant and First
Union National Bank, as Trustee. (Incorporated herein by reference to
the Company's Form 8-K dated March 25, 1996)
4.8 Indenture dated as of May 11, 1994 between the Registrant and First
Union National Bank (f.k.a. First Fidelity Bank, National Association)
as Trustee. (Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the period ended March 31, 1994)
4.9 First Supplemental Indenture dated as of March 25, 1996 between
Registrant and First Union National Bank, (f.k.a. First Fidelity Bank,
National Association), as Trustee with respect to the Indenture dated as
of May 11, 1994. (Incorporated herein by reference to the Company's Form
8-K dated March 25, 1996)
4.10 Second Amended and Restated Reducing Revolving Loan Agreement dated as
of November 6, 1998 (Incorporated herein by reference to the Company's
Form 8-K dated November 6, 1998)
4.11 Amendment No. 1 to Second Amended and Restated Reducing Revolving Loan
Agreement dated as of November 30, 1998 (Incorporated herein by
reference to the Company's Form 8-K dated November 6, 1998)
4.12 Certificate of Resolutions of Convertible Preferred Stock of the
Registrant. (Incorporated herein by reference to the Company's Form 8-K
dated March 25, 1996)
4.13 Form of Convertible Preferred Stock of the Registrant. (Incorporated
herein by reference to the Company's Form 8-K dated March 25, 1996)
4.14 Rights Agreement dated October 6, 1997 between the Company and
Continental Stock Transfer and Trust Company, as Rights Agent.
(Incorporated herein by reference to the Company's Form 8-K dated
October 9, 1997).
4.15 Amendment to Rights Agreement, dated as of January 16, 1998, between
Station Casinos, Inc. and Continental Stock Transfer & Trust Company, as
Rights Agent. ( Incorporated herein by reference to the Company's Form
8-K dated January 27, 1998).
4.16 Amendment No. 2 to Rights Agreement, dated as of December 1, 1998,
between Station Casinos, Inc. and Continental Stock Transfer & Trust
Company, as Rights Agent. ( Incorporated herein by reference to the
Company's Form 8-K dated November 6, 1998).
</TABLE>
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4.17 Certificate of Resolutions of $100 Redeemable Preferred Stock
(Incorporated herein by reference to the Company's Form 10-K for the
fiscal year ended March 31, 1998)
5.1 Opinion of Milbank, Tweed, Hadley & McCloy (to be filed by amendment)
10.1 Lease dated as of December 17, 1974 between Teddy Rich Enterprises and
Townefood, Inc. (Incorporated herein by reference to Registration
Statement No. 33-59302)
10.2 Lease dated as of May 8, 1973 between Teddy Rich Enterprises and Mini-
Price Motor Inn., including Addendum dated May 8, 1973; Lease Addendum
dated June 10, 1974 amending lease dated May 8, 1973 between Teddy Rich
Enterprises and Mini-Price Motor Inn, Inc. (Incorporated herein by
reference to Registration Statement No. 33-59302).
10.3 Lease dated as of February 16, 1976 between Richfield Development Co.
and Mini-Price Motor Inn. (Incorporated herein by reference to
Registration Statement No. 33-59302)
10.4 Lease dated as of September 6, 1977 between Richard Tam and Mini-Price
Motor Inn Joint Venture (Parcel B1). (Incorporated herein by reference
to Registration Statement No. 33-59302)
10.5 Lease dated as of September 6, 1977 between Richard Tam and Mini-Price
Motor Inn Joint Venture (Parcel B2). (Incorporated herein by reference
to Registration Statement No. 33-59302)
10.6 Amended and Restated Employment Agreement between Frank J. Fertitta III
and the Registrant dated as of December 22, 1997. (Incorporated herein
by reference to the Company's Form 8-K dated January 27, 1998)
10.7 Amended and Restated Employment Agreement between Glenn C. Christenson
and the Registrant dated as of December 22, 1997 (Incorporated herein by
reference to the Company's on Form 8-K dated January 27, 1998).
10.8 Amended and Restated Employment Agreement between Scott M Nielson and
the Registrant dated as of December 22, 1997. (Incorporated herein by
reference to the Company's Report on Form 8-K dated January 27, 1998)
10.9 Amended and Restated Employment Agreement between Blake L. Sartini and
the Registrant dated as of December 22, 1997. (Incorporated herein by
reference to the Company's Report on Form 8-K dated January 27, 1998)
10.10 Stock Compensation Program of the Registrant. (Incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1993)
10.11 Amendment dated as of August 22, 1995 to the Stock Compensation Program.
(Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1995)
10.12 Supplemental Executive Retirement Plan of the Registrant dated as of
November 30, 1994. (Incorporated herein by reference to the Company's
Quarterly Report on Form 10-Q for the period ended December 31, 1994)
10.13 Supplemental Management Retirement Plan of the Registrant dated as of
November 30, 1994. (Incorporated herein by reference to the Company's
Quarterly Report on Form 10-Q for the period ended December 31, 1994)
10.14 Long-Term Stay-On Performance Incentive Plan between the Registrant and
Joseph J. Canfora, Glenn C.
</TABLE>
<PAGE>
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Christenson, Scott M Nielson and Blake L. Sartini. (Incorporated herein
by reference to the Company's Quarterly Report on Form 10-Q for the
period ended December 31, 1994)
10.15 Amended and Restated Deferred Compensation Plan of the Registrant
effective as of November 30, 1994. (Incorporated herein by reference to
the Company's Quarterly Report on Form 10-Q for the period ended
December 31, 1994)
10.16 Special Long-Term Disability Plan of the Registrant dated as of November
30, 1994. (Incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the period ended December 31, 1994)
10.17 Ground Lease between Boulder Station, Inc. and KB Enterprises dated as
of June 1, 1993. (Incorporated herein by reference to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1993)
10.18 Option to Lease or Purchase dated as of June 1, 1993 between Boulder
Station, Inc. and KB Enterprises. (Incorporated herein by reference to
the Company's Quarterly Report on Form 10-Q for the period ended June
30, 1993)
10.19 Option to Acquire Interest Under Purchase Contract dated as of June 1,
1993 between Boulder Station, Inc. and KB Enterprises. (Incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1993)
10.20 First Amendment to Ground Lease and Sublease, dated as of June 30, 1995,
by and between KB Enterprises, as landlord and Boulder Station, Inc.
(Incorporated herein by reference to the Company's Form 8-K dated July
5, 1995)
10.21 Ground Lease between Registrant and Texas Gambling Hall & Hotel, Inc.
dated as of June 1, 1995. (Incorporated herein by reference to the
Company's Form 8-K dated July 5, 1995)
10.22 First Amendment to Ground Lease dated as of June 30, 1995 between
Registrant and Texas Gambling Hall & Hotel, Inc. (Incorporated herein
by reference to the Company's Form 8-K dated July 5, 1995)
10.23 Assignment, Assumption and Consent Agreement (Ground Lease) dated as of
July 6, 1995 between Registrant and Texas Station, Inc. (Incorporated
herein by reference to the Company's Form 8-K dated July 5, 1995)
10.24 Sublease Agreement dated as of November 30, 1992 between the City of St.
Charles and St. Charles Riverfront Station, Inc. (Incorporated herein
by reference to Registrant Statement No. 33-59302)
10.25 Lease between Navillus Investment Co.; Jerome D. Mack as trustee of the
Center Trust; Peter Trust Limited Partnership; and Third Generation
Limited Partnership and Registrant. (Incorporated herein by reference
to the Company's Annual Report on Form 10-K for the period ended March
31, 1994)
10.26 Joint Venture Agreement dated as of September 25, 1993, between First
Holdings Company and the Registrant. (Incorporated herein by reference
to the Company's Form 8-K dated July 5, 1995)
10.27 Assignment and Assumption Agreement (Joint Venture Agreement) dated as
of March 25, 1996 between the Registrant and Kansas City Station
Corporation (Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the period ended March 31, 1996).
10.28 Amendment to Joint Venture Agreement dated as of November 15, 1993,
between First Holdings Company and the Registrant (Incorporated herein
by reference to the Company's Annual Report on Form 10-K for the period
ended March 31, 1996).
10.29 Second Amendment to Joint Venture Agreement, dated as of April 22, 1996,
between First Holdings Company and Kansas City Station Corporation.
(Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1996)
</TABLE>
<PAGE>
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10.30 Development Agreement dated as of April 24, 1995, between Kansas City
Station Corporation and the Port Authority of Kansas City.
(Incorporated herein by reference to the Company's Form 8-K dated July
5, 1995)
10.31 Lease Agreement, dated as of April 1, 1994 between Station/First Joint
Venture and Kansas City Station Corporation. (Incorporated herein by
reference to the Company's Form 8-K dated July 5, 1995)
10.32 First Amendment to Lease Agreement dated as of March 19, 1996 between
Station/First Joint Venture and Kansas City Station Corporation
(Incorporated herein by reference to the Company's Annual Report on Form
10-K for the period ended March 31, 1996).
10.33 Second Amendment to Lease Agreement, dated as of April 22, 1996, between
Station/First Joint Venture and Kansas City Station Corporation.
(Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1996)
10.34 Form of Indemnification Agreement for Directors and Executive Officers.
(Incorporated herein by reference to Registration Statement No. 33-59302)
10.35 Form of Indemnification Agreement between the Registrant and Frank
Fertitta, Jr. (Incorporated herein by reference to Registration
Statement No. 33-59302)
10.36 Participation Agreement dated as of September 25, 1996 among the
Registrant, as Lessee, and First Security Trust Company of Nevada, as
Lessor and Trustee, and the other Persons that are parties to such
agreement. (Incorporated herein by reference to the Company's Form 8-K
dated October 29, 1996)
10.37 Lease Agreement dated as of September 25, 1996 between First Security
Trust Company of Nevada as Trustee and Lessor and the Registrant, as
Lessee. (Incorporated herein by reference to the Company's Form 8-K
dated October 29, 1996)
10.38 Sublease Agreement dated as of September 25, 1996 between the
Registrant, as Sublessor and Sunset Station as Sublessee. (Incorporated
herein by reference to the Company's Form 8-K dated October 29, 1996)
10.39 Sunset Station 1996 Trust Agreement dated as of September 25, 1996
between the Registrant, as Grantor, and First Security Trust Company of
Nevada, as Trustee. (Incorporated herein by reference to the Company's
Form 8-K dated October 29, 1996)
12.1 Calculation of Ratio of Earnings to Fixed Charges
23.1 Consent of Arthur Andersen LLP
</TABLE>
<PAGE>
<TABLE>
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23.2 Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit 5.1)
24.1 Power of Attorney (appears on signature page)
25.1 Form T-1 Statement of Eligibility and Qualification, under the Trust
Indenture Act of 1939, of First Union National Bank, as Trustee
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
<PAGE>
STATION CASINOS, INC.
--------------------
$199,900,000
8 7/8% Senior Subordinated Notes Due 2008
--------------------
INDENTURE
Dated as of December 3, 1998
--------------------
FIRST UNION NATIONAL BANK
TRUSTEE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . 1
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions. . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.03. Incorporation by Reference of Trust Indenture Act. . . . . . . 14
Section 1.04. Rules of Construction. . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 2. THE NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.01. Form and Dating. . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.02. Execution and Authentication.. . . . . . . . . . . . . . . . . 17
Section 2.03. Registrar; Paying Agent; Depository; Note Custodian. . . . . . 17
Section 2.04. Paying Agent to Hold Money in Trust. . . . . . . . . . . . . . 18
Section 2.05. Noteholder Lists . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.06. Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . 19
Section 2.07. Replacement Notes. . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.08. Outstanding Notes. . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.09. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.10. Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.13. CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.14. Exchange Registration. . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 3. REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.02. Selection of Notes to Be Redeemed. . . . . . . . . . . . . . . 29
Section 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . 30
Section 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . . . . 30
Section 3.05. Deposit of Redemption Price. . . . . . . . . . . . . . . . . . 31
Section 3.06. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . 31
Section 3.07. Mandatory Disposition Pursuant to Gaming Laws. . . . . . . . . 31
ARTICLE 4. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.01. Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.02. SEC Reports, Financial Reports . . . . . . . . . . . . . . . . 32
Section 4.03. Compliance Certificate . . . . . . . . . . . . . . . . . . . . 32
Section 4.04. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . 33
Section 4.05. Restricted Payments and Restricted Investments . . . . . . . . 33
Section 4.06. Limitation on Indebtedness . . . . . . . . . . . . . . . . . . 35
Section 4.07. Limitation on Capital Stock of Restricted Subsidiaries . . . . 36
i
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Section 4.08. Corporate Existence. . . . . . . . . . . . . . . . . . . . . . 36
Section 4.09. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.10. Investment Company Act . . . . . . . . . . . . . . . . . . . . 37
Section 4.11. Limitation on Transactions with Affiliates . . . . . . . . . . 37
Section 4.12. Change of Control and Rating Decline . . . . . . . . . . . . . 38
Section 4.13. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries. . . . . . . . . . . . . . . 39
Section 4.14. Restriction on Layering Debt . . . . . . . . . . . . . . . . . 40
ARTICLE 5. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.01. When Company May Merge, etc. . . . . . . . . . . . . . . . . . 40
Section 5.02. Successor Corporation Substituted. . . . . . . . . . . . . . . 41
ARTICLE 6. DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . 41
Section 6.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.04. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . 44
Section 6.05. Control by Majority. . . . . . . . . . . . . . . . . . . . . . 44
Section 6.06. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . 44
Section 6.07. Rights of Holders to Receive Payment . . . . . . . . . . . . . 44
Section 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . 45
Section 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . 45
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.11. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 7. TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.01. Duties of Trustee. . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.02. Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . 47
Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . 47
Section 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.06. Reports by Trustee to Holders. . . . . . . . . . . . . . . . . 48
Section 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . 48
Section 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . 49
Section 7.09. Successor Trustee by Merger, etc.. . . . . . . . . . . . . . . 50
Section 7.10. Eligibility; Disqualification. . . . . . . . . . . . . . . . . 50
Section 7.11. Preferential Collection of Claims Against Company. . . . . . . 50
ARTICLE 8. DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . 50
Section 8.01. Termination of Company's Obligations . . . . . . . . . . . . . 50
Section 8.02. Application of Trust Money . . . . . . . . . . . . . . . . . . 51
Section 8.03. Repayment to Company . . . . . . . . . . . . . . . . . . . . . 51
Section 8.04. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . 51
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ARTICLE 9. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.01. Without Consent of Holders . . . . . . . . . . . . . . . . . . 52
Section 9.02. With Consent of Holders. . . . . . . . . . . . . . . . . . . . 52
Section 9.03. Compliance with Trust Indenture Act. . . . . . . . . . . . . . 53
Section 9.04. Revocation and Effect of Consents. . . . . . . . . . . . . . . 53
Section 9.05. Notation on or Exchange of Notes . . . . . . . . . . . . . . . 53
Section 9.06. Trustee Protected. . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 10. SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.01. Notes Subordinated to Senior Indebtedness. . . . . . . . . . . 54
Section 10.02. Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . 54
Section 10.03. Default on Senior Indebtedness . . . . . . . . . . . . . . . . 55
Section 10.04. When Distribution Must Be Paid Over. . . . . . . . . . . . . . 56
Section 10.05. Notice by Company. . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.06. Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.07. Relative Rights. . . . . . . . . . . . . . . . . . . . . . . . 57
Section 10.08. Subordination May Not Be Impaired by Company . . . . . . . . . 57
Section 10.09. Distribution or Notice to Representatives. . . . . . . . . . . 57
Section 10.10. Rights of Trustee and Paying Agent . . . . . . . . . . . . . . 57
Section 10.11. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice. . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.12. Application by Trustee of Monies Deposited With It . . . . . . 58
Section 10.13. Trustee's Compensation Not Prejudiced. . . . . . . . . . . . . 58
Section 10.14. Officers' Certificate. . . . . . . . . . . . . . . . . . . . . 58
Section 10.15. Certain Payments . . . . . . . . . . . . . . . . . . . . . . . 59
Section 10.16. Names of Representatives . . . . . . . . . . . . . . . . . . . 59
Section 10.17. Article 10 Not To Prevent Events of Default or Limit
Right To Accelerate. . . . . . . . . . . . . . . . . . . . . . 59
Section 10.18. Reliance by Holders of Senior Indebtedness on
Subordination Provisions . . . . . . . . . . . . . . . . . . . 59
Section 10.19. Proof of Claim . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 10.20. No Fiduciary Duty Created to Holders of Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 11. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . 60
Section 11.02. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.03. Communication by Holders with Other Holders. . . . . . . . . . 60
Section 11.04. Certificate and Opinion as to Conditions Precedent . . . . . . 61
Section 11.05. Statements Required in Certificate or Opinion. . . . . . . . . 61
Section 11.06. Rules by Trustee and Agents. . . . . . . . . . . . . . . . . . 61
Section 11.07. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.08. No Recourse Against Others . . . . . . . . . . . . . . . . . . 62
Section 11.09. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 62
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Section 11.10. Variable Provisions. . . . . . . . . . . . . . . . . . . . . . 62
Section 11.11. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.12. No Adverse Interpretation of Other Agreements. . . . . . . . . 63
Section 11.13. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.14. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.15. Qualification of Indenture . . . . . . . . . . . . . . . . . . 63
Section 11.16. Table of Contents, Headings, etc.. . . . . . . . . . . . . . . 63
SIGNATURES
</TABLE>
Exhibit A-1 Form of Note
Exhibit A-2 Form of Regulation S Temporary Note
Exhibit B-1 Form of Certificate for Exchange or Registration of Transfer of Rule
144A Global Note to Regulation S Global Note
Exhibit B-2 Form of Certificate for Exchange or Registration of Transfer From
Regulation S Global Note to Rule 144A Global Note
Exhibit B-3 Form of Certificate for Exchange or Registration of Transfer of
Certificated Notes
Exhibit B-4 Form of Certificate for Exchange or Registration of Transfer From
Rule 144A Global Note or Regulation S Permanent Global Note to Certificated Note
Exhibit B-5 Form of Certificate for Exchange or Registration of Transfer From
Certificated Note to Rule 144A Global Note or Regulation S Permanent Global Note
iv
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
<S> <C>
310(a)(1). . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1). . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2). . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . 4.02; 11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1). . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2). . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3). . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . 7.01(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . 7.01(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . 7.01(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a) (last sentence) . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2). . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . 6.07
317(a)(1). . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2). . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . 11.01
</TABLE>
- ---------------
* This Cross-Reference Table is not part of the Indenture.
<PAGE>
N.A. means not applicable.
<PAGE>
INDENTURE dated as of December 3, 1998 among STATION CASINOS, INC.,
a Nevada corporation (the "Company") and FIRST UNION NATIONAL BANK, a
national banking association, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties
and for the equal and ratable benefit of the Holders of the Company's 8 7/8%
Series A Senior Subordinated Notes due 2008 (the "Series A Notes") and the
Company's 8 7/8% Series B Senior Subordinated Notes due 2008 (the "Series B
Notes" and, together with the Series A Notes, the "Notes").
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. DEFINITIONS.
"AFFILIATE" of any specified person means any other person (i)
which directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, such specified person,
(ii) which directly or indirectly through one or more intermediaries
beneficially owns or holds 10% or more of any class of the Voting Stock of
such specified person (or a 10% or greater equity interest in such person
which is not a corporation) or (iii) of which 10% or more of any class of the
Voting Stock (or, in the case of a person which is not a corporation, 10% or
more of the equity interest) is beneficially owned or held directly or
indirectly through one or more intermediaries by such person. The term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"AGENT MEMBERS" means any member of, or participant in, the
Depository.
"AMORTIZATION EXPENSE" means, for any period, amounts recognized
during such period as amortization of all goodwill and other assets
classified as intangible assets in accordance with GAAP.
"APPLICABLE PROCEDURES" means, with respect to any transfer or
exchange of beneficial interests in a Global Note, the rules and procedures
of the Depository that are applicable to such transfer or exchange
"AVERAGE LIFE" means, as of the date of determination, with
reference to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of the number of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness
multiplied by the amount of such principal payment by (ii) the sum of all
such principal payments.
"BANK FACILITY" means the Second Amended and Restated Reducing
Revolving and Term Loan Agreement dated as of November 6, 1998 by and among
PSHC, BSI, TSI, SSI,
<PAGE>
KCSC, SCRSI, Bank of Scotland and Societe Generale, as co-agents, Bank of
America National Trust and Savings Association, as managing agent and certain
lenders named therein, as amended, modified or refinanced from time to time,
provided that the managing agent for the lenders under such refinancing is a
banking institution with over $500 million in assets and subject to
supervision and examination by federal or state banking authorities.
"BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of
the Company.
"BSI" means Boulder Station, Inc.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL LEASE OBLIGATIONS" of a person means any obligation that
is required to be classified and accounted for as a capital lease on the face
of a balance sheet of such person prepared in accordance with GAAP; the
amount of such obligation shall be the capitalized amount thereof, determined
in accordance with GAAP; the stated maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty; and such obligation shall be deemed secured by a Lien
on any property or assets to which such lease relates.
"CAPITAL STOCK" means, with respect to any person, any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents (including partnerships or partnership interests), or
ownership interests (however designated) of such person, including each class
of common stock and preferred stock of such person, but excluding convertible
Indebtedness.
"CERTIFICATED NOTES" means Notes that are in the form of the Notes
attached hereto as Exhibit A-1, that do not include the information called
for by footnotes 1 and 2 thereof.
"CHANGE OF CONTROL" means an event or series of events by which
(i) the Company sells, conveys, transfers or leases, directly or indirectly,
all or substantially all of the properties and assets of the Company and its
Restricted Subsidiaries to any person, corporation, entity or group, (ii) any
"person" (as such term is used in Section 13(d) and 14(d) of the Exchange
Act) (other than the Existing Equity Holders) is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all shares
that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly of securities representing 40% or more of the combined voting
power of the Company's Voting Stock and at such time as the Existing Equity
Holders together shall fail to beneficially own, directly or indirectly,
securities representing at least the same percentage of the combined voting
power of the Company's Voting Stock as is "beneficially owned" by such
"person," (iii) the Company consolidates with or merges into another
corporation, or any corporation consolidates with or merges into the Company,
in either event pursuant to a transaction in which the outstanding Voting
Stock of the Company is changed into or exchanged for cash, securities or
other property, other than any such transactions between the Company and its
wholly-owned Restricted Subsidiaries, with the effect that any "person"
(other than the Existing Equity Holders)
2
<PAGE>
becomes the "beneficial owner," directly or indirectly, of securities
representing 40% or more of the combined voting power of the Company's Voting
Stock and at such time as the Existing Equity Holders together shall fail to
beneficially own, directly or indirectly, securities representing at least
the same percentage of the combined voting power of the Company's Voting
Stock as is "beneficially owned" by such "person," (iv) during any period of
24 consecutive months, individuals who at the beginning of such period
constituted the Company's Board of Directors (together with any new or
replacement directors whose election by the Company's Board of Directors, or
whose nomination for election by the Company's stockholders, was approved by
a vote of at least a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the directors then in office or (v) the Company
shall, as a result of any transaction or series of transactions, cease to own
all of the outstanding Capital Stock of, or all or substantially all of the
assets of, PSHC, BSI, SCRSI, SGSI and SWSI; PROVIDED, HOWEVER, that no Change
of Control shall be deemed to occur if the Company sells, in one transaction
or a series of transactions, stock or assets of such Subsidiaries having an
aggregate book value, determined in accordance with GAAP and net of related
debt, which is less than 5% of the aggregate book value of the net assets of
the Company and its consolidated Restricted Subsidiaries, determined in
accordance with GAAP.
"CHANGE OF CONTROL TRIGGERING EVENT" is defined as the occurrence
of both (i) a Change of Control and (ii) a Rating Decline.
"COMPANY" means the person named as such above until a successor
replaces it in accordance with Article 5 and thereafter means the successor.
"COMPLETION GUARANTEE AND KEEP-WELL AGREEMENT" means (i) the
guarantee by the Company or a Restricted Subsidiary of the completion of the
development, construction and opening of a new gaming facility by an
Affiliate of the Company, (ii) the agreement by the Company or a Restricted
Subsidiary to advance funds, property or services on behalf of an Affiliate
of the Company in order to maintain the financial condition of such Affiliate
in connection with the development, construction and opening of a new gaming
facility by such Affiliate and (iii) performance bonds incurred in the
ordinary course of business; provided that, in the case of clauses (i) and
(ii) above, such guarantee or agreement is entered into in connection with
obtaining financing for such gaming facility or is required by a Gaming
Authority.
"CONSOLIDATED COVERAGE RATIO" means, for any period, for any
person, the ratio of the aggregate amount of Operating Cash Flow of such
person for such period to the aggregate amount of Consolidated Interest
Expense of such person for such period.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total
interest expense of a person and its consolidated Restricted Subsidiaries
including (i) interest expense attributable to Capital Lease Obligations,
(ii) amortization of debt discount, (iii) capitalized interest, (iv) cash and
noncash interest payments, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs under Interest Rate Protection Agreements
(including amortization of discount) and (vii) interest expense in respect of
obligations of other persons deemed to be Indebtedness of the Company or its
Restricted Subsidiaries under clause (v) or (vi) of the definition of
Indebtedness.
3
<PAGE>
"CONSOLIDATED NET INCOME" means, for any period, the net income of
a person and its consolidated Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income: (i) any net income
(loss) of any person if such person is not a Restricted Subsidiary, except
that (A) the Company's equity in the net income of any such person
(including, without limitation, an Unrestricted Subsidiary) for such period
shall be included in such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such person during such period to the Company
or a Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to a Restricted Subsidiary, to
the limitations contained in clause (iii) below); and (B) the Company's
equity in the net loss of any such person for such period shall be included
in determining such Consolidated Net Income (subject, with respect to the net
loss of an Unrestricted Subsidiary, to clause (vi) below); (ii) any net
income (loss) of any person acquired by the Company or a Restricted
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition; (iii) any net income (loss) of any Restricted
Subsidiary if such Restricted Subsidiary is subject to restrictions, directly
or indirectly, on the payment of dividends or the making of distributions by
such Restricted Subsidiary, directly or indirectly, to the Company, except
that (A) the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash which could have been distributed by such
Restricted Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to another Restricted Subsidiary, to the
limitation contained in this clause) unless at the time of computation no
cash would be permitted to be distributed and (B) the Company's equity in the
net loss of any such Restricted Subsidiary for such period shall be included
in determining such Consolidated Net Income; (iv) any gain or loss realized
upon the sale or other disposition of any property, plant or equipment of the
Company or its consolidated Restricted Subsidiaries which is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any
person; (v) the cumulative effect of a change in accounting principles; and
(vi) the net loss of any Unrestricted Subsidiary.
"CONSOLIDATED NET WORTH" of any person means the total of the
amounts shown on the balance sheet of such person and its consolidated
Restricted Subsidiaries, determined on a consolidated basis in accordance
with GAAP, as of any date selected by the Company not more than 90 days prior
to the taking of any action for the purpose of which the determination is
being made (and adjusted for any material events since such date), as (i) the
par or stated value of all outstanding Capital Stock plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus, less (A) any accumulated deficit, (B)
any amounts attributable to Redeemable Stock and (C) any amounts attributable
to Exchangeable Stock.
"DEFAULT" means any event which is, or after notice or passage of
time would be, an Event of Default.
"DEPOSITORY" means, with respect to the Notes issuable or issued
in whole or in part in global form, the person specified in Section 2.03
hereof as the Depository with respect to the Notes, until a successor shall
have been appointed and become such Depository pursuant to
4
<PAGE>
the applicable provision of this Indenture, and, thereafter, "Depository"
shall mean or include such successor.
"DESIGNATED SENIOR INDEBTEDNESS" shall mean each issue of Senior
Indebtedness that (i) has an outstanding principal amount of at least
$25,000,000 (including the amount of all reimbursement obligations pursuant
to letters of credit thereunder and the maximum principal amount available to
be drawn thereunder, assuming in the case of the Bank Facility that all
conditions precedent to any such drawing could be satisfied) and (ii) has
been designated as Designated Senior Indebtedness pursuant to an Officers'
Certificate of the Company received by the Trustee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE OFFER" means the offer that may be made by the Company
pursuant to the Registration Rights Agreement to exchange Series B Notes for
Series A Notes.
"EXCHANGEABLE STOCK" means any Capital Stock of a corporation that
is exchangeable or convertible into another security (other than into Capital
Stock of such corporation that is neither Exchangeable Stock or Redeemable
Stock).
"EXISTING EQUITY HOLDERS" means Frank J. Fertitta III, Blake L.
Sartini, Delise F. Sartini, Lorenzo J. Fertitta, Glenn C. Christenson and
Scott M Nielson and the Former Equity Holder and their executors,
administrators or the legal representatives of their estates, their heirs,
distributees and beneficiaries, any trust as to which any of the foregoing is
a settlor or co-settlor and any corporation, partnership or other entity
which is an Affiliate of any of the foregoing. Existing Equity Holders shall
also mean any lineal descendants of such persons, but only to the extent that
the beneficial ownership of the Voting Stock held by such lineal descendants
was directly received (by gift, trust or sale) from any such person.
"EXISTING INDEBTEDNESS" means the following: (i) Note payable to
GE Capital Corp., amended and restated as of May 31, 1995 in the original
principal amount of approximately $16 million and (ii) Note payable to CIT
Group Financing, dated as of October 21, 1994 in the original principal
amount of approximately $10 million.
"EXISTING SENIOR SUBORDINATED NOTES" means the $198,000,000
10 1/8% Senior Subordinated Notes of the Company due 2006 and the $150,000,000
9 3/4% Senior Subordinated Notes of the Company due 2007.
"FF&E FINANCING" means Indebtedness which is non-recourse to the
borrower, the proceeds of which will be used to finance the acquisition or
lease by the Company or its Restricted Subsidiaries of furniture, fixtures or
equipment ("FF&E") used in the operation of its business and secured by a
Lien on such FF&E.
"FORMER EQUITY HOLDER" means Frank J. Fertitta, Jr.
"GAAP" means generally accepted accounting principles as in effect
in the United States on the date of this Indenture.
5
<PAGE>
"GAMING AUTHORITY" means the Nevada Gaming Commission, the Nevada
Gaming Control Board or any agency of any state, county, city or other
political subdivision which has, or may at any time after the date of the
Indenture have, jurisdiction over all or any portion of the gaming activities
of the Company or any of its Subsidiaries or any successor to such authority.
"GAMING CONTROL ACT" means the Nevada Gaming Control Act, as from
time to time amended, or any successor provision of law, and the regulations
promulgated thereunder.
"GAMING LICENSE" of any person means every license, franchise or
other authorization on the date of the Indenture or thereafter required to
own, lease, operate or otherwise conduct the gaming operations of such
person, including, without limitation, all such licenses granted under the
Gaming Control Act, as from time to time amended, or any successor provision
at law, the regulations of Gaming Authorities and other applicable laws.
"GLOBAL NOTES" means, individually and collectively, the
Regulation S Temporary Global Note, the Regulation S Permanent Global Note
and the Rule 144A Global Note.
"GOVERNMENTAL AUTHORITY" means any agency, authority, board,
bureau, commission, department, office or instrumentality of any nature
whatsoever of any city or other political subdivision or otherwise and
whether now or hereafter in existence, or any officer or official thereof.
"GVSI" means Green Valley Station, Inc.
"GVV" means Green Valley Ventures.
"HOLDER" or "NOTEHOLDER" means a person in whose name a Note is
registered on the register maintained by the Registrar.
"INDEBTEDNESS" of any person means, without duplication, (i) the
principal of and premium (if any) in respect of (A) indebtedness of such
person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
person is responsible or liable; (ii) all Capital Lease Obligations of such
person; (iii) all obligations of such person issued or assumed as the
deferred purchase price of property, assets or services, all conditional sale
obligations and all obligations under any title retention agreement (but
excluding operating leases and trade accounts payable arising in the ordinary
course of business); (iv) all obligations of such person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such person
to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third
Business Day following receipt by such person of a demand for reimbursement
following payment on the letter of credit); (v) all obligations of the type
referred to in clauses (i) through (iv) of other persons and all dividends of
other persons for the payment of which, in either case, such person is
responsible or liable as obligor, guarantor or
6
<PAGE>
otherwise; and (vi) all obligations of the type referred to in clauses (i)
through (v) of other persons secured by any Lien on any property or asset of
such person (whether or not such obligation is assumed by such person), the
amount of such obligation being deemed to be the lesser of the value of such
property or asset or the amount of the obligation so secured.
"INDENTURE" means this Indenture as amended or supplemented from
time to time.
"INTEREST RATE PROTECTION AGREEMENT" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company or any Subsidiary against
fluctuations in interest rates.
"INVESTMENT GRADE" designates a rating of BBB- or higher by S&P or
Baa3 or higher by Moody's or the equivalent of such ratings by S&P or
Moody's. In the event that the Company shall select any other Rating Agency,
the equivalent of such ratings by such Rating Agency shall be used.
"KCSC" means Kansas City Station Corporation.
"LEGAL REQUIREMENTS" means, with respect to any project, all laws,
statutes and ordinances (including building codes and zoning and
environmental laws, regulations and ordinances), and all rules, orders,
rulings, regulations, directives and requirements of all Governmental
Authorities, which are now or which may hereafter be in existence, and which
are applicable to the Company or any Affiliate thereof in connection with the
construction or development of any project or the operation of its business,
or any part thereof, including, without limitation, the Gaming Control Act,
as modified by any variances, special use permits, waivers, exceptions or
other exemptions which may from time to time be applicable to the Company or
any Affiliate thereof.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of
such asset (including any agreement to give any security interest). For all
purposes under this Indenture, a person shall be deemed to own subject to a
Lien any asset that it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease
Obligation or other title retention agreement (other than operating leases)
relating to such asset.
"LIQUIDATED DAMAGES" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"NET PROCEEDS" means, with respect to any issuance, sale or
contribution in respect of Capital Stock, the aggregate proceeds of such
issuance, sale or contribution, including the fair market value (as
determined by the Board of Directors and net of any associated debt) of
property other than cash, received by the Company, net of attorneys' fees,
accountants' fees, underwriters' fees, placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or
7
<PAGE>
payable as a result thereof; PROVIDED, HOWEVER, that if such fair market
value as determined by the Board of Directors of property other than cash is
greater than $15 million, the determination of fair market value thereof
shall be based upon an opinion from an independent nationally recognized firm
experienced in the appraisal of similar types of transactions.
"NOTE CUSTODIAN" means the person specified in Section 2.03, as
custodian with respect to the Global Notes, or any successor entity thereto.
"OFFICER" means the Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary, the Chief Financial Officer, any
Assistant Treasurer or any Assistant Secretary of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by any two
Officers, one of whom must be the Chairman of the Board, the President, the
Treasurer or a Vice President of the Company.
"OPERATING CASH FLOW" means, for any period, for any person, the
aggregate amount of Consolidated Net Income of such person before
Consolidated Interest Expense, income taxes, depreciation expense,
Amortization Expense and any noncash amortization of debt issuance cost.
Notwithstanding the foregoing, the Consolidated Interest Expense, income
taxes, depreciation expense, Amortization Expense and any noncash
amortization of debt issuance cost of a subsidiary of a person shall be added
to Consolidated Net Income to compute Operating Cash Flow in the same
proportion that the net income of such subsidiary was included in calculating
the Consolidated Net Income of such person.
"OPINION OF COUNSEL" means a written opinion from legal counsel
who is reasonably acceptable to the Trustee. Unless otherwise required by
the Trustee, the counsel may be an employee of or counsel to the Company or
the Trustee.
"PERMITTED REFINANCING INDEBTEDNESS" means Indebtedness of the
Company or a Restricted Subsidiary (i) issued in exchange for, or the
proceeds from the issuance and sale or disbursement of which are used to
substantially concurrently repay, redeem, refund, refinance, discharge or
otherwise retire for value, in whole or in part (collectively, "repay"), or
(ii) constituting an amendment, modification or supplement to, or a deferral
or renewal of (collectively, an "amendment"), any Indebtedness of the Company
or a Restricted Subsidiary (and any penalties, fees and expenses actually
incurred by the Company or such Restricted Subsidiary in connection with the
repayment or amendment thereof) existing immediately after the original
issuance of the Series A Notes or incurred pursuant to clauses (iii), (vi),
(vii) and (viii) (subject to proviso (C) below) of Section 4.06, in a
principal amount (or, if such Permitted Refinancing Indebtedness provides for
an amount less than the principal amount thereof to be due and payable upon
the acceleration thereof, with an original issue price) not in excess of
(1) the principal amount of the Indebtedness so refinanced (or, if such
Permitted Refinancing Indebtedness refinances Indebtedness under an agreement
providing a commitment for subsequent borrowings, with a maximum commitment
not to exceed the maximum commitment under such agreement) plus (2) unpaid
accrued interest on such Indebtedness plus (3) penalties, fees and expenses
actually incurred by the Company or such Restricted Subsidiary, as the case
may be, in connection with the repayment or amendment thereof; provided that
(A) Permitted
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Refinancing Indebtedness of the Company that repays or constitutes an
amendment to Subordinated Indebtedness shall not have an Average Life less
than the Indebtedness to be so refinanced at the time of such incurrence, and
shall contain subordination and default provisions no less favorable in any
material respect to the Holders than those contained in such repaid or
amended Indebtedness, (B) notwithstanding the foregoing, any Permitted
Refinancing Indebtedness incurred to repay all of the Notes then outstanding
shall not be limited in principal amount or otherwise if the Company,
contemporaneously with such issuance, irrevocably deposits with the Trustee
or Paying Agent an amount of the proceeds of such Permitted Refinancing
Indebtedness sufficient to redeem or repay each installment of the
outstanding principal amount of the Notes on, and all interest accrued to,
the date fixed for such repayment, together with irrevocable instructions to
redeem and repay the Notes on the stated redemption date and (C) to the
extent that Permitted Refinancing Indebtedness includes Indebtedness incurred
in connection with the refinancing of the Bank Facility (whether or not such
Indebtedness is existing on or after the date of the Indenture) and the
managing agent for the lenders under such refinancing Indebtedness is a
person other than a banking institution with over $500 million in assets and
subject to supervision and examination by federal or state banking
authorities, the provisions of clause (viii) of Section 4.06 shall terminate
and be of no further force and effect with respect to such refinancing
Indebtedness.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
"PRINCIPAL" of any Indebtedness means the principal amount thereof
plus the premium, if any, thereon.
"PSHC" means Palace Station Hotel & Casino, Inc.
"QUALIFIED NON-RECOURSE DEBT" means Indebtedness (i) as to which
neither the Company nor any of its Restricted Subsidiaries (a) provides
credit support of any kind (including any undertaking, agreement or
instrument that would constitute Indebtedness), (b) is directly or indirectly
liable (as a guarantor or otherwise), or (c) constitutes the lender; and
(ii) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Company or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment thereof
to be accelerated or payable prior to its stated maturity; and (iii) as to
which the lenders have been notified in writing that they will not have any
recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries, other than by a pledge by the Company or a Restricted
Subsidiary of the stock of an Unrestricted Subsidiary; PROVIDED, HOWEVER,
that the Company or any of its Restricted Subsidiaries may (x) execute a
Completion Guarantee and Keep-Well Agreement for an Unrestricted Subsidiary
whose sole purpose is to develop, construct and operate a new gaming facility
or (y) make a loan to an Unrestricted Subsidiary if such loan is permitted
under Section 4.05 at the time of the incurrence of such loan, and such
actions referred to in the foregoing clauses (x) and (y) shall not constitute
Indebtedness which is not Qualified Non-Recourse Debt.
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"RATING AGENCIES" means (i) S&P and (ii) Moody's or (iii) if S&P
or Moody's or both shall not make a rating of the Notes publicly available, a
nationally recognized securities rating agency or agencies, as the case may
be, selected by the Company, which shall be substituted for S&P or Moody's or
both, as the case may be.
"RATING CATEGORY" means (i) with respect to S&P, any of the
following categories: BB, B, CCC, CC, C and D (or equivalent successor
categories); and (ii) with respect to Moody's, any of the following
categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories);
and (iii) the equivalent of any such category of S&P or Moody's used by
another Rating Agency. In determining whether the rating of the Notes has
decreased by one or more gradation, gradations within Rating Categories
(+ and - for S&P; 1, 2 and 3 for Moody's; or the equivalent gradations for
another Rating Agency) shall be taken into account (e.g., with respect to
S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+, will
constitute a decrease of one gradation).
"RATING DATE" means the date which is 90 days prior to the earlier
of (i) a Change of Control or (ii) public notice of the occurrence of a
Change of Control or of the intention by the Company to effect a Change of
Control.
"RATING DECLINE" shall be deemed to occur if, within 90 days of
public notice of the occurrence of a Change of Control (which period shall be
extended so long as the rating of the Notes is under publicly announced
consideration for possible downgrade by either of the Rating Agencies): (a) in
the event the Notes are rated by either Rating Agency on the Rating Date as
Investment Grade the rating of the Notes by both Rating Agencies shall be
below Investment Grade, or (b) in the event the Notes are rated below
Investment Grade by both Rating Agencies on the Rating Date, the rating of
the Notes by either Rating Agency shall be decreased by one or more
gradations (including gradations within Rating Categories as well as between
Rating Categories).
"REDEEMABLE STOCK" means any Capital Stock that by its terms or
otherwise (other than in consideration of Capital Stock that is not
Redeemable Stock) is, or upon the happening of an event would be, required to
be redeemed or repurchased, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or
in part, at any time prior to the first anniversary of the stated maturity of
the Notes.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of December 3, 1998, by and among the Company and the
other party named on the signature pages thereof, as such agreement may be
amended, modified or supplemented from time to time.
"REGULATION S" means Regulation S promulgated under the Securities
Act.
"REGULATION S GLOBAL NOTE" means a Regulation S Temporary Global
Note or Regulation S Permanent Global Note, as appropriate.
"REGULATION S PERMANENT GLOBAL NOTE" means a permanent global note
that contains the paragraph referred to in footnote 1 and the additional
schedule referred to in footnote
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2 to the form of the Note attached hereto as Exhibit A-1, and that is
deposited with and registered in the name of the Depository, representing the
Notes sold in reliance on Regulation S.
"REGULATION S TEMPORARY GLOBAL NOTE" means a single temporary
global note in the form of the Note attached hereto as Exhibit A-2 that is
deposited with and registered in the name of the Depository, representing
Notes sold in reliance on Regulation S.
"RELATED PERSON" of any person means (i) (A) if such person is a
corporation, any person who is a director, officer or employee (x) of such
person, (y) of any subsidiary of such person or (z) of any Affiliate of such
person or (B) if such person is an individual, any immediate family member or
lineal descendent of such person or spouse of such immediate family member or
of such lineal descendant, or (ii) any Affiliate of any person included in
clause (i) and any person who is a director, officer or employee of such
Affiliate.
"REPRESENTATIVE" means the indenture trustee or other trustee,
agent or representative, if any, for an issue of Senior Indebtedness.
"RESTRICTED SUBSIDIARY" of a person means any subsidiary of the
referent person that is not an Unrestricted Subsidiary.
"RULE 144A" means Rule 144A promulgated under the Securities Act.
"RULE 144A GLOBAL NOTE" means a permanent global note that
contains the paragraph referred to in footnote 1 and the additional schedule
referred to in footnote 2 to the form of the Note attached hereto as
Exhibit A-1, and that is deposited with and registered in the name of the
Depository.
"S&P" means Standard & Poor's Corporation and its successors.
"SCRSI" means St. Charles Riverfront Station, Inc.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR INDEBTEDNESS" means (x) all obligations of the Company now
or hereafter existing to pay the principal of, and interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization to the extent a claim for post-filing interest is allowed in
such proceedings) on, any Indebtedness (other than Capital Lease Obligations)
of the Company, whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed, guaranteed or in effect guaranteed by
the Company, (y) Indebtedness of the Company represented by Capital Lease
Obligations if the instrument creating or evidencing the same expressly
provides that such Indebtedness shall be senior in right of payment to the
Notes and (z) Indebtedness of the Company with respect to Interest Rate
Protection Agreements. Notwithstanding the foregoing, Senior Indebtedness
shall not include (a) any Indebtedness, if the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior in right of payment to the Notes,
(b) in the case of each Note, the other Notes, (c) the Existing Senior
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Subordinated Notes, (d) Indebtedness of the Company to, or guaranteed on
behalf of, an Affiliate of the Company (other than a Restricted Subsidiary),
(e) Indebtedness to trade creditors incurred or assumed in the ordinary
course of business in connection with obtaining goods, materials or services,
(f) Indebtedness represented by Exchangeable Stock or Redeemable Stock,
(g) any liability for federal, state, local or other taxes owed or owing by
the Company, (h) Indebtedness incurred in violation of Section 4.06 hereof
and (i) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of the Company.
"SGSI" means Southwest Gaming Services, Inc.
"SSI" means Sunset Station, Inc.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Company
(whether outstanding on the date hereof or hereafter incurred) which is
subordinate or junior in right of payment to the Notes.
"SUBSIDIARY" of a person means any corporation, association,
partnership, limited liability company or other business entity of which 50%
or more of the Voting Stock is at the time of determination owned or
controlled, directly or indirectly, by such person or by one or more of the
other subsidiaries of that person (or a combination thereof); provided that
with respect to any such corporation, association, partnership, limited
liability company or other business entity of which no more than 50% of the
total Voting Stock is so owned or controlled, then such corporation,
association, partnership, limited liability company or other business entity
shall not be deemed to be a subsidiary of such person unless such person has
the power to direct the policies or management of such corporation,
association, partnership, limited liability company or other business entity.
"SUBSIDIARY" means any subsidiary of the Company.
"SWSI" means Southwest Services, Inc.
"THE
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
first qualified under the TIA, except as provided in Section 9.03.
"TRANSFER RESTRICTED SECURITY" means a security that bears or is
required to bear the legend set forth in Section 2.06(g) hereof.
"TRUSTEE" means the person named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture,
and thereafter means the successor.
"TRUST OFFICER" means the Chairman of the Board, the President or
any other officer of the Trustee assigned by the Trustee to administer its
corporate trust matters.
"TSI" means Texas Station, Inc.
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"UNRESTRICTED SUBSIDIARY" means any Subsidiary (other than PSHC,
BSI, SCRSI, KCSC, TSI, SGSI and SWSI or any successor to any of them) that at
the time of determination shall be designated by the Board of Directors of
the Company as an Unrestricted Subsidiary of the Company by a Board
Resolution and any Subsidiary of an Unrestricted Subsidiary, but only to the
extent and so long as such Subsidiary (and any Subsidiary of such
Subsidiary): (a) has no Indebtedness other than Qualified Non-Recourse Debt;
(b) is a person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional equity interests or (y) to maintain or preserve such
person's financial condition or to cause such person to achieve any specified
levels of operating results; and (c) has not guaranteed or otherwise directly
or indirectly provided credit support for any Indebtedness of the Company or
any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if
such Subsidiary has assets greater than $1,000, that such designation would
be permitted under Section 4.05; provided, further, however, that the Company
or any of its Restricted Subsidiaries may execute a Completion Guarantee and
Keep-Well Agreement for an Unrestricted Subsidiary whose sole purpose is to
develop, construct and operate a new gaming facility, and the execution and
performance (if such performance is permitted under Section 4.05 and
Section 4.06) of such Completion Guarantee and Keep-Well Agreement shall not
prevent a Subsidiary from becoming or remaining an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying
that such designation complied with the foregoing conditions and was
permitted by Section 4.05. If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary,
it shall thereafter cease to be an Unrestricted Subsidiary for purposes of
the Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under
Section 4.06, the Company shall be in Default of such section). The Board of
Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation
shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if
(i) such Indebtedness is permitted under Section 4.06, and (ii) no Default or
Event of Default would be in existence following such designation.
"VOTING STOCK" means any class of Capital Stock of any person then
outstanding normally entitled (without regard to the occurrence of any
contingency) to vote in the elections of directors, managers, managing
partners or trustees.
Section 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term section
---- ----------
<S> <C>
"Accredited Investor" 2.01
"Bankruptcy Law" 6.01
"Custodian" 6.01
"DTC" 2.03
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"Event of Default" 6.01
"Legal Holiday" 11.07
"Paying Agent" 2.03
"Payment Blockage Period" 10.03
"QIB" 2.01
"Registrar" 2.03
"Repurchase Date" 4.12
"Repurchase Offer" 4.12
"Repurchase Price" 4.12
"Restricted Investment" 4.05
"Restricted Payment" 4.05
"U.S. Government Obligations" 8.01
</TABLE>
Section 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"INDENTURE SECURITIES" means the Notes;
"INDENTURE SECURITY HOLDER" means a Holder of a Note;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee;
"OBLIGOR" on the Notes means the Company and any other obligor
upon the Notes.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA and not otherwise defined herein have the meanings assigned to them
therein.
Section 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
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(4) words in the singular include the plural, and in the
plural include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2.
THE NOTES
Section 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A-1, which is part of this Indenture.
The Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage which do not amend or conflict with the terms of the
Notes. Each Note shall be dated the date of its authentication. The Notes
will be unsecured general obligations of the Company. The aggregate
principal amount of the Series A Notes shall be no greater than $199,900,000;
if the Series B Notes are issued, the aggregate principal amount of the
Series A Notes then outstanding shall be reduced by the aggregate principal
amount of the Series B Notes so issued. The Notes shall be issued in
registered form, without coupons, in denominations of $1,000 and integral
multiples thereof. The Company shall deliver to the Trustee a printed form
of Note.
The terms and provisions contained in the Notes shall constitute,
and are hereby expressly made, a part of this Indenture, and to the extent
applicable, the Company and the Trustee, by their execution and delivery of
this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
(a) RULE 144A GLOBAL NOTES. Notes offered and sold within the
United States to qualified institutional buyers as defined in Rule 144A
("QIBs") in reliance on Rule 144A shall be issued initially in the form of
Rule 144A Global Notes, which shall be deposited on behalf of the purchasers
of the Notes represented thereby with the Depository at its New York office,
and registered in the name of the Depository or a nominee of the Depository,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Rule 144A Global Notes may
from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depository or its nominee as hereinafter
provided.
(b) REGULATION S GLOBAL NOTES. Notes offered and sold in
reliance on Regulation S shall be issued initially in the form of the
Regulation S Temporary Global Note, which shall be deposited on behalf of the
purchasers of the Notes represented thereby with the Trustee, at its New York
office, as custodian for the Depository, and registered in the name of the
Depository or the nominee of the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The "40-day restricted
period" (as defined in Regulation S) shall be terminated upon the receipt by
the Trustee of (i) a written certificate from the Depository certifying that
it has received certification of non-United States beneficial ownership of
100% of the aggregate principal amount of the Regulation S Temporary Global
Note (except to the extent of any beneficial owners thereof who acquired an
interest therein pursuant to another exemption from registration under the
Securities Act and who will take
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delivery of a beneficial ownership interest in a Rule 144A Global Note, all
as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers'
Certificate from the Company. Following the termination of the 40-day
restricted period, beneficial interests in the Regulation S Temporary Global
Note shall be exchanged for beneficial interests in Regulation S Permanent
Global Notes pursuant to the Applicable Procedures. Simultaneously with the
authentication of Regulation S Permanent Global Notes, the Trustee shall
cancel the Regulation S Temporary Global Note. The aggregate principal
amount of the Regulation S Temporary Global Note and the Regulation S
Permanent Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depository or its
nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
(c) GLOBAL NOTES IN GENERAL. Each Global Note shall represent
such of the outstanding Notes as shall be specified therein and each shall
provide that it shall represent the aggregate amount of outstanding Notes
from time to time endorsed thereon and that the aggregate amount of
outstanding Notes represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and redemptions. Any
endorsement of a Global Note to reflect the amount of any increase or
decrease in the amount of outstanding Notes represented thereby shall be made
by the Trustee or the Note Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof as required by
Section 2.06 hereof.
Except as set forth in Section 2.06 hereof, the Global Notes may
be transferred, in whole and not in part, only to another nominee of the
Depository or to a successor of the Depository or its nominee.
(d) BOOK-ENTRY PROVISIONS. This Section 2.01(d) shall apply only
to Rule 144A Global Notes and the Regulation S Permanent Global Notes
deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.01(d) and Section 2.02, authenticate and deliver the
Global Notes that (i) shall be registered in the name of the Depository or
the nominee of the Depository and (ii) shall be delivered by the Trustee to
the Depository or pursuant to the Depository's instructions or held by the
Trustee as custodian for the Depository.
Agent Members shall have no rights either under this Indenture
with respect to any Global Note held on their behalf by the Depository or by
the Note Custodian or under such Global Note, and the Depository may be
treated by the Company, the Trustee and any agent of the Company or the Note
Custodian as the absolute owner of such Global Note for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company or the Note Custodian from
giving effect to any written certification, proxy or other authorization
furnished by the Depository or impair, as between the Depository and its
Agent Members, the operation of customary practices of such Depository
governing the exercise of the rights of an owner of a beneficial interest in
any Global Note.
(e) CERTIFICATED NOTES. Notes issued to accredited investors as
defined in Rule 501(a)(1), (2), (3), (4) or (7) under the Securities Act
("Accredited Investors") who are not QIBs
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and other Notes not issued as interests in the Global Notes will be issued in
certificated form substantially in the form of Exhibit A-1 attached hereto
(but without including the text referred to in footnotes 1 and 2 thereto).
Section 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes.
If an Officer whose signature is on a Note no longer holds that
office at the time the Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that
the Note has been authenticated under this Indenture.
The Trustee shall authenticate the Notes for original issue up to
the aggregate principal amount stated in paragraph 4 of the Notes upon a
written order of the Company signed by two Officers. The aggregate principal
amount of Notes outstanding at any time may not exceed that amount except as
provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate.
Section 2.03. REGISTRAR; PAYING AGENT; DEPOSITORY; NOTE CUSTODIAN.
The Company shall maintain in the county where the principal
corporate office of the Trustee is located and in such other locations as it
shall determine (i) an office or agency where Notes may be presented for
registration of transfer or for exchange ("Registrar") and (ii) an office or
agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent, Registrar or
co-registrar upon thirty (30) days' notice to the Trustee. The Company shall
notify the Trustee of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any
of its Subsidiaries may act as Paying Agent, Registrar or co-registrar.
The Company shall, if the Notes are listed on the New York Stock
Exchange, designate as authenticating agent, co-registrar and Paying Agent
with respect to the Notes a bank or trust company in good standing, organized
under the laws of the United States of America or any State, doing business
in or having a correspondent relationship with a bank or trust company doing
business in the Borough of Manhattan, City of New York, State of New York,
and having a capital and surplus (including subordinated capital notes and
earned surplus) aggregating at
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least $10,000,000 (except with respect to Article 8, in which case the Paying
Agent (if other than the Trustee) shall have a capital and surplus (including
subordinated capital notes and earned surplus) aggregating at least
$100,000,000). Whenever, pursuant to this Indenture, the Trustee is
obligated, empowered or authorized to perform any act with respect to the
authentication and issuance of the Notes, or their transfer, other than the
authentication and issuance of Notes upon original issue or in cases of Notes
mutilated, destroyed, lost or stolen, such act may be performed by the
authenticating agent and co-registrar, notwithstanding anything in this
Indenture to the contrary. Whenever, pursuant to this Indenture, the Trustee
is obligated, empowered or authorized to perform any act with respect to
payment of the principal of (and premium, if any) or interest on the Notes,
such acts may be performed by the Paying Agent, notwithstanding anything in
this Indenture to the contrary.
The Company covenants that whenever necessary to avoid or fill a
vacancy in the office of authenticating agent, co-registrar and Paying Agent,
the Company will appoint a successor authenticating agent, co-registrar and
Paying Agent so that there shall, at all times that the Notes are listed for
trading on the New York Stock Exchange, be one or more offices or agencies in
the Borough of Manhattan, City of New York, State of New York, acceptable to
the New York Stock Exchange, where Notes may be presented or surrendered for
payment and where Notes may be surrendered for registration of transfer or
exchange.
In case, at the time of the appointment of a successor to the
authenticating agent, any of the Notes shall have been authenticated but not
delivered, any such successor may adopt the certificate of authentication of
the original authenticating agent or of any successor to it as authenticating
agent hereunder, and deliver such Notes so authenticated; and in case at any
time any of the Notes shall not have been authenticated, any successor to the
authenticating agent by merger or consolidation may authenticate such
securities either in the name of its predecessor hereunder or in the name of
the successor authenticating agent; and in all such cases such certificate
shall have the full force which it is anywhere in the Notes or in this
Indenture provided that the certificate of authentication shall have.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depository with respect to the Global Notes. The Company
initially appoints the Trustee to act as the Registrar and Paying Agent and
to act as Note Custodian with respect to the Global Notes. The Company
initially appoints the Trustee to act as the Registrar and Paying Agent with
respect to the Certificated Notes.
Section 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent will hold in trust for the benefit
of Noteholders or the Trustee all money held by the Paying Agent for the
payment of principal, interest or Liquidated Damages, if any, on the Notes
(whether such money has been paid to it by the Company or any other obligor
on the Notes), and will notify the Trustee of any default by the Company (or
any other obligor on the Notes) in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money
held by it to the Trustee. The Company at any time may require a Paying Agent
to pay all money held by it to the Trustee. Upon payment over to the
Trustee, the Paying Agent (if other than the Company or a subsidiary) shall
have no further
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liability for the money. If the Company or a subsidiary acts as Paying Agent,
it shall segregate and hold in a separate trust fund for the benefit of the
Noteholders all money held by it as Paying Agent.
Section 2.05. NOTEHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of Noteholders. If the Trustee is not the Registrar, the Company and any
other obligor shall furnish to the Trustee on or before each interest payment
date and at such other times as the Trustee may request in writing, but in
any event at least semi-annually, a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of Noteholders.
Section 2.06. TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. The transfer and
exchange of Global Notes or beneficial interests therein shall be effected
through the Depository, in accordance with this Indenture and the procedures
of the Depository therefor, which shall include restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act. Beneficial interests in a Global Note may be transferred to persons who
take delivery thereof in the form of a beneficial interest in the same type
of Global Note in accordance with the transfer restrictions set forth in the
legend in subsection (g) of this Section 2.06. Transfers of beneficial
interests in the Global Notes to persons required to take delivery thereof in
the form of an interest in another type of Global Note shall be permitted as
follows:
(i) RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE.
If, at any time, an owner of a beneficial interest in a Rule 144A Global
Note deposited with the Depository (or the Note Custodian) wishes to
transfer its interest in such Rule 144A Global Note to a person who is
required or permitted to take delivery thereof in the form of an
interest in a Regulation S Global Note, such owner shall, subject to the
Applicable Procedures, exchange or cause the exchange of such interest
for an equivalent beneficial interest in a Regulation S Global Note as
provided in this Section 2.06(a)(i). Upon receipt by the Trustee of (1)
instructions given in accordance with the Applicable Procedures from an
Agent Member directing the Trustee to credit or cause to be credited a
beneficial interest in the Regulation S Global Note in an amount equal
to the beneficial interest in the Rule 144A Global Note to be exchanged,
(2) a written order given in accordance with the Applicable Procedures
containing information regarding the participant account of the
Depository to be credited with such increase and (3) a certificate in
the form of Exhibit B-1 hereto given by the owner of such beneficial
interest stating that the transfer of such interest has been made in
compliance with the transfer restrictions applicable to the Global Notes
and pursuant to and in accordance with Rule 903 or Rule 904 of
Regulation S, then the Trustee, as Registrar, shall instruct the
Depository to reduce or cause to be reduced the aggregate principal
amount at maturity of the applicable Rule 144A Global Note and to
increase or cause to be increased the aggregate principal amount at
maturity of the applicable Regulation S Global Note by the principal
amount at maturity of the beneficial interest in the Rule 144A Global
Note to be exchanged, to credit or cause to be credited to the account
of the person specified in such
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instructions a beneficial interest in the Regulation S Global Note equal
to the reduction in the aggregate principal amount at maturity of the
Rule 144A Global Note, and to debit, or cause to be debited, from the
account of the person making such exchange or transfer the beneficial
interest in the Rule 144A Global Note that is being exchanged or
transferred.
(ii) REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL NOTE.
If, at any time, an owner of a beneficial interest in a Regulation S
Global Note deposited with the Depository (or the Note Custodian) wishes
to transfer its interest in such Regulation S Global Note to a person
who is required or permitted to take delivery thereof in the form of an
interest in a Rule 144A Global Note, such owner shall, subject to the
Applicable Procedures, exchange or cause the exchange of such interest
for an equivalent beneficial interest in a Rule 144A Global Note as
provided in this Section 2.06(a)(ii). Upon receipt by the Trustee of
(1) written instructions from the Depository, directing the Trustee, as
Registrar, to credit or cause to be credited a beneficial interest in
the Rule 144A Global Note equal to the beneficial interest in the
Regulation S Global Note to be exchanged, such instructions to contain
information regarding the participant account with the Depository to be
credited with such increase, (2) a written order given in accordance
with the Applicable Procedures containing information regarding the
participant account of the Depository and (3) a certificate in the form
of Exhibit B-2 attached hereto given by the owner of such beneficial
interest stating (A) if the transfer is pursuant to Rule 144A, that the
person transferring such interest in a Regulation S Global Note
reasonably believes that the person acquiring such interest in a Rule
144A Global Note is a QIB and is obtaining such beneficial interest in a
transaction meeting the requirements of Rule 144A and any applicable
blue sky or securities laws of any state of the United States, (B) that
the transfer complies with the requirements of Rule 144 under the
Securities Act and any applicable blue sky or securities laws of any
state of the United States or (C) if the transfer is pursuant to any
other exemption from the registration requirements of the Securities
Act, that the transfer of such interest has been made in compliance with
the transfer restrictions applicable to the Global Notes and pursuant to
and in accordance with the requirements of the exemption claimed, such
statement to be supported by an Opinion of Counsel from the transferee
or the transferor in form reasonably acceptable to the Company and to
the Registrar, then the Trustee, as Registrar, shall instruct the
Depository to reduce or cause to be reduced the aggregate principal
amount at maturity of such Regulation S Global Note and to increase or
cause to be increased the aggregate principal amount at maturity of the
applicable Rule 144A Global Note by the principal amount at maturity of
the beneficial interest in the Regulation S Global Note to be exchanged,
and the Trustee, as Registrar, shall instruct the Depository,
concurrently with such reduction, to credit or cause to be credited to
the account of the person specified in such instructions a beneficial
interest in the applicable Rule 144A Global Note equal to the reduction
in the aggregate principal amount at maturity of such Regulation S
Global Note and to debit or cause to be debited from the account of the
person making such transfer the beneficial interest in the Regulation S
Global Note that is being transferred.
(b) TRANSFER AND EXCHANGE OF CERTIFICATED NOTES. When Certificated
Notes are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Certificated Notes; or
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(y) to exchange such Certificated Notes for an equal
principal amount of Certificated Notes of other authorized
denominations,
the Registrar shall register the transfer or make the exchange as requested;
PROVIDED, HOWEVER, that the Certificated Notes presented or surrendered for
register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by such Holder's attorney, duly authorized in
writing; and
(ii) in the case of a Certificated Note that is a Transfer
Restricted Security, such request shall be accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for registration in the name
of such Holder, without transfer, or such Transfer Restricted
Security is being transferred to the Company, a certification to
that effect from such Holder (in substantially the form of Exhibit B-3
hereto);
(B) if such Transfer Restricted Security is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act or pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act or pursuant to an
effective registration statement under the Securities Act, a
certification to that effect from such Holder (in substantially the
form of Exhibit B-3 hereto); or
(C) if such Transfer Restricted Security is being
transferred in reliance on any other exemption from the
registration requirements of the Securities Act (including Rule 904
thereunder), a certification to that effect from such Holder (in
substantially the form of Exhibit B-3 hereto) and an Opinion of
Counsel from such Holder or the transferee reasonably acceptable to
the Company and to the Registrar to the effect that such transfer
is in compliance with the Securities Act.
(c) TRANSFER OF A BENEFICIAL INTEREST IN A RULE 144A GLOBAL NOTE OR
REGULATION S PERMANENT GLOBAL NOTE FOR A CERTIFICATED NOTE.
(i) Any person having a beneficial interest in a Rule 144A
Global Note or Regulation S Permanent Global Note may upon request,
subject to the Applicable Procedures, exchange such beneficial interest
for a Certificated Note. Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary for the
Depository, from the Depository or its nominee on behalf of any person
having a beneficial interest in a Rule 144A Global Note or Regulation S
Permanent Global Note, and, in the case of a beneficial interest in a
Transfer Restricted Security only, the following additional information
and documents (all of which may be submitted by facsimile):
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(A) if such beneficial interest is being transferred
to the person designated by the Depository as being the beneficial
owner, a certification to that effect from such person (in
substantially the form of Exhibit B-4 hereto);
(B) if such beneficial interest is being transferred
to a QIB in accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in accordance with Rule
144 under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a certification to
that effect from the transferor (in substantially the form of
Exhibit B-4 hereto); or
(C) if such beneficial interest is being transferred
in reliance on any other exemption from the registration
requirements of the Securities Act (including Rule 904 thereunder),
a certification to that effect from the transferor (in
substantially the form of Exhibit B-4 hereto) and an Opinion of
Counsel from the transferee or the transferor reasonably acceptable
to the Company and to the Registrar to the effect that such
transfer is in compliance with the Securities Act,
in which case the Trustee or the Note Custodian, at the direction of the
Trustee, shall, in accordance with the standing instructions and procedures
existing between the Depository and the Note Custodian, cause the aggregate
principal amount of Rule 144A Global Notes or Regulation S Permanent Global
Notes, as applicable, to be reduced accordingly and, following such
reduction, the Company shall execute and the Trustee shall authenticate and
deliver to the transferee a Certificated Note in the appropriate principal
amount.
(ii) Certificated Notes issued in exchange for a beneficial
interest in a Rule 144A Global Note or Regulation S Permanent Global
Note, as applicable, pursuant to this Section 2.06(c) shall be
registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Certificated Notes to the persons in whose names such
Notes are so registered. Following any such issuance of Certificated
Notes, the Trustee, as Registrar, shall instruct the Depository to
reduce or cause to be reduced the aggregate principal amount at maturity
of the applicable Global Note to reflect the transfer.
(d) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL NOTES.
Notwithstanding any other provision of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.06), a Global Note
may not be transferred as a whole except by the Depository to a nominee of
the Depository, or by a nominee of the Depository to the Depository or
another nominee of the Depository, or by the Depository or any such nominee
to a successor Depository or a nominee of such successor Depository.
(e) TRANSFER AND EXCHANGE OF A CERTIFICATED NOTE FOR A
BENEFICIAL INTEREST IN A GLOBAL NOTE. Holders of Certificated Notes may
offer, resell, pledge or otherwise transfer such Notes only pursuant to an
effective registration statement under the Securities Act, inside the United
States to a QIB in a transaction meeting the requirements of Rule 144A, in a
transaction meeting the requirements of Rule 144 under the Securities Act,
outside the United States in a
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transaction meeting the requirements of rule 904 under the Securities Act or
to the company, in each case in compliance with any applicable securities
laws of any state of the United States or any other applicable jurisdiction.
When Certificated Notes are presented by a Holder to the Registrar
with a request (x) to register the transfer of the Certificated Notes or (y)
to exchange such Certificated Notes for an equal principal amount of
Certificated Notes of other authorized denominations, the registrar shall
register the transfer or make the exchange as requested if its requirements
for such transactions are met; PROVIDED, HOWEVER, that the Certificated Notes
presented or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the registrar duly
executed by such holder or by his attorney, duly authorized in writing,
which instructions, if applicable, shall direct the trustee (a) to
cancel any Certificated Note being exchanged for another Certificated
Note or a beneficial interest in a Global Note in accordance with
section 2.11 hereof, and (b) to make, or to direct the registrar to
make, an endorsement on the appropriate global note to reflect an
increase in the aggregate principal amount of the Notes represented by
such Global Note; and
(ii) such request shall be accompanied by the following
additional information and documents, as applicable:
(A) if such Certificated Note is being delivered to the
Registrar by a Holder for registration in the name of such holder,
without transfer, a certification to that effect from such Holder (in
substantially the form of Exhibit B-5 hereto); or
(B) if such Certificated Note is being transferred to a
QIB in accordance with Rule 144A, pursuant to Rule 144 under the
Securities Act or pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act or pursuant to an
effective registration statement under the Securities Act, a
certification to that effect from such Holder (in substantially the
form of Exhibit B-5 hereto).
(f) AUTHENTICATION OF CERTIFICATED NOTES IN ABSENCE OF DEPOSITORY.
If at any time:
(i) the Depository for the Notes notifies the Company that
the Depository is unwilling or unable to continue as Depository for the
Global Notes and a successor Depository for the Global Notes is not
appointed by the Company within 90 days after delivery of such notice; or
(ii) the Company delivers to the Trustee an Officers'
Certificate or an order signed by two Officers of the Company notifying the
Trustee that it elects to cause the issuance of Certificated Notes under
this Indenture,
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then the Company shall execute, and the Trustee shall, upon receipt of
an Authentication Order in accordance with Section 2.02 hereof,
authenticate and deliver, Certificated Notes in an aggregate principal
amount equal to the principal amount of the Global Notes in exchange for
such Global Notes.
(g) LEGENDS.
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Note certificate evidencing Global Notes and
Certificated Notes (and all Notes issued in exchange therefor or
substitution thereof) shall bear a legend in substantially the following
form (each a "Transfer Restricted Security"):
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5
OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING
ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE,
IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT
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HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN
(A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Note) pursuant to Rule 144 under the Securities Act or pursuant
to an effective registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security
that is a Certificated Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Certificated Note that does not bear the legend set forth in (i)
above and rescind any restriction on the transfer of such Transfer
Restricted Security upon receipt of a certification from the
transferring Holder substantially in the form of Exhibit B-4
hereto; and
(B) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer Restricted Security
shall not be required to bear the legend set forth in (i) above,
but shall continue to be subject to the provisions of Section
2.06(a) and (b) hereof; PROVIDED, HOWEVER, that with respect to
any request for an exchange of a Transfer Restricted Security that
is represented by a Global Note for a Certificated Note that does
not bear the legend set forth in (i) above, which request is made
in reliance upon Rule 144, the Holder thereof shall certify in
writing to the Registrar that such request is being made pursuant
to Rule 144 (such certification to be substantially in the form of
Exhibit B-4 hereto).
(iii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Note) in reliance on any exemption from the registration
requirements of the Securities Act (other than exemptions pursuant to
Rule 144A or Rule 144 under the Securities Act) in which the Holder or
the transferee provides an Opinion of Counsel to the Company and the
Registrar in form and substance reasonably acceptable to the Company and
the Registrar (which Opinion of Counsel shall also state that the
transfer restrictions contained in the legend are no longer applicable):
(A) in the case of any Transfer Restricted Security
that is a Certificated Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Certificated Note that does not bear the legend set forth in (i)
above and rescind any restriction on the transfer of such Transfer
Restricted Security; and
(B) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer Restricted Security
shall not be required to bear the legend set forth in (i) above,
but shall continue to be subject to the provisions of Section 2.06(a)
and (b) hereof.
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(iv) Notwithstanding the foregoing, upon consummation of the
Exchange Offer in accordance with the Registration Rights Agreement, the
Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate Series
B Notes in exchange for Series A Notes accepted for exchange in the
Exchange Offer, which Series B Notes shall not bear the legend set forth in
(i) above, and the Registrar shall rescind any restriction on the transfer
of such Series B Notes, in each case unless the Holder of such Series A
Notes is either (A) a broker-dealer who purchased such Transfer Restricted
Security directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, (B) a person
participating in the distribution (within the meaning of the Securities
Act) of the Series A Notes or (C) a person who is an affiliate (as defined
in Rule 144 of the Securities Act) of the Company.
(h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such
time as all beneficial interests in Global Notes have been exchanged for
Certificated Notes, redeemed, repurchased or cancelled, all Global Notes
shall be returned to or retained and cancelled by the Trustee in accordance
with Section 2.11 hereof. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for an interest in another
Global Note or for Certificated Notes, redeemed, repurchased or cancelled,
the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note, by
the Trustee or the Note Custodian, at the direction of the Trustee, to
reflect such reduction.
(i) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Certificated Notes
and Global Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 3.06, 4.12 and 9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Certificated Notes and Global Notes issued upon any
registration of transfer or exchange of Certificated Notes or Global Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Certificated
Notes or Global Notes surrendered upon such registration of transfer or
exchange.
(v) The Company shall not be required:
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(A) to issue, to register the transfer of or to
exchange Notes during a period beginning at the opening of business
15 days before the day of any selection of Notes for redemption under
Section 3.02 hereof and ending at the close of business on the day of
selection; or
(B) to register the transfer of or to exchange any Note
so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part; or
(C) to register the transfer of or to exchange a Note
between a record date and the next succeeding interest payment date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Company may deem and
treat the person in whose name any Note is registered as the absolute owner
of such Note for the purpose of receiving payment of principal of and
interest and Liquidated Damages, if any, on such Notes, and for all other
purposes whatsoever, and neither the Trustee, any Agent nor the Company
shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Certificated Notes and
Global Notes in accordance with the provisions of Section 2.02 hereof.
The Registrar may rely on information set forth in a certificate
substantially in the form of Exhibit B-1, B-2, B-3, B-4 or B-5 hereto, and
other certificates and opinions received pursuant to this Section 2.06 and,
in the absence of receipt of such a certificate or opinion, shall not be
deemed to have knowledge of a transfer of an interest in a Global Security
absent actual knowledge of such transfer.
Section 2.07. REPLACEMENT NOTES.
If the Holder of a Note claims that the Note has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Note if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be provided
which is sufficient in the judgment of both to protect the Company, the
Trustee, any Agent or any authenticating agent from any loss which any of
them may suffer if a Note is replaced. The Company may charge for its
expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
Section 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated
by the Trustee except for those cancelled by it, those delivered to it for
cancellation and those described in this Section as not outstanding.
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If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If Notes are considered paid under Section 4.01, they cease to be
outstanding and interest on them ceases to accrue.
Subject to Section 2.09, a Note does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Note.
Section 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes
owned by the Company or any other obligor or an Affiliate of the Company or
any other obligor shall be considered as though they are not outstanding,
except that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Notes
which the Trustee knows are so owned shall be so disregarded.
Notwithstanding the foregoing, Notes that are to be acquired by the Company
or an Affiliate of the Company pursuant to an exchange offer, tender offer or
other agreement shall not be deemed to be owned by the Company or an
Affiliate of the Company until legal title to such Notes passes to the
Company or Affiliate, as the case may be.
Section 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes. Temporary Notes
shall be substantially in the form of definitive Notes but may have
variations that the Company considers appropriate for temporary Notes.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Notes in exchange for temporary Notes without charge
to the Noteholders.
Section 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Notes surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall dispose of
cancelled Notes as the Company directs. The Company may not issue new Notes
to replace Notes that it has paid or that have been delivered to the Trustee
for cancellation. All cancelled Notes held by the Trustee shall be destroyed
and certification of their destruction delivered to the Company, unless by a
written order, signed by two Officers of the Company, the Company shall
direct that cancelled Notes be returned to it.
Section 2.12. DEFAULTED INTEREST.
If the Company fails to make a payment of interest on the Notes,
it shall pay such defaulted interest plus any interest payable on the
defaulted interest, if any, in any lawful manner. It may pay such defaulted
interest, plus any such interest payable on it, to the persons who are
Noteholders on a subsequent special record date. The Company shall fix any
such record date
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and payment date. At least 15 days before any such record date, the Company
shall mail to Noteholders a notice that states the record date, payment date
and amount of such interest to be paid.
Section 2.13. CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number and if
so the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders, PROVIDED that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company
shall promptly notify the Trustee of any change in the CUSIP number.
Section 2.14. EXCHANGE REGISTRATION.
In the event that the Company delivers to the Trustee a copy of an
order of effectiveness or a certification of the Company with respect to such
effectiveness with respect to the Exchange Offer, the Trustee shall, at the
Company's expense, notify the Holders of the receipt of such order of
effectiveness or certification and upon the request of any Holder shall
exchange such Holder's Series A Notes for Series B Notes upon the terms set
forth in the Exchange Offer.
ARTICLE 3.
REDEMPTION
Section 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem the Notes pursuant to the optional
redemption provisions of paragraph 5 of the Notes, it shall notify the
Trustee in writing of the redemption date and the principal amount of the
Notes to be redeemed.
The Company shall give each notice provided for in this Section at
least 60 days before the redemption date (unless a shorter notice period
shall be satisfactory to the Trustee); PROVIDED, HOWEVER, that the Trustee
shall have no liability to any Holder if it deems such shorter notice period
satisfactory to it.
Section 3.02. SELECTION OF NOTES TO BE REDEEMED.
Except as provided below, if less than all of the Notes are to be
redeemed, the Trustee shall select the Notes or portions thereof to be
redeemed on a pro rata basis or by lot among the Holders of the Notes in
accordance with a method the Trustee considers fair and appropriate (in such
manner as complies with applicable legal and stock exchange requirements, if
any).
The amount of Notes shall be calculated as the aggregate principal
amount of Notes originally issued hereunder less the aggregate principal
amount of any Notes previously redeemed. The Trustee shall make the
selection not more than 60 days and not less than 30 days before the
redemption date from outstanding Notes not previously called for redemption.
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The Trustee shall promptly notify the Company of the Notes or
portions of Notes to be called for redemption. The Trustee may select for
redemption portions of the principal of Notes that have denominations larger
than $1,000. Notes and portions of them it selects shall be in amounts of
$1,000 or integral multiples of $1,000. Provisions of this Indenture that
apply to Notes called for redemption also apply to portions of Notes called
for redemption.
Section 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption
date, the Company shall mail by first class mail, postage prepaid a notice of
redemption to each Holder whose Notes are to be redeemed at its address of
record.
The notice shall identify the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption
date, upon surrender of such Note, a new Note or Notes in principal amount
equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price plus accrued interest;
(6) that, unless the Company defaults in making the
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the redemption date, and that if a Note is redeemed on
or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the
person in whose name such Note was registered at the close of business on
such record date; and
(7) the paragraph of the Notes pursuant to which the Notes
called for redemption are being redeemed.
At the Company's written request, the Trustee shall give the
notice of redemption in the Company's name and at its expense.
Section 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Notes called for redemption
become due and payable on the redemption date at the price set forth in the
Note. Unless the Company defaults in making the redemption payment, on and
after the redemption date, interest ceases to accrue on the Notes or the
portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and
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unpaid interest shall be paid to the person in whose name such Note was
registered at the close of business on such record date. If any Note called
for redemption shall not be so paid upon surrender thereof for redemption,
the principal (and premium, if any) shall, until paid, bear interest from the
redemption date at the rate borne by the Note.
Section 3.05. DEPOSIT OF REDEMPTION PRICE.
No later than 10:00 a.m. Eastern Time on the redemption date, the
Company shall deposit with the Trustee or with the Paying Agent immediately
available funds sufficient to pay the redemption price of and accrued
interest and Liquidated Damages, if any, on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company
any money not required for that purpose.
Section 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder at the expense
of the Company a new Note equal in principal amount to the unredeemed portion
of the Note surrendered.
Section 3.07. MANDATORY DISPOSITION PURSUANT TO GAMING LAWS.
Notwithstanding any other provision of this Article 3, if a record
or beneficial owner of a Note is required by any Gaming Authority to be found
suitable, such owner shall apply for a finding of suitability within 30 days
after request of such Gaming Authority. The applicant for a finding of
suitability must pay all costs of the investigation for such finding of
suitability. If a record or beneficial owner is required to be found suitable
and is not found suitable by such Gaming Authority, (i) such owner shall,
upon request of the Company, dispose of such owner's Notes within 30 days or
within that time prescribed by such Gaming Authority, whichever is earlier,
or (ii) the Company may, at its option, redeem such owner's Notes at the
lesser of (x) the principal amount thereof or (y) the price at which the
Notes were acquired by such owner, together with, in either case, accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of the
finding of unsuitability by such Gaming Authority.
ARTICLE 4.
COVENANTS
Section 4.01. PAYMENT OF NOTES.
The Company shall pay the principal of and interest on the Notes
on the dates and in the manner provided in the Notes. Principal and interest
shall be considered paid on the date due if the Paying Agent (other than the
Company or any Subsidiary or Affiliate of the Company) holds on that date
money in immediately available funds designated for and sufficient to pay all
principal and interest then due. The Company shall pay all Liquidated
Damages, if any, in the same manner on the dates and in the amounts set forth
in the Registration Rights Agreement.
To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on (i)
overdue principal at the rate borne by the Notes compounded semiannually; and
(ii) overdue installments of interest and Liquidated
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Damages (without regard to any applicable grace period) at the same rate,
compounded semiannually.
Section 4.02. SEC REPORTS, FINANCIAL REPORTS.
The Company shall file with the Trustee and shall provide Holders
within 15 days after it files them with the SEC copies of the quarterly and
annual reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company files with the SEC pursuant to
Sections 13(a) and 13(c) or 15(d) of the Exchange Act. The Company will
continue to file with the SEC and the Trustee, and to provide to Holders, on
the same timely basis such reports, information and other documents as the
Company would be required to file with the SEC as if the Company were subject
to the requirements of such Sections 13(a) and 13(c) or 15(d) of the Exchange
Act, notwithstanding that the Company may no longer be subject to Section
13(a) and 13(c) or 15(d) of the Exchange Act and that the Company would be
entitled not to file such reports, information and other documents with the
SEC. In addition, if the Company has any Unrestricted Subsidiaries at such
time, it shall also file with the Trustee, and provide to the Holders, on the
same timely basis, all quarterly and annual financial statements (which
statements may be unaudited) that would be required by Forms 10-Q and 10-K if
the Company did not have such Unrestricted Subsidiaries.
The Company also shall comply with the provisions of TIA Section
314(a). The Company shall timely comply with its reporting and filing
obligations under applicable federal securities law. For so long as any
Transfer Restricted Securities remain outstanding, the Company shall furnish
to the Holders and to prospective purchasers of the Notes designated by the
Holders of Transfer Restricted Securities, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Section 4.03. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company (which currently is March
31), an Officers' Certificate stating that a review of the activities of the
Company and its subsidiaries during the preceding fiscal year has been made
under the supervision of the signing Officers with a view to determining
whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such
Officer signing such certificate, that to the best of his knowledge the
Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all such Defaults
or Events of Default of which he may have knowledge) and that to the best of
his knowledge no event has occurred and remains in existence by reason of
which payments on account of the principal of or interest, if any, on the
Notes are prohibited, or if such event has occurred, a description of the
event.
(b) So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants or to a written
policy adopted by the Company's independent public accountants which has been
previously applied (a copy of which
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shall be delivered to the Trustee), the audited financial statements
delivered pursuant to Section 4.02 shall be accompanied by a written
statement of the Company's independent public accountants (which shall be a
firm of established national reputation) that in making the examination
necessary for certification of such financial statements nothing has come to
their attention which would lead them to believe that the Company has
violated any provisions of Article 4 or 5 of this Indenture or, if any such
violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable
directly or indirectly to any person for any failure to obtain knowledge of
any such violation.
(c) The Company will, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon becoming aware of (i) any
Default or Event of Default in the performance of any covenant, agreement or
condition contained in this Indenture or (ii) any event of default under any
other mortgage, indenture or instrument governing other Indebtedness of the
Company aggregating in excess of $5,000,000, an Officers' Certificate
specifying such Default, Event of Default or default.
Section 4.04. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the
extent it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every such power
as though no such law has been enacted.
Section 4.05. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution
in respect of, or purchase, redeem or retire for value, any Capital Stock
of the Company or of any Restricted Subsidiary, other than, in the case of
the Company, through the issuance (as a dividend or stock split thereon or
in exchange therefor) solely of the Company's own Capital Stock (excluding
Exchangeable Stock or Redeemable Stock) and, in the case of a Restricted
Subsidiary, with respect to shares of its Capital Stock that are owned
solely by the Company or a wholly-owned Restricted Subsidiary;
(ii) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value, prior to scheduled
principal payment or maturity, Subordinated Indebtedness; or
(iii) incur, create, assume or suffer to exist any guarantee of
Indebtedness of, or make any loan or advancement to, or other investment
in, any
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Affiliate or Related Person of the Company or a Restricted Subsidiary,
other than the Company or a Restricted Subsidiary;
(such payments or any other actions described in clauses (i) and (ii), a
"Restricted Payment," and in clause (iii), a "Restricted Investment"), unless:
(a) at the time of and after giving effect to the proposed
Restricted Payment or Restricted Investment, no Event of Default (and
no event that, after notice or lapse of time, or both, would become
an Event of Default) shall have occurred and be continuing; and
(b) at the time of and after giving effect to the proposed
Restricted Payment or Restricted Investment (the value of which, if
in a form other than cash, shall be determined in good faith by the
Board of Directors, whose determination shall be conclusive and
evidenced by a board resolution), the aggregate amount of all
Restricted Payments and Restricted Investments declared or made after
June 2, 1993, shall not exceed the sum of, without duplication,
(I) 50% of the cumulative Consolidated Net Income
of the Company (or if such cumulative Consolidated Net Income
shall be a loss, 100% of such loss) accrued after June 2, 1993,
less any negative extraordinary charges not reflected in
Consolidated Net Income;
(II) an amount equal to the Net Proceeds received
by the Company from the issuance and sale (other than to a
Subsidiary) after June 2, 1993 of Capital Stock (excluding
Exchangeable Stock, Redeemable Stock and Capital Stock issued
in exchange for previously outstanding shares of Capital Stock
if such exchange did not constitute a Restricted Payment);
(III) $15,000,000; and
(IV) an amount equal to 50% of any dividends
received by and 100% of any Restricted Investments which are
returned or repaid to (in each case, to the extent not included
in Consolidated Net Income of the Company) the Company or a
wholly-owned Restricted Subsidiary after the date of the
Indenture from an Unrestricted Subsidiary of the Company;
PROVIDED, HOWEVER, that Net Proceeds received from the sale of the stock of
PSHC, BSI, TSI, SSI, KCSC, SCRSI, SGSI or SWSI, or any successor or assignee
thereof, by the Company shall not be included in clause (II) above.
For purposes of any calculation pursuant to the preceding sentence
which is required to be made within 60 days after the declaration of a
dividend by the Company or any Subsidiary, such dividend shall be deemed to
be paid at the date of declaration, and the subsequent payment of such
dividend during such 60-day period shall not be treated as an additional
Restricted Payment.
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Notwithstanding the foregoing, the provisions of this Section 4.05
will not prevent the following Restricted Payments or Restricted Investments:
(a) payment of any dividend within 60 days after the date of its declaration
if at the date of declaration such payment would be permitted by this
Section; and (b) Restricted Investments, which together with all other
Restricted Investments since June 2, 1993, do not exceed $20,000,000 in the
aggregate, provided that after giving effect to each such Restricted
Investment (as if it had occurred on the first day of such period) the pro
forma Consolidated Coverage Ratio of the Company, calculated cumulatively for
the four most recent consecutive fiscal quarters of the Company and ending
prior to the date of the latest Restricted Investment, shall be greater than
2.00 to 1.00.
The Board of Directors may designate any Restricted Subsidiary to
be an Unrestricted Subsidiary if such designation would not cause a Default;
PROVIDED that in no event shall the business currently operated by PSHC, BSI,
SCRSI, TSI, SGSI or SWSI, or the business operated by KCSC (or its
Affiliates) at the Station Casino Kansas City property located in Kansas,
City, Missouri, be transferred to or held by an Unrestricted Subsidiary. For
purposes of making such determination, all outstanding investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under this Section 4.05. All such outstanding investments
will be deemed to constitute investments in an amount equal to the fair
market value of such investments at the date of such designation. Such
designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
Prior to making any Restricted Payment or Restricted Investment,
the Company will deliver to the Trustee an Officers' Certificate (dated the
date of such proposed payment or investment) stating (i) that such proposed
payment or investment will be in compliance with this Section 4.05 and (ii)
no Default or Event of Default under this Indenture has occurred or will
occur as a result of such proposed payment or investment.
Section 4.06. LIMITATION ON INDEBTEDNESS.
The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or suffer
to exist, or otherwise in any manner become or remain liable, directly or
indirectly, with respect to any Indebtedness, except, without duplication,
for (i) the incurrence by the Company's Unrestricted Subsidiaries of
Qualified Non-Recourse Debt, PROVIDED, HOWEVER, that if any such Indebtedness
ceases to be Qualified Non-Recourse Debt of an Unrestricted Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company; (ii) FF&E Financing incurred by the
Company or its Restricted Subsidiaries, (iii) the Notes, (iv) the Existing
Senior Subordinated Notes and Existing Indebtedness, (v) provided no Event of
Default shall have occurred and be continuing, other Indebtedness of the
Company and its Restricted Subsidiaries in an amount not to exceed
$15,000,000 in aggregate principal amount, (vi) additional Indebtedness of
the Company and its Restricted Subsidiaries, if at the time of the incurrence
of such Indebtedness, the pro forma Consolidated Coverage Ratio of the
Company, calculated cumulatively for the four most recent consecutive fiscal
quarters of the Company and ending prior to the date of incurrence (the
"Reference Period"), is not less than 2.00 to 1.00, after giving
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effect to (A) the incurrence of such Indebtedness as if such Indebtedness was
incurred at the beginning of the Reference Period and (if applicable) the
application of the net proceeds thereof to refinance other Indebtedness as if
the application of such proceeds occurred at the beginning of the Reference
Period and, (B) the acquisition or disposition of any company or business
acquired or disposed of by the Company or any Restricted Subsidiary since the
first day of the Reference Period, including any acquisition or disposition
which will be consummated contemporaneously with the incurrence of such
Indebtedness, as if such acquisition or disposition occurred at the beginning
of the Reference Period, (vii) Permitted Refinancing Indebtedness, (viii)
Indebtedness incurred under the Bank Facility not to exceed the greater of
(A) $200 million or (B) 1.5 times Operating Cash Flow calculated cumulatively
for the four most recent consecutive fiscal quarters of the Company
immediately preceding the date on which such Indebtedness is incurred,
provided that the exception in this clause (viii) shall not be applicable to
any Indebtedness incurred in refinancing the Bank Facility if the managing
agent for the lenders of such refinancing Indebtedness is a person other than
a banking institution with over $500 million in assets and subject to
supervision and examination by federal or state banking authorities, (ix)
Interest Rate Protection Agreements of the Company or any Restricted
Subsidiary covering solely Indebtedness of the Company or any Restricted
Subsidiary which is otherwise permitted to be incurred pursuant to this
paragraph, (x) Indebtedness to the Company or a wholly-owned Restricted
Subsidiary, (xi) to the extent that such incurrence does not result in the
incurrence by the Company or any Restricted Subsidiary of any obligation for
the payment of borrowed money of others, Indebtedness incurred solely as a
result of the execution by the Company or its Restricted Subsidiaries of a
Completion Guarantee and Keep-Well Agreement; provided, however, that the
foregoing exception shall not be applicable to Indebtedness incurred in
connection with the performance by the Company or its Restricted Subsidiaries
of a Completion Guarantee and Keep-Well Agreement, or (xii) Indebtedness
incurred under the $83,000,000 9 5/8% Senior Subordinated Notes due 2003 and
the $110,000,000 9 5/8% Senior Subordinated Notes due 2003 (collectively, the
"9 5/8% Senior Subordinated Notes due 2003") provided that in the case of
this clause (xii), (A) on December 3, 1998, such notes shall have been
irrevocably called for redemption, (B) amounts sufficient to repay the
principal, premium and accrued interest thereon through the redemption date
have been irrevocably deposited with the Trustee for the 9 5/8% Senior
Subordinated Notes due 2003 pursuant to Section 8.01 of the indentures
relating to the 9 5/8% Senior Subordinated Notes due 2003, and (C)
instructions by the Company have been given to the Trustee to redeem and
repay such notes on the redemption date provided for in the notice of
redemption and such instructions state that they are irrevocable.
Section 4.07. LIMITATION ON CAPITAL STOCK OF RESTRICTED SUBSIDIARIES.
The Company will not permit any Restricted Subsidiary to issue any
Capital Stock to any person (other than to the Company or any wholly-owned
Restricted Subsidiary) that shall entitle the holder of such Capital Stock to
a preference in right of payment in the event of liquidation, dissolution or
winding-up of such Restricted Subsidiary or with respect to dividends of such
Restricted Subsidiary.
Section 4.08. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate,
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partnership or other existence of each Subsidiary, if any, in accordance with
the respective organizational documents of each Subsidiary and the rights
(charter and statutory), licenses and franchises of the Company and its
Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership
or other existence of any Subsidiary, if the Board of Directors of the
Company shall determine in good faith, which determination shall be evidenced
by a board resolution, that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries taken as a
whole and that the loss thereof is not adverse in any material respect to the
Holders.
Section 4.09. TAXES.
The Company shall, and shall cause each of its subsidiaries to,
pay prior to delinquency all taxes, assessments and governmental levies,
except as contested in good faith and by appropriate proceedings or where the
failure to pay would not have a material adverse effect on the Company and
its Subsidiaries taken as a whole.
Section 4.10. INVESTMENT COMPANY ACT.
The Company shall not become an investment company subject to
registration under the Investment Company Act of 1940, as amended.
Section 4.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, conduct any business or enter into any
transaction or series of related transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service), pursuant
to which the Company or any Restricted Subsidiary shall receive or render
value exceeding $1,000,000, with any Affiliate or Related Person of the
Company or of the Existing Equity Holders (other than the Company or a
wholly-owned Restricted Subsidiary of the Company), unless (i) the terms of
such business, transaction or series of related transactions are (A) set
forth in writing and (B) fair and reasonable to the Company or such
Restricted Subsidiary, and no less favorable to the Company or such
Restricted Subsidiary, as the case may be, as terms that would be obtainable
at the time for a comparable transaction or series of related transactions
with an unrelated third person and (ii) the disinterested directors of the
Board of Directors of the Company have, by resolution, determined in good
faith that such business or transaction or series of related transactions
meets the criteria set forth in (i) (B) above, which determination shall be
conclusive and (iii) with respect to any transaction or series of related
transactions otherwise permitted under this paragraph pursuant to which the
Company or any Restricted Subsidiary shall receive or render value exceeding
$15,000,000, such transaction or series of related transactions shall not be
permitted unless, prior to consummation thereof, the Company shall have
received an opinion, from an independent nationally recognized firm
experienced in the appraisal or similar review of similar types of
transactions, that such transaction or series of related transactions is on
terms which are fair, from a financial point of view, to the Company or such
Restricted Subsidiary. Notwithstanding the foregoing, the Company or any of
its Restricted Subsidiaries shall be entitled to provide management services
to an Unrestricted Subsidiary whose sole purpose is to develop, construct and
operate a new gaming facility, provided that the Company or such Restricted
Subsidiary, as the case may be, is reimbursed by the Unrestricted
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Subsidiary for all costs and expenses (including without limitation payroll)
it incurs in providing such services.
Section 4.12. CHANGE OF CONTROL AND RATING DECLINE.
Upon the occurrence of a Change of Control Triggering Event, each
Holder shall have the right to require that the Company repurchase all or any
part of such Holder's Notes at a repurchase price in cash (the "Repurchase
Price") equal to 101% of the principal amount thereof, plus Liquidated
Damages, if any, and accrued interest to the date of repurchase.
Within 30 days following the date of a Change of Control
Triggering Event, the Company shall mail a notice to each Holder at its last
registered address, with a copy to the Trustee, of the Company's offer to
repurchase (the "Repurchase Offer") Notes pursuant to this Section 4.12. The
Repurchase Offer shall remain open from the time of mailing of such notice
until the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date of such mailing) (the date on which the Repurchase
Offer closes being the "Repurchase Date"). The notice shall contain all
instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Repurchase Offer. The notice, which shall govern the terms
of the Repurchase Offer, shall state:
(1) that a Change of Control Triggering Event has occurred
and that such Holder has the right to require the Company to repurchase all
or any part of such Holder's Notes at a repurchase price in cash equal to
101% of the principal amount, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of repurchase thereof;
(2) the circumstances and relevant facts regarding such
Change of Control Triggering Event (including information with respect to
pro forma historical income, cash flow and capitalization after giving
effect to such Change of Control Triggering Event);
(3) the Repurchase Date;
(4) that any Note not tendered will continue to accrue
interest;
(5) that, unless the Company defaults in paying the
Repurchase Price, any Note accepted for payment pursuant to the Repurchase
Offer shall cease to accrue interest from and after the Repurchase Date;
(6) that Holders electing to have a Note purchased pursuant
to the Repurchase Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Repurchase" on the reverse of the
Note duly completed, to the Company at the address specified in the notice
at least three Business Days prior to the Repurchase Date;
(7) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than three Business Days prior to
the Repurchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the
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principal amount of Notes the Holder delivered for repurchase and a
statement that such Holder is withdrawing such Holder's election to have
such Notes repurchased; and
(8) that Holders whose Notes are purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered.
If any consent under the Bank Facility is necessary to permit the
Company to effect the Repurchase Offer, the Company will (i) repay in full or
offer to repay in full all Indebtedness under the Bank Facility or (ii)
obtain the requisite consent under the Bank Facility; PROVIDED, HOWEVER, that
the failure to repay such Indebtedness or obtain such consent will not in any
event excuse any failure by the Company to perform its obligations under this
Section 4.12.
On the Repurchase Date, the Company shall, to the extent lawful,
(i) accept for payment Notes or portions thereof tendered pursuant to the
Repurchase Offer and (ii) deliver to the Trustee Notes so tendered together
with an Officers' Certificate stating the Notes or portions thereof accepted
for payment by the Company. The Paying Agent shall promptly mail or deliver
to Holders of Notes so accepted payment in an amount equal to the Repurchase
Price. The Trustee shall promptly authenticate and mail or deliver to each
Holder who tendered a Note a new Note or Notes equal in principal amount to
any untendered portion of the Note surrendered. The Paying Agent shall
invest funds deposited with it pursuant to this Section 4.12 for the benefit
of, and at the written direction of, the Company to the Repurchase Date.
Section 4.13. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of
any Restricted Subsidiary to: (i) pay dividends or make any other
distribution on its Capital Stock or any other interest or participation in,
or measured by, its profits, or pay any interest or principal due on
Indebtedness owed to the Company or any of its Restricted Subsidiaries; (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries;
or (iii) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries, other than (a) any such encumbrance or
restriction imposed by any Gaming Authority, (b) any encumbrance or
restriction existing on the date of this Indenture contained in the Existing
Indebtedness, (c) any encumbrance or restriction existing on April 3, 1997
contained in the Bank Facility relating to Indebtedness that does not exceed
the greater of (1) $200 million or (2) 1.5 times Operating Cash Flow
calculated cumulatively for the four most recent consecutive fiscal quarters
of the Company immediately preceding the date on which such Indebtedness is
incurred, (d) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness (other than
Indebtedness incurred in anticipation of, as consideration in, or to provide
all or any portion of the funds utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary of the Company) incurred by such Restricted Subsidiary on
or prior to the date on which such Restricted Subsidiary became a Restricted
Subsidiary of the Company and outstanding on such date; (e) any pledge by the
Company or a Restricted Subsidiary of the stock of an Unrestricted Subsidiary
if such pledge is made in connection with the incurrence of Qualified
Non-Recourse Debt by such Unrestricted Subsidiary;
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and (f) any encumbrance or restriction pursuant to an agreement relating to
Indebtedness issued to repay or amend Indebtedness referred to in clause (b),
(c), (d) or (f) of this paragraph, PROVIDED, HOWEVER, that any such
encumbrance or restriction is no less favorable to the Noteholders than
encumbrances and restrictions contained in agreements relating to the
Indebtedness so repaid or amended, and PROVIDED FURTHER, that in the event
that Indebtedness is issued to repay or amend the Bank Facility, the
aggregate principal amount of such Indebtedness shall not exceed the greater
of (A) $200 million or (B) 1.5 times Operating Cash Flow calculated
cumulatively for the four most recent consecutive fiscal quarters of the
Company immediately preceding the date on which such Indebtedness is issued.
Section 4.14. RESTRICTION ON LAYERING DEBT.
The Company shall not incur any Indebtedness that is subordinate
or junior in right of payment to Senior Indebtedness and senior in any
respect in right of payment to the Notes.
ARTICLE 5.
SUCCESSORS
Section 5.01. WHEN COMPANY MAY MERGE, ETC.
The Company shall not consolidate with or merge with or into any
other entity (other than with a wholly-owned Restricted Subsidiary, provided
the Company is the continuing corporation) or sell, convey, assign, transfer,
lease or otherwise dispose of all or substantially all of its properties and
assets (determined on a consolidated basis for the Company and its Restricted
Subsidiaries taken as a whole) to any entity, unless:
(1) either (a) the Company shall be the continuing
corporation or (b) the entity (if other than the Company) formed by such
consolidation or into which the Company is merged or the entity that
acquires, by sale, conveyance, assignment, transfer, lease or disposition,
all or substantially all of the properties and assets of the Company shall
be a corporation, partnership or trust organized and validly existing under
the laws of the United States or any state thereof or the District of
Columbia, and shall expressly assume by a supplemental indenture the due
and punctual payment of the principal of and premium, if any, and interest
on all the Notes and the performance and observance of every covenant of
the Indenture on the part of the Company to be performed or observed;
(2) immediately thereafter, no Event of Default (and no event
that, after notice or lapse of time, or both, would become an Event of
Default) shall have occurred and be continuing;
(3) immediately after giving effect to any such transaction
involving the incurrence by the Company or any Restricted Subsidiary,
directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of the Company or any of its
Restricted Subsidiaries incurred in connection with or as a result of such
transaction as having been incurred at the time of such transaction), the
Company (if
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it is the continuing corporation) or such other entity could incur at
least $1.00 of additional Indebtedness pursuant to Section 4.06(vi); and
(4) immediately thereafter, the Company (if it is the
continuing corporation) or such other entity shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction.
The Company shall deliver to the Trustee prior to the consummation
of the proposed transaction an Officers' Certificate to the foregoing effect
and an Opinion of Counsel stating that the proposed transaction and such
supplemental indenture comply with this Indenture.
Section 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such
sale, lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor person had been
named as the Company herein. When a successor corporation assumes all of the
obligations of the Company hereunder and under the Notes and agrees to be
bound hereby and thereby, the predecessor shall be released from such
obligations.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any Note
when the same becomes due and payable and such Default continues for a period
of 30 days after the date due and payable, whether or not such payment is
prohibited by Article 10;
(2) the Company defaults in the payment of the principal of any
Note when the same becomes due and payable at maturity, upon optional
redemption of the Notes by the Company, upon exercise by the Holder of the
Repurchase Offer upon a Change of Control Triggering Event, upon declaration
or otherwise, whether or not such payment is prohibited by Article 10;
(3) the Company fails to observe, perform or comply with Article
5;
(4) the Company fails to observe, perform or comply with any of
its other agreements or covenants in, or provisions of, the Notes or this
Indenture and such failure to observe, perform or comply continues for a
period of 60 days after receipt by the Company of notice of Default from the
Trustee or the Holders of at least 25% in principal amount of the Notes;
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(5) the Company fails, after any applicable grace period, to
make any payment of principal of, premium in respect of, or interest on, any
Indebtedness when due, or any Indebtedness of the Company or any of its
Restricted Subsidiaries is accelerated because of a default and the aggregate
principal amount of such Indebtedness with respect to which any such failure
to pay or acceleration has occurred exceeds $10,000,000 or its foreign
currency equivalent;
(6) any encumbrance or restriction of the type described in
Section 4.13 becomes applicable to any Restricted Subsidiary;
(7) the Company or any Restricted Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it
in an involuntary case,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) admits in writing its inability generally to pay its
debts as the same become due;
(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Restricted
Subsidiary in an involuntary case,
(B) appoints a Custodian of the Company or any Restricted
Subsidiary or for all or substantially all of the property of the
Company or any Restricted Subsidiary, or
(C) orders the liquidation of the Company or any Restricted
Subsidiary, and the order or decree remains unstayed and in effect
for 60 days;
(9) one or more judgments, orders or decrees are rendered
against the Company or any of its Restricted Subsidiaries in an aggregate
amount in excess of $10,000,000 (to the extent not covered by insurance) and
are not discharged for a period of 60 days during which a stay of enforcement
of such judgments, orders or decrees, by reason of a pending appeal or
otherwise, is not in effect; or
(10) any Gaming License of the Company or any of its Restricted
Subsidiaries is revoked, terminated or suspended or otherwise ceases to be
effective, resulting in the cessation or suspension of operation for a period
of more than 90 days of the casino business of any casino-
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hotel owned, leased or operated directly or indirectly by the Company or any
of its Restricted Subsidiaries (other than any voluntary relinquishment of a
Gaming License if such relinquishment is, in the reasonable, good faith
judgment of the Board of Directors of the Company, evidenced by a resolution
of such Board, both desirable in the conduct of the business of the Company
and its Restricted Subsidiaries, taken as a whole, and not disadvantageous in
any material respect to the Holders).
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term "Custodian" means
any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
In the case of any Event of Default pursuant to the provisions of
this Section 6.01 occurring by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding payment of the premium which the Company would have had to pay if
the Company then had elected to redeem the Notes pursuant to paragraph 5 of
the Notes, an equivalent premium (or, in the event that the Company would not
be permitted to redeem the Notes pursuant to paragraph 5 of the Notes, the
premium payable on the first date thereafter on which such redemption would
be permissible) shall also become and be immediately due and payable to the
extent permitted by law, anything in this Indenture or in the Notes contained
to the contrary notwithstanding.
Section 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default specified
in clause (7) or (8) of Section 6.01) occurs and is continuing, the Trustee
by notice to the Company, or the Holders of at least 25% in principal amount
of the then outstanding Notes by notice to the Company and the Trustee, may
declare the unpaid principal of and all accrued and unpaid interest,
Liquidated Damages, if any, and premium, if any, on the Notes to be
immediately due and payable. Upon such declaration, the principal, interest,
Liquidated Damages, if any, and premium, if any, shall be due and payable
immediately. If an Event of Default specified in clause (7) or (8) of
Section 6.01 occurs, such an amount shall IPSO FACTO become and be
immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder. The Holders of a majority in principal amount
of the then outstanding Notes, by notice to the Trustee, may rescind an
acceleration and its consequences if the rescission would not conflict with
any judgment or decree and if all existing Events of Default have been cured
or waived, except non-payment of principal or interest that has become due
solely because of the acceleration.
Section 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest
on the Notes or to enforce the performance of any provision of the Notes or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Noteholder in exercising any right or
remedy accruing upon an Event of Default shall not
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impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.04. WAIVER OF PAST DEFAULTS.
The Holders of a majority in principal amount of the then
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a continuing Default or Event
of Default in the payment of the principal of any Note.
Section 6.05. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that is unduly
prejudicial to the rights of other Noteholders, or would involve the Trustee
in personal liability.
Section 6.06. LIMITATION ON SUITS.
A Noteholder may pursue a remedy with respect to this Indenture or
the Notes only if:
(1) the Holder gives to the Trustee notice of a continuing Event
of Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over another
Noteholder.
Section 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right
of any Holder of a Note to receive payment of principal of, Liquidated
Damages, if any, and interest on the Note, on or after the respective due
dates expressed in the Note, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of the Holder.
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Section 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(1) or (2) occurs
and is continuing, the Trustee may recover judgment as permitted under
applicable law in its own name and as trustee of an express trust against the
Company or any other obligor on the Notes for the whole amount of principal
of, Liquidated Damages, if any, and interest remaining unpaid on the Notes
and interest on overdue principal and interest and such further amount as
shall be sufficient to cover the costs and, to the extent lawful, expenses of
collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
Section 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee and the Noteholders allowed in any judicial proceedings relative to
the Company or any other obligor or their respective creditors or property.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Noteholder in any such proceeding.
Section 6.10. PRIORITIES.
Subject to Article 10 hereof, if the Trustee collects any money
pursuant to this Article, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Noteholders for amounts due and unpaid on the Notes
for principal, interest and Liquidated Damages, if any,
ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for
principal, interest and Liquidated Damages, if any,
respectively; and
Third: to the Company or any other obligors on the Notes, as
their interests may appear, or as a court of competent
jurisdiction may direct.
The Trustee may fix a record date and payment date for any payment
to Noteholders.
Section 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted
by it as Trustee, a court in its discretion may require the filing by any
party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having
due regard to the merits and good
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faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to
Section 6.07, or a suit by Holders of more than 10% in principal amount of
the then outstanding Notes.
ARTICLE 7.
TRUSTEE
Section 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity satisfactory to it against any
loss, liability or expense.
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(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) None of the provisions of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties hereunder or in the
exercise of any of its rights or powers, if the Trustee reasonably believes
that the repayment of such funds or adequate indemnity against such risks or
liability is not reasonably assured to it.
Section 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may rely on, and shall be protected in acting or
refraining from acting upon, any document believed by it to be genuine and to
have been signed or presented by the proper person. The Trustee shall not be
bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, or both. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers.
Section 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or an
Affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee
is subject to Sections 7.10 and 7.11.
Section 7.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Notes, it shall not be accountable for the Company's
use of the proceeds from the Notes, and it shall not be responsible for any
statement of the Company in the Indenture or any statement in the Notes other
than its authentication.
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Section 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if
it is actually known to the Trustee, the Trustee shall mail to Note holders a
notice of the Default or Event of Default within 90 days after it occurs.
Except in the case of a Default or Event of Default in payment on any Note,
the Trustee may withhold the notice if and so long as a committee of its
Trust Officers in good faith determines that withholding the notice is in the
interests of Noteholders.
Section 7.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after the reporting date stated in Section 11.10,
the Trustee shall, to the extent required, mail to Noteholders a brief report
dated as of such reporting date that complies with TIA Section 313(a). The
Trustee also shall comply with TIA Section 313(b). The Trustee shall also
transmit by mail all reports as required by TIA Section 313(c).
Commencing at the time this Indenture is qualified under the TIA,
a copy of each report at the time of its mailing to Noteholders shall be
filed with the SEC and each stock exchange on which the Notes are listed of
which the Company has notified the Trustee in writing. The Company shall
notify the Trustee when the Notes are listed on any stock exchange.
Section 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time upon demand
by the Trustee reasonable compensation established by the Trustee for its
services hereunder. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred by it. Such expenses shall include the reasonable compensation and
out-of-pocket expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any loss or
liability incurred by it except as set forth in the next paragraph. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel, and the
Company shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against
any loss or liability incurred by the Trustee through gross negligence or
willful misconduct.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(7) or (8) occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
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Section 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Holders
of a majority in principal amount of the then outstanding Notes may remove
the Trustee by so notifying the Trustee and the Company. The Company may
remove the Trustee by notice to the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee
or its property; or
(4) the Trustee becomes otherwise incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company and any other obligor shall
promptly appoint a successor Trustee. Within one year after the successor
Trustee takes office, the Holders of a majority in principal amount of the
then outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
If a successor Trustee does not take office within 30 days after
the retiring Trustee resigns or is removed, the retiring Trustee (at the
expense of the Company), the Company or the Holders of at least 10% in
principal amount of the then outstanding Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Noteholder
may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of
its succession to Noteholders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, subject to the
lien provided for in Section 7.07. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Company's obligations under
Section 7.07 hereof shall continue for the benefit of the retiring trustee
with respect to expenses and liabilities incurred by it prior to such
replacement.
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Section 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1). The Trustee shall always have a
combined capital and surplus as stated in Section 11.10. The Trustee is
subject to TIA Section 310(b), including the optional provision permitted by
the proviso in the second sentence of TIA Section 310(b).
Section 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the
extent indicated therein.
ARTICLE 8.
DISCHARGE OF INDENTURE
Section 8.01. TERMINATION OF COMPANY'S OBLIGATIONS.
This Indenture shall cease to be of further effect (except that
the Company's obligations under Sections 7.07 and 8.03, and application of
funds to the payment of Notes, shall survive) when all outstanding Notes
theretofore authenticated and issued have been delivered to the Trustee for
cancellation, and the Company has paid all sums payable hereunder. In
addition, the Company may terminate all of its obligations under this
Indenture (except the Company's obligations under Sections 7.07 and 8.03) if:
(1) the Company irrevocably deposits in trust with the
Trustee money or non-callable U.S. Government Obligations maturing as to
principal and interest in such amounts and at such times as are sufficient,
as certified by an Officers' Certificate, to pay principal of, Liquidated
Damages, if any, and interest on the Notes to maturity or redemption, as
the case may be, and to pay all other sums payable by it hereunder; and
(2) the Company delivers to the Trustee an Opinion of Counsel
satisfactory to the Trustee that the Holders of the Notes should not
recognize income, gain or loss for federal income tax purposes as a result
of the Company's exercise of its option under this Section 8.01 and will be
subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such option had not been
exercised.
However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07,
4.01, 7.07, 8.03 and 8.04 shall survive until the Notes are no longer
outstanding. Thereafter, only the Company's obligations in Sections 7.07 and
8.03 shall survive.
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After a deposit made pursuant to this Section 8.01, the Trustee
upon request shall acknowledge in writing the discharge of the Company's
obligations under this Indenture, except for those surviving obligations
specified above.
"U.S. Government Obligations" means direct obligations of the
United States of America, or obligations unconditionally guaranteed by the
United States of America, for the payment of which the full faith and credit
of the United States of America is pledged. In order to have money available
on a payment date to pay principal of or interest on the Notes, the U.S.
Government Obligations shall be payable as to principal or interest on or
before such payment date in such amounts as will provide the necessary money.
U.S. Government Obligations shall not be callable at the issuer's option.
Section 8.02. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01. It shall apply the
deposited money and the money from U.S. Government Obligations through the
Paying Agent and in accordance with this Indenture to the payment of
principal and interest and Liquidated Damages, if any, on the Notes.
Section 8.03. REPAYMENT TO COMPANY.
The Trustee and the Paying Agent shall promptly pay to the Company
upon request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon
request any money held by them for the payment of principal of, Liquidated
Damages, if any, or interest on any Note that remains unclaimed for two years
after the date upon which such payment shall have become due; PROVIDED,
HOWEVER, that the Company shall have first caused notice of such payment to
the Company to be mailed to each Noteholder entitled thereto no less than 30
days prior to such payment. After payment to the Company, Noteholders
entitled to the money must look to the Company for payment as general
creditors unless an applicable abandoned property law designates another
person.
Section 8.04. REINSTATEMENT.
If (i) the Trustee or Paying Agent is unable to apply any money in
accordance with Section 8.02 by reason of any order or judgment of any court
or governmental authority (other than any order of the Nevada Gaming
Commission restricting the payment of such money to any particular Holder)
enjoining, restraining or otherwise prohibiting such application and (ii) the
Holders of at least a majority in principal amount of the then outstanding
Notes so request by written notice to the Trustee, the Company's obligations
under this Indenture and the Notes shall be revived and reinstated as though
no deposit had occurred pursuant to Section 8.01 until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 8.02; PROVIDED, HOWEVER, that if the Company makes any payment
of principal of, Liquidated Damages, if any, or interest on any Note
following the reinstatement of its obligations, the Company shall be
subrogated to the right of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
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ARTICLE 9.
AMENDMENTS
Section 9.01. WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend this Indenture or the Notes
without the consent of any Noteholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Section 5.01;
(3) to comply with any requirements of the SEC in connection
with the qualification or requalification of this Indenture under the TIA;
(4) to provide for uncertificated Notes in addition to
certificated Notes; or
(5) to make any change that does not adversely affect the
rights hereunder of any Noteholder.
Section 9.02. WITH CONSENT OF HOLDERS.
Subject to Section 6.07, the Company and the Trustee may amend
this Indenture or the Notes with the written consent of the Holders of at
least a majority in principal amount of the then outstanding Notes. Subject
to Sections 6.04 and 6.07, the Holders of a majority in principal amount of
the Notes then outstanding may also waive compliance in a particular instance
by the Company with any provision of this Indenture or the Notes.
However, without the consent of each Noteholder affected, an
amendment or waiver under this Section may not:
(1) reduce the amount of Notes whose Holders must consent to
an amendment or waiver;
(2) reduce the rate of or change the time for payment of
interest or Liquidated Damages, if any, on any Note;
(3) reduce the principal of or change the fixed maturity of
any Note or alter the redemption provisions with respect thereto;
(4) make any Note payable in money other than that stated in
the Note;
(5) make any change in Section 6.04, 6.07 or 9.02 (this
sentence only); or
(6) waive a default in the payment of the principal of, or
Liquidated Damages, if any, or interest on, any Note.
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To secure a consent of the Holders under this Section it shall not
be necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment or waiver under this Section becomes effective,
the Company shall mail to Noteholders a notice briefly describing the
amendment or waiver.
Section 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to this Indenture or the Notes shall be set forth
in a supplemental indenture that complies with the TIA as then in effect.
Section 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or waiver becomes effective, a consent to it by
a Holder of a Note is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same Indebtedness as
the consenting Holder's Note, even if notation of the consent is not made on
any Note. However, any such Holder or subsequent Holder may revoke the
consent as to his Note or portion of a Note if the Trustee receives notice of
revocation before the date on which the Trustee receives an Officers'
Certificate certifying that the Holders of the requisite principal amount of
Notes have consented to the amendment or waiver (or before such later date as
may be required by law or stock exchange rule).
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any
amendment or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies), and only
those persons, shall be entitled to consent to such amendment or waiver or to
revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No consent shall be valid or effective
for more than 90 days after such record date unless consents from Holders of
the principal amount of Notes required hereunder for such amendment or waiver
to be effective shall have also been given and not revoked within such 90-day
period.
After an amendment or waiver becomes effective it shall bind every
Noteholder, unless it is of the type described in any of clauses (1) through
(6) of Section 9.02. In such case, the amendment or waiver shall bind each
Holder of a Note who has consented to it and every subsequent Holder of a
Note that evidences the same Indebtedness as the consenting Holder's Note.
Section 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment
or waiver on any Note thereafter authenticated. The Company in exchange for
all Notes may issue and the Trustee shall authenticate new Notes that reflect
the amendment or waiver.
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Section 9.06. TRUSTEE PROTECTED.
The Trustee shall sign all supplemental indentures, except that
the Trustee need not sign any supplemental indenture that adversely affects
its rights. As a condition to executing or accepting any supplemental
indenture, the Trustee may request and rely on an Opinion of Counsel and an
Officers' Certificate stating that such supplemental indenture is permitted
hereunder and all conditions precedent have been complied with, in the form
set forth in Sections 11.04 and 11.05.
ARTICLE 10.
SUBORDINATION
Section 10.01. NOTES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company agrees, and each Holder by accepting a Note agrees,
that the Indebtedness evidenced by the Notes, including for all purposes of
this Article 10, all repurchase and redemption obligations with respect to
the Notes, is subordinated in right of payment, to the extent and in the
manner provided in this Article 10, to the prior payment in full of all
existing and future Senior Indebtedness and that the subordination is for the
benefit of and enforceable by the holders of Senior Indebtedness, and
authorizes and directs the Trustee to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination as provided in
this Article 10 and appoints the Trustee as attorney-in-fact for any and all
such purposes.
Only Indebtedness of the Company which is Senior Indebtedness
shall rank senior to the Notes in accordance with the provisions set forth
herein. This Article 10 shall remain in full force and effect as long as any
Senior Indebtedness is outstanding or any commitment to advance Senior
Indebtedness exists, assuming in the case of the Bank Facility that all
conditions precedent to any such advance could be satisfied.
Section 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution, whether of cash, securities or
other property, to creditors of the Company in a liquidation (total or
partial), reorganization or dissolution of the Company, whether voluntary or
involuntary, or in a bankruptcy, reorganization, insolvency, receivership,
assignment for the benefit of creditors, marshalling of assets or similar
proceeding relating to the Company or its property:
(1) holders of Senior Indebtedness shall be entitled to
receive payment in full, in cash or cash equivalents, of such Senior
Indebtedness before Holders shall be entitled to receive any payment of
principal of, or interest or Liquidated Damages, if any, on, or any other
distribution with respect to, the Notes; and
(2) until the Senior Indebtedness is paid in full as provided
in clause (1) above, any distribution to which Holders would be entitled
but for this Article 10 shall be made to the holders of Senior Indebtedness
as their interests may appear;
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in each case except that Holders may receive shares of stock and debt
securities that are subordinated to Senior Indebtedness to at least the same
extent and pursuant to the same or more stringent terms as are the Notes.
Upon any distribution of assets of the Company referred to in this
Section 10.02, the Trustee and the Holders shall be entitled to rely upon any
order or decree of a court of competent jurisdiction in which such
bankruptcy, reorganization, insolvency, receivership, assignment for the
benefit of creditors, marshalling of assets or similar proceedings are
pending, or a certificate of the liquidating trustee or agent or other such
person making any distribution to the Trustee or to the Holders, for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Indebtedness, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Section 10.02. The Trustee shall be
entitled to rely on the delivery to it of a written notice by a person
representing himself to be a holder of Senior Indebtedness or a
Representative, as the case may be, to establish that such notice has been
given by a holder of Senior Indebtedness or a Representative, as the case may
be. In the event that the Trustee determines, in good faith, that further
evidence is required with respect to the right of any person, as a holder of
Senior Indebtedness, to participate in any payment or distribution pursuant
to this Section 10.02, the Trustee may request such person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
such Senior Indebtedness held by such person, as to the extent to which such
person is entitled to participation in such payment or distribution and as to
other facts pertinent to the rights of such person under this Section 10.02,
and, if such evidence is not furnished, the Trustee may defer any payment to
such person (or to the Noteholder) pending judicial determination as to the
right of such person to receive such payment.
Section 10.03. DEFAULT ON SENIOR INDEBTEDNESS.
No direct or indirect payment by or on behalf of the Company under
the Notes shall be made if (i) any Designated Senior Indebtedness is not paid
when due or (ii) any other default on Designated Senior Indebtedness occurs
and in the case of this clause (ii) the maturity of such Designated Senior
Indebtedness is accelerated in accordance with its terms, unless, in either
case, (x) the default has been cured or waived and any such acceleration has
been rescinded or (y) such Designated Senior Indebtedness has been paid in
full; PROVIDED, HOWEVER, that the Company may make any such direct or
indirect payment under the Notes without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment from
the Representative of such Designated Senior Indebtedness. In addition,
during the continuance of any other event of default with respect to
Designated Senior Indebtedness pursuant to which the maturity of such
Designated Senior Indebtedness may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, upon the occurrence of (a)
receipt by the Trustee of written notice from the Representative with respect
to, or the holders of at least a majority in aggregate principal amount of,
such Designated Senior Indebtedness then outstanding or (b) if such event of
default results from the acceleration of the Notes, the date of such
acceleration, no direct or indirect payment may be made by the Company upon
or in respect of the Notes for a period (a "Payment Blockage Period")
commencing on the earlier of the date of receipt of such notice by the
Trustee or the date of such acceleration and ending 180 days thereafter
(unless such Payment Blockage Period shall be terminated by written notice to
the
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Trustee from such Representative or such holders). Not more than one Payment
Blockage Period in the aggregate may be commenced with respect to the Notes
during any period of 360 consecutive days, irrespective of the number of
defaults with respect to Senior Indebtedness during such period. In no event
will a Payment Blockage Period extend beyond 179 days from the date such
payment upon or in respect of the Notes was due, and there must be 180 days
in any 360-day period in which no Payment Blockage Period is in effect as to
the Company. For all purposes of this Section 10.03, no default or event of
default which existed or was continuing on the date of the commencement of
the Payment Blockage Period with respect to the Designated Senior
Indebtedness initiating such Payment Blockage Period shall be, or be made,
the basis for the commencement of a subsequent Payment Blockage Period by the
Representative or requisite holders of such Designated Senior Indebtedness
whether or not within a period of 360 consecutive days unless such default or
event of default shall have been cured or waived for a period of not less
than 90 consecutive days.
Section 10.04. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Company shall make any payment to the
Trustee pursuant to the Notes at a time when such payment is prohibited by
Section 10.02 or 10.03, such payment shall be held by the Trustee, in trust
for the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Indebtedness (PRO RATA as to each of such holders on the
basis of the respective amounts of Senior Indebtedness held by them) or their
Representatives, as their respective interests may appear, for application to
the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in full in accordance with its
terms, after giving effect to any concurrent payment or distribution to or
for the holders of Senior Indebtedness.
If a distribution is made to Holders that because of this Article
10 should not have been made to them, the Holders who receive the
distribution shall hold it in trust for holders of Senior Indebtedness and
pay it over to them as their interests may appear.
Section 10.05. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and any Paying Agent
by an appropriate Officers' Certificate of the Company delivered to a Trust
Officer and the Paying Agent of any facts known to the Company that would
cause a payment under the Notes of principal of or interest or Liquidated
Damages, if any, on the Notes to violate this Article 10, but failure to give
such notice shall not affect the subordination of the Notes to the Senior
Indebtedness provided in this Article 10.
Section 10.06. SUBROGATION.
After all Senior Indebtedness is paid in full and all commitments
to advance Senior Indebtedness have been terminated, and until the Notes are
paid in full pursuant to the Notes and this Indenture or otherwise, Holders
shall be subrogated to the rights of holders of Senior Indebtedness to
receive distributions applicable to Senior Indebtedness to the extent that
distributions otherwise payable to Holders have been applied to payment of
Senior Indebtedness. A distribution made under this Article 10 to holders of
Senior Indebtedness which otherwise
56
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would have been made to Holders is not, as between the Company and the
Holders, a payment by the Company on Senior Indebtedness.
Section 10.07. RELATIVE RIGHTS.
This Article 10 defines the relative rights of Holders and holders
of Senior Indebtedness. Nothing in this Indenture (but subject to the
provisions of paragraph 5 of the Notes) shall:
(1) impair, as between the Company and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders and creditors of
the Company other than such creditors as are holders of Senior
Indebtedness;
(3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Senior Indebtedness to receive distributions otherwise
payable to Holders; or
(4) create or imply the existence of any commitment on the
part of the holders of Senior Indebtedness to extend credit to the Company,
other than as set forth in the terms governing such Senior Indebtedness.
Section 10.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any present or future holder of Senior Indebtedness to
enforce the subordination of the Indebtedness evidenced by the Notes and this
Article 10 shall be impaired by any act or failure to act by the Company or
anyone in custody of its assets or property or by its failure to comply with
this Indenture.
Section 10.09. DISTRIBUTION OR NOTICE TO REPRESENTATIVES.
Whenever a distribution is to be made or a notice given to holders
of Senior Indebtedness, the distribution may be made and the notice given to
their Representatives, if any.
Section 10.10. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding Section 10.02 or 10.03, the Trustee or any Paying
Agent may continue to make payments of principal of or interest on the Notes
unless, in the case of the Trustee, a Trust Officer or, in the case of a
Paying Agent other than the Trustee, an officer of such Paying Agent, shall
have received, at least three Business Days prior to the date such payments
are due and payable, written notice of the occurrence of an event under
Section 10.02 or 10.03 and that any payment under the Notes would violate
this Article 10. Only the Company or a Representative with respect to or
holders of a least a majority in principal amount of an issue of Designated
Senior Indebtedness may give such notice. Nothing contained in this Section
10.10 shall limit the right of any holder of Senior Indebtedness to recover
payments as contemplated by Section 10.04.
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The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. The Trustee shall be
entitled to all the rights set forth in this Article 10 with respect to
Senior Indebtedness which may at any time be held by it, to the same extent
as any other holder of Senior Indebtedness; and nothing in Article 7 shall
deprive the Trustee of any of its rights as such holder, except as otherwise
provided by the TIA.
Section 10.11. TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN
ABSENCE OF NOTICE.
Notwithstanding any of the provisions of this Article 10 or any
other provision of this Indenture, unless a Trust Officer has received a
written notice pursuant to Section 10.10, the Trustee shall not at any time
be charged with knowledge of the existence of any facts which would prohibit
the making of any payment to or by the Trustee, and in the absence of such
written notice the Trustee may make such payment without liability or
obligation to the Senior Indebtedness.
Section 10.12. APPLICATION BY TRUSTEE OF MONIES DEPOSITED WITH IT.
Nothing contained in this Article 10 or elsewhere in this
Indenture, or in the Notes, shall (i) affect the obligation of the Company to
make, or prevent the Company from making, at any time except as specified in
Section 10.02 or 10.03 to the extent provided therein, payments at any time
pursuant to the Notes, (ii) prevent the application by the Trustee or any
Paying Agent of any monies or the proceeds of any U.S. Government Obligations
received from the Company and held by the Trustee or such Paying Agent in
trust for the benefit of the Holders of Notes as to which notice of
redemption shall have been given, to the payment of or on account of the
principal of or interest or Liquidated Damages, if any, on the Notes if, at
the time such notice was given, a payment by the Company under the Notes
would not have been prohibited by the foregoing provisions of this Article 10
or (iii) prevent the application by the Trustee or any Paying Agent of any
monies or the proceeds of any U.S. Government Obligations deposited with it
by the Company under Article 8 hereof to the payment of or on account of the
principal of or interest or Liquidated Damages, if any, on the Notes if, at
the time of such deposit, a payment by the Company under the Notes would not
have been prohibited by the foregoing provisions of this Article 10.
Section 10.13. TRUSTEE'S COMPENSATION NOT PREJUDICED.
Nothing in this Article 10 shall apply to claims of, or payments
to, the Trustee pursuant to Section 7.07.
Section 10.14. OFFICERS' CERTIFICATE.
If there occurs any event referred to in Section 10.02, the
Company shall promptly give to the Trustee an Officers' Certificate (on which
the Trustee may conclusively rely) identifying all holders of Senior
Indebtedness and the principal amount of Senior Indebtedness then outstanding
held by each such holder and stating the reasons why such Officers'
Certificate is being delivered to the Trustee.
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Section 10.15. CERTAIN PAYMENTS.
Nothing in this Article 10 shall prevent or delay (i) the Company
from or in redeeming any Notes pursuant to paragraph 5 of the Notes or
otherwise purchasing any Notes pursuant to any legal requirement relating to
the gaming business of the Company and its Subsidiaries or (ii) the receipt
by the Holders of payments of principal of and interest and Liquidated
Damages, if any, on the Notes as provided in Section 8.02.
Section 10.16. NAMES OF REPRESENTATIVES.
The Company shall from time to time, upon request of the Trustee,
provide to the Trustee an Officers' Certificate setting forth the name and
address of each Representative of all outstanding Senior Indebtedness.
Section 10.17. ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT
RIGHT TO ACCELERATE.
The failure to make a payment pursuant to the Notes by reason of
any provision in this Article 10 shall not be construed as preventing the
occurrence of a Default. Nothing in this Article 10 shall have any effect on
the right of the Holders or the Trustee to accelerate the maturity of the
Notes.
Section 10.18. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS.
Each Holder by accepting a Note acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Indebtedness, whether such
Senior Indebtedness was created or acquired before or after the issuance of
the Notes, to acquire and continue to hold, or to continue to hold, such
Senior Indebtedness and such holder of Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Senior Indebtedness. No
provision in any supplemental indenture which modifies this Article 10 in any
manner adverse to the holders of Senior Indebtedness shall be effective
against the holders of Senior Indebtedness who have not consented thereto in
accordance with the provisions of the documents governing such Senior
Indebtedness.
Section 10.19. PROOF OF CLAIM.
In the event that the Company is subject to any proceeding under
any Bankruptcy Law and the Holders and the Trustee fail to file any proof of
claim permitted to be filed in such proceeding with respect to the Notes,
then any Representative of Designated Senior Indebtedness may file such proof
of claim no earlier than the later of (i) the expiration of 15 days after
such Representative notifies the Trustee of its intention to do so and (ii)
30 days preceding the last day permitted to file such claim.
Section 10.20. NO FIDUCIARY DUTY CREATED TO HOLDERS OF SENIOR
INDEBTEDNESS.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in
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this Article 10, and no implied covenants or obligations with respect to the
holders of Senior Indebtedness shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness, and, subject to the provisions of Article 7,
the Trustee shall not be liable to any holder of Senior Indebtedness if it
shall mistakenly pay over or deliver to Holders, the Company or any other
person, monies or assets to which any holder of Senior Indebtedness shall be
entitled by virtue of this Article 10 or otherwise.
ARTICLE 11.
MISCELLANEOUS
Section 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts
with another provision which is required to be included in this Indenture by
the TIA, the required provision shall control.
Section 11.02. NOTICES.
Any notice or communication by the Company or the Trustee to any
of the others is duly given if in writing and delivered in person or mailed
by overnight delivery service to the others' addresses stated in Section
11.10. The Company or the Trustee by notice to the others may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication to a Noteholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Noteholder or any defect in it
shall not affect its sufficiency with respect to other Noteholders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given when mailed, whether or
not the addressee receives it.
If the Company mails a notice or communication to Noteholders, it
shall mail a copy to the Trustee and each Agent at the same time.
If any notice is mailed to the Company in the manner provided
above, a copy of such notice shall be mailed, in the manner provided above,
to Milbank, Tweed, Hadley & McCloy, 601 South Figueroa Street, Los Angeles,
California 90017, Attention: Eric H. Schunk, Esq.
All other notices or communications shall be in writing.
Section 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Noteholders may communicate pursuant to TIA Section 312(b) with
other Noteholders with respect to their rights under this Indenture or the
Notes. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
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Section 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or any other
obligor to the Trustee to take any action under this Indenture, the Company
or any other obligor, as the case may be, shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with;
and
(b) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent have been complied with.
Section 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Section 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or a meeting
of Noteholders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 11.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions in the State of Nevada, New York or California are not
required to be open. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
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Section 11.08. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Notes or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Noteholder by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Notes.
Section 11.09. COUNTERPARTS.
This Indenture may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
Section 11.10. VARIABLE PROVISIONS.
The Company initially appoints the Trustee as Paying Agent,
Registrar and authenticating agent.
The first certificate pursuant to Section 4.03 shall be for the
fiscal year ending on the first March 31 to occur after the date of this
Indenture.
The reporting date for Section 7.06 is June 1 of each year. The
first reporting date is June 1, 1997.
The Trustee shall always have a combined capital and surplus
(including subordinated capital notes) of at least $50,000,000 as set forth
in its most recent published annual report of condition.
The Company's address is:
STATION CASINOS, INC.
2411 West Sahara Avenue
Las Vegas, Nevada 89102
The Trustee's address is:
FIRST UNION NATIONAL BANK
123 South Broad Street
Philadelphia, PA 19109
Attention: Corporate Trust Administrator
SECTION 11.11. GOVERNING LAW.
THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS
INDENTURE AND THE NOTES, WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS
THEREOF.
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Section 11.12. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or a Subsidiary. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
Section 11.13. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successor.
Section 11.14. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
Section 11.15. QUALIFICATION OF INDENTURE.
The Company shall qualify this Indenture under the TIA and shall
pay all costs and expenses (including attorneys' fees for the Company, the
Trustee and the Holders of the Notes) incurred in connection therewith,
including, but not limited to, costs and expenses of qualification of the
Indenture and the Notes and printing this Indenture and the Notes. In
connection with any such qualification of this Indenture under the TIA, the
Trustee shall be entitled to receive from the Company any such Officers'
Certificates, Opinions of Counsel or other documentation as it may reasonably
request.
Section 11.16. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
[SIGNATURE PAGES FOLLOW]
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SIGNATURES
Dated: as of December 3, 1998 STATION CASINOS, INC.
By: /s/ Glenn C. Christenson
----------------------------------
Attest:
/s/ William W. Warner
- --------------------------------
(SEAL)
Dated: as of December 3, 1998 FIRST UNION NATIONAL BANK
By: /s/ John H. Clapham
----------------------------------
Attest:
/s/ David C. Leondi
- --------------------------------
(SEAL)
<PAGE>
Exhibit A-1
(Face of Note)
8 7/8% [Series A] [Series B] Senior Subordinated Notes due 2008
No. CUSIP No.
------------
No. $
------------
STATION CASINOS, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on December 1, 2008
Interest Payment Dates: June 1 and December 1, commencing June 1, 1999
Record Dates: May 15 and November 15 (whether or not a Business Day)
A-1-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed this ___ day of _________, 1998.
Dated:
STATION CASINOS, INC.
By:
-----------------------------
Name:
Title:
By:
-----------------------------
Name:
Title:
This is one of the Global Notes referred
to in the within-mentioned Indenture
FIRST UNION NATIONAL BANK,
as Trustee
By:
---------------------------------
(Authorized Signatory)
A-1-2
<PAGE>
Back of Note)
8 7/8% [Series A] [Series B] Senior Subordinated Notes due 2008
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary
or any such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York,
New York) ("DTC"), to the issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein. (1)
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN
PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY
OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
- ------------------
(1) This paragraph should be included only if the Note is issued in global
form.
A-1-3
<PAGE>
Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. STATION CASINOS, INC., a Nevada corporation (the
"Company," which term includes any successor corporation under the Indenture
referred to herein), promises to pay interest on the principal amount of this
Note at the rate per annum shown above and shall pay the Liquidated Damages,
if any, payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest semi-annually on June 1 and
December 1 of each year, commencing June 1, 1999. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance of the Notes. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Notes (except defaulted interest) and Liquidated Damages, if any, to the
persons who are registered Holders of the Notes at the close of business on
the record date for the next interest payment date even though the Notes are
cancelled after the record date and on or before the interest payment date.
Holders must surrender the Notes to a Paying Agent to collect principal
payments. The Company will pay principal and interest and Liquidated
Damages, if any, in money of the United States that at the time of payment is
legal tender for payment of public and private debts. The Company, however,
may pay principal and interest and Liquidated Damages, if any, by check
payable in such money, which shall be mailed to a Holder's registered
address; provided that payment by wire transfer of immediately available
funds will be required with respect to principal of and interest, premium and
Liquidated Damages, if any, on, all Global Notes and all other Certificated
Notes the Holders of which shall have provided wire transfer instructions to
the Company or the Paying Agent.
3. PAYING AGENT AND REGISTRAR. The Trustee will initially act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without prior notice to any Noteholder. The
Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of December 3, 1998 (the "Indenture") by and between the Company and
the Trustee. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act
of 1939 (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of the
Indenture. The Notes are subject to, and qualified by, all such terms,
certain of which are summarized herein, and Noteholders are referred to the
Indenture and such Act for a statement of such terms. The Notes are
unsecured general obligations of the Company limited to $199,900,000 in
aggregate principal amount. The Indenture imposes certain limitations on,
among other things, the incurrence of indebtedness by the Company or any of
its Restricted Subsidiaries and the making of Restricted Payments and
Restricted Investments by the Company or any of its Restricted Subsidiaries.
In addition, the Indenture imposes certain limitations on transactions by the
Company or any of its Restricted Subsidiaries with Affiliates and Related
Persons and on the ability of the Company or any of its Restricted
Subsidiaries to restrict
A-1-4
<PAGE>
distributions and dividends from Subsidiaries. The limitations are subject
to a number of important qualifications and exceptions.
5. OPTIONAL REDEMPTION. The Company may redeem the Notes in
whole or in part, at redemption prices (expressed in percentages of principal
amount) set forth below, plus accrued and unpaid interest thereon, if any,
and Liquidated Damages, if any, to the redemption date, if redeemed during
the 12-month period beginning December 1 of the years indicated below. The
Notes may not be so redeemed before December 1, 2003.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICES
<S> <C> <C>
2003. . . . . . . . . . 103.328%
2004. . . . . . . . . . 102.219%
2005. . . . . . . . . . 101.109%
2006 and thereafter . . 100.000%
</TABLE>
Notwithstanding the foregoing, each Holder by accepting a Note
agrees that if a record or beneficial owner of a Note is required by any
Gaming Authority to be found suitable, such owner shall apply for a finding
of suitability within 30 days after request of such Gaming Authority. The
applicant for a finding of suitability must pay all costs of the
investigation for such finding of suitability. If a record or beneficial
owner is required to be found suitable and is not found suitable by such
Gaming Authority, (a) such owner shall, upon request of the Company, dispose
of such owner's Notes within 30 days or within that time prescribed by such
Gaming Authority, whichever is earlier, or (b) the Company may, at its
option, redeem such owner's Notes at the lesser of (i) the principal amount
thereof or (ii) the price at which the Notes were acquired by such owner,
together with, in either case, Liquidated Damages, if any, and accrued
interest to the date of the finding of unsuitability by such Gaming
Authority, all as more fully provided in the Indenture.
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder of Notes to be redeemed at his registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. In the event of a redemption of less than all of the
Notes, the Notes will be chosen for redemption by the Trustee in accordance
with the Indenture. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
If this Note is redeemed subsequent to a record date with respect
to any interest payment date specified above and on or prior to such interest
payment date, then any accrued interest will be paid to the person in whose
name this Note is registered at the close of business on such record date.
7. SUBORDINATION. The Notes are subordinated to Senior
Indebtedness, as defined in the Indenture. To the extent provided in the
Indenture, Senior Indebtedness must be paid before payments in respect of the
Notes may be made under the Notes and the Indenture. The Company agrees, and
each Noteholder by accepting a Note agrees, to the subordination
A-1-5
<PAGE>
provisions contained in the Indenture and authorizes the Trustee to give it
effect and appoints the Trustee as attorney-in-fact for such purpose.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes shall be registered, and Notes
may only be exchanged, as provided in the Indenture. The Registrar may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar need not exchange or register the transfer of
any Notes or portion of a Note selected for redemption. Also, the Registrar
need not exchange or register the transfer of any Note for a period of 15
days before a selection of Note to be redeemed.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note may
be treated as its owner for all purposes, except as provided in paragraph 5
hereof.
10. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Notes may be amended with the consent of the Holders of at
least a majority in principal amount of the then outstanding Notes, and
certain existing defaults may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the
consent of any Noteholder, the Indenture or the Notes may be amended, among
other things, to cure any ambiguity, defect or inconsistency, to provide for
assumption of the Company's obligations to Noteholders in the case of mergers
and consolidations of the Company or to make any change that does not
adversely affect the rights of any Noteholder.
11. DEFAULTS AND REMEDIES. An Event of Default is: default in
payment of interest on the Notes for a period of 30 days; default in payment
of principal on the Notes; failure by the Company for 60 days after notice to
it to comply with any of its other agreements in the Indenture or the Notes
or, in the case of the failure to comply with certain specified covenants or
agreements, without such notice or passage of time; certain defaults under
and acceleration prior to maturity of certain other indebtedness of the
Company; certain final judgments which remain undischarged; certain events of
bankruptcy or insolvency; or a revocation, suspension, termination or
involuntary loss of a Gaming License which results in the cessation of
operation of the Company's casino business for more than 90 consecutive days.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately, except that in the case of
an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Notes become due and payable immediately without further
action or notice. Noteholders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Noteholders notice of any continuing
default (except a default in payment of principal or interest) if it
determines that withholding notice is in their interests. The Company must
furnish an annual compliance certificate to the Trustee.
A-1-6
<PAGE>
12. TRUSTEE DEALINGS WITH COMPANY. First Union National Bank,
the Trustee under the Indenture, in its individual or any other capacity, may
make loans to, accept deposits from and perform services for the Company or
its Affiliates, and may otherwise deal with the Company or its Affiliates, as
if it were not Trustee.
13 CHANGE OF CONTROL. Upon the occurrence of a Change of
Control Triggering Event (as such term is defined in the Indenture), the
Holders shall have the right to require that the Company repurchase, and the
Company shall commence an offer to repurchase, all of the outstanding Notes
at a Repurchase Price in cash equal to 101% of the principal amount of such
Notes plus Liquidated Damages, if any, and accrued interest to the repurchase
date, upon the terms set forth in the Indenture.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee
or stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation.
Each Noteholder by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for the issue of the
Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
16. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED
SECURITIES. In addition to the rights provided to Holders of Notes under the
Indenture, Holders of Transferred Restricted Securities shall have all the
rights set forth in the Registration Rights Agreement dated as of the date of
the Indenture, between the Company and the party named on the signature pages
thereof (the "Registration Rights Agreement").
17. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Noteholder or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
Company will furnish to any Noteholder upon written request and
without charge a copy of the Indenture, which has in it the text of this Note
in larger type. Request may be made to:
STATION CASINOS, INC.
2411 West Sahara Avenue
Las Vegas, Nevada 89102
Attn: Chief Financial Officer
A-1-7
<PAGE>
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
______________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_______________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date:_________________
Your Signature:_____________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee.**/
- ---------------
** SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCK BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO
SECURITIES AND EXCHANGE COMMISSION RULE 17 Ad-15.
A-1-8
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note repurchased by the Company
pursuant to Section 4.12 of the Indenture, check the box: / /
If you want to elect to have only part of this Note repurchased by
the Company pursuant to Section 4.12 of the Indenture, state the amount
(which must be $1,000 or an integral multiple of $1,000): $_______________
Date:_________________
Your Signature:_____________________________________
(Sign exactly as your name appears on the face of this Note)
Tax Identification No.:____________________________________
Signature Guarantee.*
- ---------------
* SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCK BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO
SECURITIES AND EXCHANGE COMMISSION RULE 17 Ad-15.
A-1-9
<PAGE>
SCHEDULE OF EXCHANGES FOR CERTIFICATED NOTES(2)
The following exchanges of a part of this Global Note for
Certificated Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ---------------- --------------------- --------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
- ---------------
(2) TO BE INCLUDED ONLY IF THE NOTE IS ISSUED IN GLOBAL FORM.
A-1-10
<PAGE>
Exhibit A-2
(Face of Regulation S Temporary Global Security)
8 7/8% Series A Senior Subordinated Notes due 2008
No. CUSIP No. ___________
No. $___________
STATION CASINOS, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on December 1, 2008.
Interest Payment Dates: June 1 and December 1, commencing June 1, 1999
Record Dates: May 15 and November 15 (whether or not a Business Day)
Dated:
STATION CASINOS, INC.
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
This is one of the Global Notes referred
to in the within-mentioned Indenture (SEAL)
FIRST UNION NATIONAL BANK,
as Trustee
By:
--------------------------------
(Authorized Signatory)
A-2-1
<PAGE>
(Back of Note)
8 7/8% Series A Senior Subordinated Notes due 2008
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary
or any such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York,
New York) ("DTC"), to the issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein.
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN
PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY
OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
A-2-2
<PAGE>
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE,
AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).
NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S
TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST
THEREON.
A-2-3
<PAGE>
This Regulation S Temporary Global Note is issued in respect of an
issue of 8 7/8% Senior Subordinated Notes due 2008 (the "Notes") of the
Company.
Until this Regulation S Temporary Global Note is exchanged for
Regulation S Permanent Global Notes, the Holder hereof shall not be entitled
to receive payments of interest hereon; until so exchanged in full, this
Regulation S Temporary Global Note shall in all other respects be entitled to
the same benefits as other Notes under the Indenture.
This Regulation S Temporary Global Note is exchangeable in whole
or in part for one or more Regulation S Permanent Global Notes or Rule 144A
Global Notes only (i) on or after the termination of the 40-day restricted
period (as defined in Regulation S) and (ii) upon presentation of
certificates (accompanied by an Opinion of Counsel, if applicable) required
by Article 2 of the Indenture. Upon exchange of all interest in this
Regulation S Temporary Global Note for one or more Regulation S Permanent
Global Notes or Rule 144A Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.
This Regulation S Temporary Global Note shall not become valid or
obligatory until the certificate of authentication hereon shall have been
duly manually signed by the Trustee in accordance with the Indenture. This
Regulation S Temporary Global Note shall be governed by and construed in
accordance with the laws of the State of the New York. All references to
"$," "Dollars," "dollars" or "U.S. $" are to such coin or currency of the
United States of America as at the time shall be legal tender for the payment
of public and private debts therein.
Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. STATION CASINOS, INC., a Nevada corporation (the "Company,"
which term includes any successor corporation under the Indenture referred to
herein), promises to pay interest on the principal amount of this Note at the
rate per annum shown above and shall pay the Liquidated Damages, if any,
payable pursuant to Section 5 of the Registration Rights Agreement referred
to below. The Company will pay interest semi-annually on June 1 and December 1
of each year, commencing June 1, 1999. Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from the date of issuance of the Notes. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages, if any, to the persons who are
registered Holders of the Notes at the close of business on the record date
for the next interest payment date even though the Notes are cancelled after
the record date and on or before the interest payment date. Holders must
surrender the Notes to a Paying Agent to collect principal payments. The
Company will pay principal and interest and Liquidated Damages, if any, in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. The Company, however, may pay principal
and interest and Liquidated Damages, if any, by check payable in such money,
which shall be mailed to a Holder's registered address; provided that payment
by wire transfer of immediately available funds will be required with respect
to principal of and
A-2-4
<PAGE>
interest, premium and Liquidated Damages, if any, on, all Global Notes and
all other Certificated Notes the Holders of which shall have provided wire
transfer instructions to the Company or the Paying Agent.
3. PAYING AGENT AND REGISTRAR. The Trustee will initially act as Paying
Agent and Registrar. The Company may change any Paying Agent, Registrar or
co-registrar without prior notice to any Noteholder. The Company or any of
its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of
December 3, 1998 (the "Indenture") by and between the Company and the
Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of the
Indenture. The Notes are subject to, and qualified by, all such terms,
certain of which are summarized herein, and Noteholders are referred to the
Indenture and such Act for a statement of such terms. The Notes are
unsecured general obligations of the Company limited to $199,900,000 in
aggregate principal amount. The Indenture imposes certain limitations on,
among other things, the incurrence of indebtedness by the Company or any of
its Restricted Subsidiaries and the making of Restricted Payments and
Restricted Investments by the Company or any of its Restricted Subsidiaries.
In addition, the Indenture imposes certain limitations on transactions by the
Company or any of its Restricted Subsidiaries with Affiliates and Related
Persons and on the ability of the Company or any of its Restricted
Subsidiaries to restrict distributions and dividends from Subsidiaries. The
limitations are subject to a number of important qualifications and
exceptions.
5. OPTIONAL REDEMPTION. The Company may redeem the Notes in whole or in
part, at redemption prices (expressed in percentages of principal amount) set
forth below, plus accrued and unpaid interest thereon, if any, and Liquidated
Damages, if any, to the redemption date, if redeemed during the 12-month
period beginning December 1 of the years indicated below. The Notes may not
be so redeemed before December 1, 2003.
<TABLE>
<CAPTION>
Year Redemption Prices
---- -----------------
<S> <C>
2003. . . . . . . . . . . . . . . 103.328%
2004. . . . . . . . . . . . . . . 102.219%
2005. . . . . . . . . . . . . . . 101.109%
2006 and thereafter . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, each Holder by accepting a Note
agrees that if a record or beneficial owner of a Note is required by any
Gaming Authority to be found suitable, such owner shall apply for a finding
of suitability within 30 days after request of such Gaming Authority. The
applicant for a finding of suitability must pay all costs of the
investigation for such finding of suitability. If a record or beneficial
owner is required to be found suitable and is not found suitable by such
Gaming Authority, (a) such owner shall, upon request of the Company, dispose
of such owner's Notes within 30 days or within that time prescribed by such
Gaming Authority, whichever is earlier, or (b) the Company may, at its
option, redeem such
A-2-5
<PAGE>
owner's Notes at the lesser of (i) the principal amount thereof or (ii) the
price at which the Notes were acquired by such owner, together with, in
either case, Liquidated Damages, if any, and accrued interest to the date of
the finding of unsuitability by such Gaming Authority, all as more fully
provided in the Indenture.
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days
but not more than 60 days before the redemption date to each Holder of Notes
to be redeemed at his registered address. Notes in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. In the
event of a redemption of less than all of the Notes, the Notes will be chosen
for redemption by the Trustee in accordance with the Indenture. On and after
the redemption date, interest ceases to accrue on Notes or portions of them
called for redemption.
If this Note is redeemed subsequent to a record date with respect
to any interest payment date specified above and on or prior to such interest
payment date, then any accrued interest will be paid to the person in whose
name this Note is registered at the close of business on such record date.
7. SUBORDINATION. The Notes are subordinated to Senior Indebtedness, as
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before payments in respect of the Notes may be made
under the Notes and the Indenture. The Company agrees, and each Noteholder
by accepting a Note agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give it effect and appoints the
Trustee as attorney-in-fact for such purpose.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes shall be registered, and Notes may only be exchanged,
as provided in the Indenture. The Registrar may require a holder, among
other things, to furnish appropriate endorsements and transfer documents and
to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not exchange or register the transfer of any Notes or portion
of a Note selected for redemption. Also, the Registrar need not exchange or
register the transfer of any Note for a period of 15 days before a selection
of Note to be redeemed.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as
its owner for all purposes, except as provided in paragraph 5 hereof.
10. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture or
the Notes may be amended with the consent of the Holders of at least a
majority in principal amount of the then outstanding Notes, and certain
existing defaults may be waived with the consent of the Holders of a majority
in principal amount of the then outstanding Notes. Without the consent of
any Noteholder, the Indenture or the Notes may be amended, among other
things, to cure any ambiguity, defect or inconsistency, to provide for
assumption of the Company's obligations to Noteholders in the case of mergers
and consolidations of the Company or to make any change that does not
adversely affect the rights of any Noteholder.
A-2-6
<PAGE>
11. DEFAULTS AND REMEDIES. An Event of Default is: default in payment of
interest on the Notes for a period of 30 days; default in payment of
principal on the Notes; failure by the Company for 60 days after notice to it
to comply with any of its other agreements in the Indenture or the Notes or,
in the case of the failure to comply with certain specified covenants or
agreements, without such notice or passage of time; certain defaults under
and acceleration prior to maturity of certain other indebtedness of the
Company; certain final judgments which remain undischarged; certain events of
bankruptcy or insolvency; or a revocation, suspension, termination or
involuntary loss of a Gaming License which results in the cessation of
operation of the Company's casino business for more than 90 consecutive days.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately, except that in the case of
an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Notes become due and payable immediately without further
action or notice. Noteholders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Noteholders notice of any continuing
default (except a default in payment of principal or interest) if it
determines that withholding notice is in their interests. The Company must
furnish an annual compliance certificate to the Trustee.
12. TRUSTEE DEALINGS WITH COMPANY. First Union National Bank, the Trustee
under the Indenture, in its individual or any other capacity, may make loans
to, accept deposits from and perform services for the Company or its
Affiliates, and may otherwise deal with the Company or its Affiliates, as if
it were not Trustee.
13. CHANGE OF CONTROL. Upon the occurrence of a Change of Control
Triggering Event (as such term is defined in the Indenture), the Holders
shall have the right to require that the Company repurchase, and the Company
shall commence an offer to repurchase, all of the outstanding Notes at a
Repurchase Price in cash equal to 101% of the principal amount of such Notes
plus Liquidated Damages, if any, and accrued interest to the repurchase date,
upon the terms set forth in the Indenture.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation.
Each Noteholder by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for the issue of the
Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
16. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of Notes under the Indenture,
Holders of Transferred Restricted Securities shall have all the rights set
forth in the Registration Rights Agreement dated as of the date of the
A-2-7
<PAGE>
Indenture, between the Company and the party named on the signature pages
thereof (the "Registration Rights Agreement").
17. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Noteholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
Company will furnish to any Noteholder upon written request and
without charge a copy of the Indenture, which has in it the text of this Note
in larger type. Request may be made to:
STATION CASINOS, INC.
2411 West Sahara Avenue
Las Vegas, Nevada 89102
Attn: Chief Financial Officer
A-2-8
<PAGE>
SCHEDULE OF EXCHANGES FOR GLOBAL NOTES
The following exchanges of a part of this Regulation S Temporary
Global Note for other Global Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ---------------- --------------------- --------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
A-2-9
<PAGE>
Exhibit B-1
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(Pursuant to Section 2.06(a)(i) of the Indenture)
FIRST UNION NATIONAL BANK
123 South Broad Street
Philadelphia, PA 19109
Attention: Corporate Trust Administrator
Re: 8 7/8% Senior Subordinated Notes due 2008 of Station Casinos, Inc.
Reference is hereby made to the Indenture, dated as of December 3,
1998 (the "Indenture"), among Station Casinos, Inc., as issuer (the "Company")
and First Union National Bank, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to $_______ principal amount of Notes which
are evidenced by one or more Rule 144A Global Notes (CUSIP No._________) and
held with the Depository in the name of ____________________________ (the
"Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Notes to a person who will take delivery thereof in the form
of an equal principal amount of Notes evidenced by one or more Regulation S
Global Notes (CUSIP No. __________), which amount, immediately after such
transfer, is to be held with the Depository.
In connection with such request and in respect of such Notes, the
Transferor hereby certifies that such transfer has been effected in compliance
with the transfer restrictions applicable to the Global Notes and pursuant to
and in accordance with Rule 903 or Rule 904 under the United States
Securities Act of 1933, as amended (the "Securities Act"), and accordingly
the Transferor hereby further certifies that:
(1) The offer of the Notes was not made to a person in the United
States;
(2) either:
(a) at the time the buy order was originated, the transferee
was outside the United States or the Transferor and any person acting
on its behalf reasonably believed and believes that the transferee
was outside the United States; or
(b) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither the
Transferor nor any person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States;
B-1-1
<PAGE>
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 904(b) of Regulation S;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) upon completion of the transaction, the beneficial interest
being transferred as described above is to be held with the
Depository.
Upon giving effect to this request to exchange a beneficial
interest in a Rule 144A Global Note for a beneficial interest in a
Regulation S Global Note, the resulting beneficial interest shall be
subject to the restrictions on transfer applicable to Regulation S
Global Notes pursuant to the Indenture and the Securities Act and, if
such transfer occurs prior to the end of the 40-day restricted period
associated with the initial offering of Notes, the additional
restrictions applicable to transfers of interest in the Regulation S
Temporary Global Note.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, NationsBanc Montgomery
Securities LLC, Wasserstein Perella Securities, Inc., Bear, Stearns &
Co. Inc., SG Cowen Securities Corporation, and CIBC Oppenheimer
Corp., the initial purchasers of such Notes being transferred. Terms
used in this certificate and not otherwise defined in the Indenture
have the meanings set forth in Regulation S under the Securities Act.
___________________________
[Insert Name of Transferor]
By: _______________________
Name:
Title:
Dated:_______________, ____
cc: Station Casinos, Inc.
B-1-2
<PAGE>
Exhibit B-2
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL NOTE
(Pursuant to Section 2.06(a)(ii) of the Indenture)
FIRST UNION NATIONAL BANK
123 South Broad Street
Philadelphia, PA 19109
Attention: Corporate Trust Administrator
Re: 8 7/8% Senior Subordinated Notes due 2008 of Station Casinos, Inc.
Reference is hereby made to the Indenture, dated as of December 3,
1998 (the "Indenture"), among Station Casinos, Inc., as issuer (the "Company")
and First Union National Bank, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
This letter relates to $_______ principal amount of Notes which are
evidenced by one or more Regulation S Global Note (CUSIP No. __________) and
held with the Depository in the name of ____________________________ (the
"Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Notes to a person who will take delivery thereof in the form
of an equal principal amount of Notes evidenced by one or more Rule 144A
Global Notes (CUSIP No. _________), to be held with the Depository.
In connection with such request and in respect of such Notes, the
Transferor hereby certifies that:
[CHECK ONE]
/ / such transfer is being effected pursuant to and in accordance with
Rule 144A under the United States Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Notes are being transferred to a person that the
Transferor reasonably believes is purchasing the Notes for its own account,
or for one or more accounts with respect to which such person exercises
sole investment discretion, and such person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A;
or
/ / such transfer is being effected pursuant to and in accordance with Rule 144
under the Securities Act;
or
B-2-1
<PAGE>
/ / such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
or
/ / such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Notes are
being transferred in compliance with the transfer restrictions applicable
to the Global Notes and in accordance with the requirements of the
exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and such Notes are being transferred in compliance with any applicable blue
sky securities laws of any state of the United States.
Upon giving effect to this request to exchange a beneficial
interest in Regulation S Global Notes for a beneficial interest in Rule 144A
Global Notes, the resulting beneficial interest shall be subject to the
restrictions on transfer applicable to Rule 144A Global Notes pursuant to the
Indenture and the Securities Act.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, NationsBanc Montgomery Securities LLC, Wasserstein
Perella Securities, Inc., Bear, Stearns & Co. Inc., SG Cowen Securities
Corporation, and CIBC Oppenheimer Corp., the initial purchasers of such Notes
being transferred. Terms used in this certificate and not otherwise defined
in the Indenture have the meanings set forth in Regulation S under the
Securities Act.
___________________________
[Insert Name of Transferor]
By: _______________________
Name:
Title:
Dated:_______________, ____
cc: Station Casinos, Inc.
B-2-2
<PAGE>
Exhibit B-3
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF CERTIFICATED NOTES
(Pursuant to Section 2.06(b) of the Indenture)
FIRST UNION NATIONAL BANK
123 South Broad Street
Philadelphia, PA 19109
Attention: Corporate Trust Administrator
Re: 8 7/8% Senior Subordinated Notes due 2008 of Station Casinos, Inc.
Reference is hereby made to the Indenture, dated as of December 3,
1998 (the "Indenture"), among Station Casinos, Inc., as issuer (the "Company")
and First Union National Bank, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith for exchange (the "Surrendered Notes"),
the Holder of such Surrendered Notes hereby certifies that:
[CHECK ONE]
/ / the Surrendered Notes are being acquired for the Transferor's own account,
without transfer;
or
/ / the Surrendered Notes are being transferred to the Company;
or
/ / the Surrendered Notes are being transferred pursuant to and in accordance
with Rule 144A under the United States Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Surrendered Notes are being transferred to a person that
the Transferor reasonably believes is purchasing the Surrendered Notes for
its own account, or for one or more accounts with respect to which such
person exercises sole investment discretion, and such person and each such
account is a "qualified institutional buyer" within the meaning of
Rule 144A, in each case in a transaction meeting the requirements of
Rule 144A;
or
/ / the Surrendered Notes are being transferred in a transaction permitted by
Rule 144 under the Securities Act;
B-3-1
<PAGE>
or
/ / the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
/ / such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Notes are
being transferred in compliance with the transfer restrictions applicable
to the Global Notes and in accordance with the requirements of the
exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, NationsBanc Montgomery Securities LLC, Wasserstein
Perella Securities, Inc., Bear, Stearns & Co. Inc., SG Cowen Securities
Corporation, and CIBC Oppenheimer Corp., the initial purchasers of such Notes
being transferred. Terms used in this certificate and not otherwise defined
in the Indenture have the meanings set forth in Regulation S under the
Securities Act.
___________________________
[Insert Name of Transferor]
By: _______________________
Name:
Title:
Dated:_______________, ____
cc: Station Casinos, Inc.
B-3-2
<PAGE>
Exhibit B-4
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE OR REGULATION S PERMANENT GLOBAL NOTE
TO CERTIFICATED NOTE
(Pursuant to Section 2.06(c) of the Indenture)
FIRST UNION NATIONAL BANK
123 South Broad Street
Philadelphia, PA 19109
Attention: Corporate Trust Administrator
Re: 8 7/8% Senior Subordinated Notes due 2008 of Station Casinos,
Inc.
Reference is hereby made to the Indenture, dated as of December 3,
1998 (the "Indenture"), among Station Casinos, Inc., as issuer (the
"Company") and First Union National Bank, as trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
This letter relates to $_______ principal amount of Notes which
are evidenced by one or more Rule 144A Global Notes (CUSIP No.__________) or
Regulation S Permanent Global Note (CUSIP No. __________) and held with the
Depository in the name of ____________________________ (the "Transferor").
The Transferor has requested a transfer of such beneficial interest in the
Notes to a person who will take delivery thereof in the form of an equal
principal amount of Notes evidenced by one or more Certificated Notes (CUSIP
No. __________), which amount, immediately after such transfer, is to be held
with the Depository.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith for exchange (the "Surrendered Notes"),
the Holder of such Surrendered Notes hereby certifies that:
[CHECK ONE]
/ / the Surrendered Notes are being transferred to the beneficial owner of such
Notes;
or
/ / the Surrendered Notes are being transferred pursuant to and in accordance
with Rule 144A under the United States Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Surrendered Notes are being transferred to a person that
the Transferor reasonably believes is purchasing the Surrendered Notes for
its own account, or for one or more accounts with respect to which such
person exercises sole investment discretion, and such person and each such
account
B-4-1
<PAGE>
is a "qualified institutional buyer" within the meaning of Rule 144A, in
each case in a transaction meeting the requirements of Rule 144A;
or
/ / the Surrendered Notes are being transferred in a transaction permitted by
Rule 144 under the Securities Act;
or
/ / the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
/ / such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Notes are
being transferred in compliance with the transfer restrictions applicable
to the Global Notes and in accordance with the requirements of the
exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and Merrill Lynch, Pierce, Fenner
& Smith Incorporated, NationsBanc Montgomery Securities LLC, Wasserstein
Perella Securities, Inc., Bear, Stearns & Co. Inc., SG Cowen Securities
Corporation, and CIBC Oppenheimer Corp., the initial purchasers of such Notes
being transferred. Terms used in this certificate and not otherwise defined
in the Indenture have the meanings set forth in Regulation S under the
Securities Act.
-----------------------------------
[Insert Name of Transferor]
By:
--------------------------------
Name:
Title:
Dated: _____________, _____
cc: Station Casinos, Inc.
B-4-2
<PAGE>
Exhibit B-5
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM CERTIFICATED NOTE TO RULE 144A GLOBAL NOTE OR
REGULATION S PERMANENT GLOBAL NOTE
(Pursuant to Section 2.06(e) of the Indenture)
FIRST UNION NATIONAL BANK
123 South Broad Street
Philadelphia, PA 19109
Attention: Corporate Trust Administrator
Re: 8 7/8% Senior Subordinated Notes due 2008 of Station Casinos,
Inc.
Reference is hereby made to the Indenture, dated as of December 3,
1998 (the "Indenture"), among Station Casinos, Inc., as issuer (the
"Company") and First Union National Bank, as trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith for exchange (the "Surrendered Notes"),
the Holder of such Surrendered Notes hereby certifies that:
[CHECK ONE]
/ / the Surrendered Notes are being transferred to the beneficial owner of such
Notes;
or
/ / the Surrendered Notes are being transferred pursuant to and in accordance
with Rule 144A under the United States Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Surrendered Notes are being transferred to a person that
the Transferor reasonably believes is purchasing the Surrendered Notes for
its own account, or for one or more accounts with respect to which such
person exercises sole investment discretion, and such person and each such
account is a "qualified institutional buyer" within the meaning of Rule
144A, in each case in a transaction meeting the requirements of Rule 144A;
or
/ / the Surrendered Notes are being transferred in a transaction permitted by
Rule 144 under the Securities Act;
or
B-5-1
<PAGE>
/ / the Surrendered Notes are being transferred in a transaction permitted by
Rule 904 under the Securities Act;
or
/ / the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
/ / such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Notes are
being transferred in compliance with the transfer restrictions applicable
to the Global Notes and in accordance with the requirements of the
exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and Merrill Lynch, Pierce, Fenner
& Smith Incorporated, NationsBanc Montgomery Securities LLC, Wasserstein
Perella Securities, Inc., Bear, Stearns & Co. Inc., SG Cowen Securities
Corporation, and CIBC Oppenheimer Corp., the initial purchasers of such Notes
being transferred. Terms used in this certificate and not otherwise defined
in the Indenture have the meanings set forth in Regulation S under the
Securities Act.
------------------------------------
[Insert Name of Transferor]
By:
---------------------------------
Name:
Title:
Dated: _____________, _____
cc: Station Casinos, Inc.
B-5-2
<PAGE>
EXHIBIT 12.1
STATION CASINOS, INC.
Computation of Ratio of Earnings to Fixed Charges
(Amounts in Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months ended
September 30
1994 1995 1996 1997 1998 1997 1998
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes and
extraordinary item 18,709 (11,419) 40,051 21,378 (4,120) (9,191) 10,618
Capitalized interest (3,114) (5,970) (6,128) (21,114) (12,808) (9,080) (366)
------- -------- -------- -------- -------- -------- --------
15,545 (17,389) 33,923 264 (16,928) (18,271) 10,252
------- -------- -------- -------- -------- -------- --------
Fixed Charges:
Interest 11,806 20,506 30,823 37,715 79,444 36,071 44,591
Capitalized Interest 3,114 5,970 6,128 21,114 12,808 9,080 366
Rent 561 1,607 2,158 1,773 4,101 1,684 2,610
------- -------- -------- -------- -------- -------- --------
Total Fixed Charges 15,481 28,083 39,109 60,602 96,353 46,835 47,567
------- -------- -------- -------- -------- -------- --------
Income before
income taxes,
extraordinary item
and fixed charges 31,076 10,694 73,032 60,866 79,425 28,564 57,819
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
Ratio of earnings to
fixed charges 2.01 0.38 1.87 1.00 0.82 0.61 1.22
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included in this registration statement and to the incorporation by reference
in this registration statement of our report dated April 23, 1998 (except for
Note 13, as to which the date is June 15, 1998 and Note 6 as to which the
date is June 18, 1998) included in Station Casinos, Inc.'s Annual Report on
Form 10-K for the year ended March 31, 1998 and to all references to our Firm
included in this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 25, 1999
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) __
FIRST UNION NATIONAL BANK
(Exact Name of Trustee as Specified in its Charter)
22-1147033
(I.R.S. Employer Identification No.)
301 SOUTH COLLEGE STREET, CHARLOTTE, NORTH CAROLINA
(Address of Principal Executive Offices)
28288-0630
(Zip Code)
FIRST UNION NATIONAL BANK
123 SOUTH BROAD STREET
PHILADELPHIA, PA 19109
ATTENTION: CORPORATE TRUST ADMINISTRATION
(215) 985-6000
(Name, address and telephone number of Agent for Service)
STATION CASINOS,INC.
(Exact Name of Obligor as Specified in its Charter)
NEVADA
(State or other jurisdiction of Incorporation or Organization)
88-0136443
(I.R.S. Employer Identification No.)
2411 WEST SAHARA AVENUE, LAS VEGAS, NEVADA
(Address of Principal Executive Offices)
89102
(Zip Code)
8-7/8% SENIOR SUBORDINATED NOTES DUE 2008
APPLICATION RELATES TO ALL SECURITIES REGISTERED PURSUANT
TO THE DELAYED OFFERING REGISTRATION STATEMENT
(TITLE OF INDENTURE SECURITIES)
1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH IT IS
SUBJECT:
Comptroller of the Currency
United States Department of the Treasury
Washington, D.C. 20219
Federal Reserve Bank
<PAGE>
Richmond, Virginia 23219
Federal Deposit Insurance Corporation
Washington, D.C. 20429
b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
3. VOTING SECURITIES OF THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF VOTING SECURITIES
OF THE TRUSTEE:
Not applicable - see answer to Item 13.
4. TRUSTEESHIPS UNDER OTHER INDENTURES.
IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH ANY OTHER
SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY OTHER
SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, FURNISH THE FOLLOWING INFORMATION:
1) $198,000,000 10-1/8% Senior Subordinated Notes due 2006 (the "96 Notes"),
governed by an indenture dated as of March 25, 1996 (the "96 Indenture");
2) $150,000,000 9-3/4% Senior Subordinated Notes Due 2007 (the "97 Notes"),
governed by an indenture dated as of April 3, 1997 (the "97 Indenture")
The Indenture Securities are not in default, and there has not been a default
under the 96 Indenture, The Indenture Securities will rank pari passu with each
of the 96 Notes and 97 Notes.
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.
IF THE TRUSTEE OR ANY OF THE DIRECTORS OR EXECUTIVE OFFICERS OF THE
TRUSTEE IS A DIRECTOR, OFFICER, PARTNER, EMPLOYEE, APPOINTEE, OR
REPRESENTATIVE OF THE OBLIGOR OR OF ANY UNDERWRITER FOR THE OBLIGOR, IDENTIFY
EACH SUCH PERSON HAVING ANY SUCH CONNECTION AND STATE THE NATURE OF EACH SUCH
CONNECTION.
Not applicable - see answer to Item 13.
6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS
OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE TRUSTEE
OWNED BENEFICIALLY BY THE OBLIGOR AND EACH DIRECTOR, PARTNER, AND EXECUTIVE
OFFICER OF THE OBLIGOR:
Not applicable - see answer to Item 13.
7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS.
<PAGE>
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE
TRUSTEE OWNED BENEFICIALLY BY EACH UNDERWRITER FOR THE OBLIGOR AND EACH
DIRECTOR, PARTNER, AND EXECUTIVE OFFICER OF EACH SUCH UNDERWRITER:
Not applicable - see answer to Item 13.
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO SECURITIES OF THE OBLIGOR OWNED
BENEFICIALLY OR HELD AS COLLATERAL SECURITY FOR OBLIGATIONS IN DEFAULT BY THE
TRUSTEE:
Not applicable - see answer to Item 13.
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT ANY SECURITIES OF AN UNDERWRITER FOR THE OBLIGOR,
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OF SUCH
UNDERWRITER ANY OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE:
Not applicable - see answer to Item 13.
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT VOTING SECURITIES OF A PERSON WHO, TO THE KNOWLEDGE OF
THE TRUSTEE (1) OWNS 10 PERCENT OR MORE OF THE VOTING STOCK OF THE OBLIGOR OR
(2) IS AN AFFILIATE, OTHER THAN A SUBSIDIARY, OF THE OBLIGOR, FURNISH THE
FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF SUCH PERSON:
Not applicable - see answer to Item 13.
11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT ANY SECURITIES OF A PERSON WHO, TO THE KNOWLEDGE OF
THE TRUSTEE, OWNS 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR,
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OF SUCH
PERSON ANY OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE:
Not applicable - see answer to Item 13.
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
EXCEPT AS NOTED IN THE INSTRUCTIONS, IF THE OBLIGOR IS INDEBTED TO THE
TRUSTEE, FURNISH THE FOLLOWING INFORMATION:
Not applicable - see answer to Item 13.
13. DEFAULTS BY THE OBLIGOR.
(a) STATE WHETHER THERE IS OR HAS BEEN A DEFAULT WITH RESPECT TO
<PAGE>
THE SECURITIES UNDER THIS INDENTURE. EXPLAIN THE NATURE OF ANY SUCH DEFAULT.
None.
(b) IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH ANY
OTHER SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY OTHER
SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, OR IS TRUSTEE FOR MORE THAN ONE
OUTSTANDING SERIES OF SECURITIES UNDER THE INDENTURE, STATE WHETHER THERE HAS
BEEN A DEFAULT UNDER ANY SUCH INDENTURE OR SERIES, IDENTIFY THE INDENTURE OR
SERIES AFFECTED, AND EXPLAIN THE NATURE OF ANY SUCH DEFAULT.
None
14. AFFILIATIONS WITH THE UNDERWRITERS.
IF ANY UNDERWRITER IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
Not applicable - see answer to Item 13.
15. Foreign trustee.
IDENTIFY THE ORDER OR RULE PURSUANT TO WHICH THE TRUSTEE IS AUTHORIZED TO
ACT AS SOLE TRUSTEE UNDER INDENTURES QUALIFIED OR TO BE QUALIFIED UNDER THE ACT.
Not applicable - trustee is a national banking association organized under
the laws of the United States.
16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
__ 1. Copy of Articles of Association of the trustee as now in effect.*
2. Copy of the Certificate of the Comptroller of the Currency dated
March 4, 1998, evidencing the authority of the trustee to transact
business.**
3. Copy of the Certification of Fiduciary Powers of the trustee by the
Office of the Comptroller of the Currency dated March 4, 1998.**
__ 4. Copy of existing by-laws of the trustee.*
__ 5. Copy of each indenture referred to in Item 4, if the obligor is in
default.
-Not Applicable.
X 6. Consent of the trustee required by Section 321(b) of the Act.
- --
X 7. Copy of report of condition of the trustee at the close of business on
- -- September 30, 1998, published pursuant to the requirements of its
supervising authority.
__ 8. Copy of any order pursuant to which the foreign trustee is
authorized to act as sole trustee under indentures qualified or to be
qualified under the Act.
- Not Applicable
__ 9. Consent to service of process required of foreign trustees
<PAGE>
pursuant to Rule 10a-4 under the Act.
- Not Applicable
- --------------
*Previously filed with the Securities and Exchange Commission on March
16, 1998 as an Exhibit to Form T-1 in connection with Registration Statement
Number 333-47985, ** and filed with the Securities and Exchange Commission on
July 15, 1998 as an Exhibit to Form T-1 in connection with Registration
Statement Number 333-59145, and incorporated herein by reference.
NOTE
The trustee disclaims responsibility for the accuracy or completeness
of information contained in this Statement of Eligibility and Qualification
not known to the trustee and not obtainable by it through reasonable
investigation and as to which information it has obtained from the obligor
and has had to rely or will obtain from the principal underwriters and will
have to rely.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, First Union National Bank, a national banking association organized and
existing under the laws of the United States of America, has duly caused this
Statement of Eligibility and Qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Philadelphia and
Commonwealth of Pennsylvania, on the 13th day of January, 1999.
FIRST UNION NATIONAL BANK
By: /s/John H. Clapham
----------------------
John H. Clapham
Vice President
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, and in connection with the proposed issue of IWC Resources
Corporation, Debt Securities, First Union National Bank, hereby consents that
reports of examinations by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
FIRST UNION NATIONAL BANK
By: /s/John H. Clapham
----------------------
John H. Clapham
Vice President
Philadelphia, Pennsylvania
January 13, 1999
<PAGE>
REPORT OF CONDITION EXHIBIT 7
Consolidating domestic and foreign subsidiaries of the First Union National
Bank, Charlotte, North Carolina, at the close of business on September 30,
1998 published in response to call made by Comptroller of the Currency, under
title 12, United States Code, Section 161. Charter Number 22693 Comptroller
of the Currency.
STATEMENT OF RESOURCES AND LIABILITIES
<TABLE>
<CAPTION>
Thousand of Dollars
-------------------
<S> <C>
ASSETS
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin........ 10,212,563
Interest-bearing balances................................. 1,529,435
Securities.................................................. /////////
Hold-to-maturity securities............................... 1,994,665
Available-for-sale securities............................. 37,427,525
Federal funds sold and securities purchases to resell....... 7,551,730
Loans and lease financing receivables:
Loan and leases, net of unearned income..........133,841,290
LESS: Allowance for loan and lease losses..........1,856,548
LESS: Allocated transfer risk reserve......................0
Loans and leases, net of unearned income, allowance, and
reserve..................................................... 131,984,742
Assets held in trading accounts............................. 8,349,640
Premises and fixed assets (including capitalized leases).... 3,208,660
Other real estate owned..................................... 127,757
Investment in unconsolidated subsidiaries and associated ///////////
companies................................................... 351,648
Customer's liability to this bank on acceptances
outstanding................................................. 1,026,154
Intangible assets........................................... 5,215,196
Other assets................................................ 9,099,122
Total assets................................................ 218,078,837
LIABILITIES
Deposits:
In domestic offices.................................... 131,541,691
Noninterest-bearing........................23,997,063
Interest-bearing......................... 107,544,628
In foreign offices, Edge and Agreement subsidiaries,
and IBFs............................................... 8,708,735
Noninterest-bearing...........................400,989
Interest-bearing............................8,307,746
Federal funds purchased and securities sold under
agreements to repurchase .................................. 24,903,299
Demand notes issued to the U.S. Treasury.................... 772,252
Trading liabilities......................................... 6,496,578
Other borrowed money:....................................... /////////
With original maturity of one year or less............. 11,928,951
With original maturity of more than one year thru
3 yrs. ............................................... 1,260,353
With a maturity of more than three years............... 775,219
Not applicable ............................................. ////////
Bank's liability on acceptances executed and outstanding.... 1,036,587
Subordinated notes and debentures........................... 3,501,546
Other liabilities........................................... 9,211,139
Total liabilities........................................... 200,136,350
Not applicable.............................................. ///////////
</TABLE>
<PAGE>
<TABLE>
<S> <C>
EQUITY CAPITAL
Perpetual preferred stock and related surplus................ 160,540
Common Stock................................................. 454,543
Surplus...................................................... 13,206,354
Undivided profits and capital reserves....................... 3,553,449
Net unrealized holding gains (losses) on available-for-sale /////////
securities.................................................. 572,731
Cumulative foreign currency translation adjustments.......... (5,130)
Total equity capital......................................... 17,942,487
Total liabilities and equty capital.......................... 218,078,837
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
STATION CASINOS, INC.
OFFER TO EXCHANGE ITS
8 7/8% SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8 7/8% SENIOR SUBORDINATED NOTES DUE 2008
PURSUANT TO THE PROSPECTUS
DATED ________, 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ____________, 1999, UNLESS THE OFFER IS EXTENDED
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST UNION NATIONAL BANK
BY MAIL/OVERNIGHT DELIVERY/HAND:
First Union National Bank
Attention: Mike Klotz
Corporate Trust Reorg. Dept.
1525 West W.T. Harris Blvd.
Charlotte, NC 28288-1153
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(704) 590-7408
FACSIMILE TRANSMISSIONS:
(704) 590-7628
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of the Old
Notes (as defined below) if either Old Notes are to be forwarded herewith or
if tenders of Old Notes are to be made by book-entry transfer to an account
maintained by First Union National Bank (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer -- Procedures for Tendering the Old Notes" in the Prospectus.
-1-
<PAGE>
Holders of Old Notes whose certificates (the "Certificates") for such
Old Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or
prior to the expiration date (as defined in the Prospectus) or who cannot
complete the procedures for book-entry transfer on a timely basis, must
tender their Old Notes according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Procedures for Tendering the Old Notes" in
the Prospectus.
DELIVERY OF DOCUMENTS TO THE COMPANY OR DTC DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY.
ALL TENDERING HOLDERS COMPLETE THIS BOX
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- ------------------------------------------------------------------------------------------------------------------------------
Please Print Name and Address of Old Notes Tendered Principal Amount of
Registered Holder Certificate (Attach Additional List if Old Notes Tendered (if Principal
(Please Fill in if Blank) Number(s)* Necessary) Amount of Old Notes Less Than All)**
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL AMOUNT TENDERED:
- ------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000 and integral multiples thereof.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution_______________________________________
DTC Account Number__________________________________________________
Transaction Code Number_____________________________________________
CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED
DELIVERY IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)________________________________________
Window Ticket Number (if any)_______________________________________
Date of Execution of Notice of Guaranteed Delivery__________________
Name of Institution Which Guaranteed Delivery_______________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution_______________________________________
DTC Account Number__________________________________________________
Transaction Code Number_____________________________________________
CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:_________________________________________________________________________
Address:______________________________________________________________________
-2-
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Station Casinos, Inc., (the
"Company"), the above described aggregate principal amount of the Company's
8 7/8% Senior Subordinated Notes Due 2008 (the "Old Notes") in exchange for a
like aggregate principal amount of the Company's 8 7/8% Senior Subordinated
Notes Due 2008 (the "New Notes") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), upon the terms and
subject to the conditions set forth in the Company's prospectus dated
________, 1999 (as the same may be amended or supplemented from time to time,
the "Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitute the "Exchange
Offer):
Subject to and effective upon the acceptance for exchange of all or
any portion of the Old Notes tendered herewith in accordance with the terms
and conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon
the order of the Company all right, title and interest in and to such Old
Notes as are being tendered herewith. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as its agent and attorney-in-fact
(with full knowledge that the Exchange Agent is also acting as agent of the
Company in connection with the Exchange Offer) with respect to the tendered
Old Notes, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), subject only to
the right of withdrawal described in the Prospectus, to (i) deliver
Certificates for Old Notes to the Company together with all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company,
upon receipt by the Exchange Agent, as the undersigned's agent, of the New
Notes to be issued in exchange for such Old Notes, (ii) present Certificates
for such Old Notes for transfer, and to transfer the Old Notes on the books
of the Company, and (iii) receive for the account of the Company all benefits
and otherwise exercise all rights of beneficial ownership of such Old Notes,
all in accordance with the terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED
HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER
THE OLD NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE OLD NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS
OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY
ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE
NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF
THE OLD NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS
OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS
READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The names(s) and address(es) of the registered holder(s) of the Old
Notes tendered hereby should be printed above, if they are not already set
forth above, as they appear on the Certificates representing such Old Notes.
The Certificate number(s) and the Old Notes that the undersigned wishes to
tender should be indicated in the appropriate boxes above.
-3-
<PAGE>
If any tendered Old Notes are not exchanged pursuant to the
Exchange Offer for any reason, or if Certificates are submitted for more Old
Notes than are tendered or accepted for exchange, Certificates for such
nonexchanged or nontendered Old Notes will be returned (or, in the case of
Old Notes tendered by book-entry transfer, such Old Notes will be credited to
an account maintained at DTC), without expense to the tendering holder,
promptly following the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to
any one of the procedures described in "The Exchange Offer -- Procedures for
Tendering the Old Notes" in the Prospectus and in the instructions hereto
will, upon the Company's acceptance for exchange of such tendered Old Notes,
constitute a binding agreement between the undersigned and the Company upon
the terms and subject to the conditions of the Exchange Offer. The
undersigned recognizes that, under certain circumstances set forth in the
Prospectus, the Company may not be required to accept for exchange any of the
Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, the undersigned hereby directs that the New
Notes be issued in the name(s) of the undersigned or, in the case of a
book-entry transfer of the Old Notes, that such New Notes be credited to the
account indicated above maintained at DTC. If applicable, substitute
Certificates representing the Old Notes not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Old Notes, will be credited to the account indicated above
maintained at DTC. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please deliver New Notes to the undersigned at the
address shown below the undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL,
THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (1) THE NEW NOTES ACQUIRED
PURSUANT TO THE EXCHANGE OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF
BUSINESS OF THE PERSON RECEIVING SUCH NEW NOTES, WHETHER OR NOT THAT PERSON
IS THE UNDERSIGNED (2) NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON HAS
AN ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH NEW NOTES (3) IF THE UNDERSIGNED IS NOT A BROKER-DEALER,
OR IS A BROKER-DEALER BUT WILL NOT RECEIVE NEW NOTES FOR ITS OWN ACCOUNT IN
EXCHANGE FOR THE OLD NOTES, NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON
IS ENGAGED IN OR INTENDS TO PARTICIPATE IN THE DISTRIBUTION OF SUCH NEW
NOTES; AND (4) NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON IS AN
"AFFILIATE" OF THE COMPANY, AS DEFINED UNDER RULE 405 OF THE SECURITIES ACT.
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE
REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A BROKER-DEALER (A
"PARTICIPATING BROKER-DEALER") IN CONNECTION WITH THE RESALE OF THE NEW NOTES
RECEIVED IN EXCHANGE FOR THE OLD NOTES WHERE SUCH OLD NOTES WERE ACQUIRED FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES. EACH PARTICIPATING BROKER-DEALER THAT PARTICIPATES IN THE
EXCHANGE OFFER THAT RECEIVES THE NEW NOTES FOR ITS OWN ACCOUNT PURSUANT TO
THE EXCHANGE OFFER BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF
TRANSMITTAL AGREES THAT IT WILL DELIVER A PROSPECTUS IN
-4-
<PAGE>
CONNECTION WITH ANY RESALE OF SUCH NEW NOTES. HOWEVER, BY SO ACKNOWLEDGING
AND BY DELIVERING A PROSPECTUS, A PARTICIPATING BROKER-DEALER WILL NOT BE
DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT. THE COMPANY HAS AGREED THAT FOR A PERIOD OF ONE YEAR AFTER
THE DATE WHEN THE REGISTRATION STATEMENT BECOMES EFFECTIVE, THE COMPANY WILL
USE ITS BEST EFFORTS TO MAKE THE PROSPECTUS, AS AMENDED OR SUPPLEMENTED,
AVAILABLE TO ANY PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH ANY
SUCH RESALE. IN THAT REGARD, EACH PARTICIPATING BROKER-DEALER, BY TENDERING
SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT UPON
RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE
DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY
REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES
THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE
THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF
THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE
OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS
AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW
NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR
SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS
FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE
PARTICIPATING BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF
THE NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH
NOTICE TO SUSPEND THE SALE OF THE NEW NOTES, IT SHALL EXTEND THE ONE YEAR
PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE
ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE OF NEW NOTES BY
THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE
GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS
GIVEN NOTICE THAT THE SALE OF NEW NOTES MAYBE RESUMED, AS THE CASE MAY BE.
All authority herein conferred or agreed to be conferred in this
Letter of Transmittal shall survive the death or incapacity of the
undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, executors, administrators, personal representatives, trustees
in bankruptcy, legal representatives, successors and assigns of the
undersigned. Except as stated in the Prospectus, this tender is irrevocable.
-5-
<PAGE>
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 13)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s)
on Certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certifications and other information as may be required by the
Company or the trustee for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an
attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary representative capacity, please
set forth the signer's full title. See Instruction 5.
_______________________________________________________________________________
_______________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Date:____________________________________________________________________, 1999
Name(s)________________________________________________________________________
_______________________________________________________________________________
(PLEASE PRINT)
Capacity (full title)__________________________________________________________
Address________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number_________________________________________________
_______________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
_______________________________________________________________________________
(AUTHORIZED SIGNATURE)
Date:____________________________________________________________________, 1999
Name of Firm___________________________________________________________________
Capacity (full title)__________________________________________________________
(PLEASE PRINT)
Address________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number_________________________________________________
-6-
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the New Notes are to be issued in the name of someone
other than the registered holder of the Old Notes whose name(s) appear(s) above.
Issue:
Old Notes not tendered
New Notes, to:
Name(s)________________________________________________________________________
Address________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number_________________________________________________
_______________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S)
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if New Notes are to be sent to someone other than the
registered holder of the Old Notes whose name(s) appear(s) above, or such
registered holder(s) at an address other than that shown above.
Send:
Old Notes not tendered
New Notes, to:
Name(s)________________________________________________________________________
Address________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number_________________________________________________
_______________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S)
-7-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed if either
(a) Certificates are to be forwarded herewith or (b) tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth in
"The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus.
Certificates, or timely confirmation of a book-entry transfer of such Old
Notes into the Exchange Agent's account at DTC, as well as this Letter of
Transmittal (or facsimile thereof), properly completed and duly executed,
with any required signature guarantees, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein on or prior to the expiration date. Old Notes may
be tendered in whole or in part in the principal amount of $1,000 and
integral multiples of $1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes
are not immediately available or (ii) who cannot deliver their Old Notes,
this Letter of Transmittal and all other required documents to the Exchange
Agent on or prior to the expiration date or (iii) who cannot complete the
procedures for delivery by book-entry transfer on a timely basis, may tender
their Old Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer -- Procedures for Tendering the Old Notes" in the
Prospectus. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution (as defined below); (ii) a properly completed
and duly executed Notice of Guaranteed Delivery, substantially in the form
made available by the Company, must be received by the Exchange Agent on or
prior to the expiration date; and (iii) the Certificates (or a timely
confirmation of a book-entry transfer) representing all tendered Old Notes,
in proper form for transfer, together with a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent within five New York
Stock Exchange, Inc. trading days after the date of execution of such Notice
of Guaranteed Delivery, all as provided in "The Exchange Offer --Guaranteed
Delivery Procedures" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice.
For Old Notes to be properly tendered pursuant to the guaranteed delivery
procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on
or prior to the expiration date. As used herein and in the Prospectus,
"Eligible Institution" means a firm or other entity identified in Rule
17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker,
dealer, municipal securities broker or dealer or government securities broker
or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE
TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. IF
-8-
<PAGE>
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered
holder (which term, for purposes of this document, shall
include any participant in DTC whose name appears on a
security position listing as the owner of the Old Notes)
of Old Notes tendered herewith, unless such holder(s) has
completed either the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery
Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that
is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes Tendered" is inadequate, the Certificate number(s)
and/or the principal amount of Old Notes and any other required information
should be listed on a separate signed schedule which is attached to this
Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tender of the Old Notes
will be accepted only in the principal amount of $1,000 and integral
multiples thereof. If less than all the Old Notes evidenced by any
Certificate submitted are to be tendered, fill in the principal amount of the
Old Notes which are to be tendered in the box entitled "Principal Amount of
Old Notes Tendered (If Principal Amount of Old Notes Less Than All)." In
such case, new Certificate(s) for the remainder of the Old Notes that were
evidenced by your old Certificate(s) will only be sent to the holder of the
Old Note, promptly after the expiration date. All Old Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of the Old Notes may
be withdrawn at any time on or prior to the expiration date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in
the Prospectus on or prior to the expiration date. Any such notice of
withdrawal must specify the name of the person who tendered the Old Notes to
be withdrawn, the aggregate principal amount of Old Notes to be withdrawn,
and (if Certificates for Old Notes have been tendered) the name of the
registered holder of the Old Notes as set forth on the Certificate for the
Old Notes, if different from that of the person who tendered such Old Notes.
If Certificates for the Old Notes have
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<PAGE>
been delivered or otherwise identified to the Exchange Agent, then prior to
the physical release of such Certificates for the Old Notes, the tendering
holder must submit the serial numbers shown on the particular Certificates
for the Old Notes to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case
of Old Notes tendered for the account of an Eligible Institution. If Old
Notes have been tendered pursuant to the procedures for book-entry transfer
set forth in "The Exchange Offer -- Procedures for Tendering the Old Notes,"
the notice of withdrawal must specify the name and number of the account at
DTC to be credited with the withdrawal of Old Notes, in which case a notice
of withdrawal will be effective if delivered to the Exchange Agent by
written, telegraphic, telex or facsimile transmission. Withdrawals of
tenders of Old Notes may not be rescinded. Old Notes properly withdrawn will
not be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the expiration date by
following any of the procedures described in the Prospectus under "The
Exchange Offer -- Procedures for Tendering the Old Notes."
All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the
Company, in its sole discretion, whose determination shall be final and
binding on all parties. Neither the Company, any affiliates or assigns of the
Company, the Exchange Agent nor any other person shall be under any duty to
give any notification of any irregularities in any notice of withdrawal or
incur any liability for failure to give any such notification. Any Old Notes
which have been tendered but which are withdrawn will be returned to the
holder thereof without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND
ENDORSEMENTS. If this Letter of Transmittal is signed by the registered
holder(s) of the Old Notes tendered hereby, the signature(s) must correspond
exactly with the name(s) as written on the face of the Certificate(s) without
alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal (or facsimiles thereof) as there are
different registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing and
must submit proper evidence satisfactory to the Company, in its sole
discretion, of such persons' authority to so act.
When this Letter of Transmittal is signed by the registered
owner(s) of the Old Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless New Notes are to
be issued in the name of a person other than the registered holder(s).
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
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<PAGE>
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the
name or names of the registered owner(s) appear(s) on the Certificates, and
also must be accompanied by such opinions of counsel, certifications and
other information as the Company or the Trustee for the Old Notes may require
in accordance with the restrictions on transfer applicable to the Old Notes.
Signatures on such Certificates or bond powers must be guaranteed by an
Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are
to be issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer
of this Letter of Transmittal or to an address other than that shown above,
the appropriate boxes on this Letter of Transmittal should be completed.
Certificates of Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole
discretion, all questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tender of Old
Notes, which determination shall be final and binding on all parties. The
company reserves the absolute right to reject any and all tenders determined
by it not to be in proper form or the acceptance of which, or exchange for,
may, in the view of counsel to the Company, be unlawful. The Company also
reserves the absolute right, subject to applicable law, to waive any of the
conditions of the Exchange Offer set forth in the Prospectus under "The
Exchange Offer -- Certain Conditions to the Exchange Offer" or any conditions
or irregularity in any tender of Old Notes of any particular holder whether
or not similar conditions or irregularities are waived in the case of other
holders. The Company's interpretation of the terms and conditions of the
Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Old Notes will be deemed to
have been validly made until all irregularities with respect to such tender
have been cured or waived. Neither the Company, any affiliates or assigns of
the Company, the Exchange Agent, nor any other person shall be under any duty
to give notification of any irregularities in tenders or incur any liability
for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES.
Questions and requests for assistance may be directed to the Exchange Agent
at its address and telephone number set forth on the front of this Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the Exchange
Agent or from your broker, dealer, commercial bank, trust company or other
nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S.
Federal income tax law, a holder whose tendered Old Notes are accepted for
exchange is required to provide the Exchange Agent with such holder's correct
taxpayer identification number ("TIN") on Substitute Form W-9 below. If the
Exchange Agent is not provided with the correct TIN, the Internal Revenue
Service (the "IRS") may subject the holder or other payee to a $50 penalty.
In addition, payments to such holders or other payees with respect to Old
Notes exchanged pursuant to the Exchange Offer may be subject to 31% backup
withholding.
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<PAGE>
The box in Part 2 of the Substitute Form W-9 may be checked in if
the tendering holder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 2 is
checked, the holder or other payee must also complete the Certificate of
Awaiting Taxpayer Identification Number below in order to avoid backup
withholding. Notwithstanding that the box in Part 2 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the
Exchange Agent will withhold 31% of all payments made prior to the time a
properly certified TIN is provided to the Exchange Agent. The Exchange Agent
will retain such amounts withheld during the 60 day period following the date
of the Substitute Form W-9. If the holder furnishes the Exchange Agent with
its TIN within 60 days after the date of the Substitute Form W-9, the amounts
retained during the 60 day period will be remitted to the holder and no
further amounts shall be retained or withheld from payments made to the
holder thereafter. If, however, the holder has not provided the Exchange
Agent with its TIN within such 60 day period, amounts withheld will be
remitted to the IRS as backup withholding. In addition, 31% of all payments
made thereafter will be withheld and remitted to the IRS until a correct TIN
is provided.
The holder is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the registered
owner of the Old Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Old Notes. If the Old Notes are registered
in more than one name or are not in the name of the actual owner, consult the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the
face thereof, to avoid possible erroneous backup withholding. A foreign
person may qualify as an exempt recipient by submitting a properly completed
IRS Form W-8, signed under penalties of perjury, attesting to that holder's
exempt status. Please consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional
guidance on which holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax.
Rather, the U.S. Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to
the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Old Notes
for exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, New Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the Old
Notes tendered, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes in connection with the Exchange Offer, then the amount
of any such transfer tax (whether imposed on the registered holder or any
other persons) will be payable
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<PAGE>
by the tendering holder. If satisfactory evidence of payment of such taxes
or exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND
ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
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<PAGE>
TO BE COMPLETED BY ALL
TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: FIRST UNION NATIONAL BANK
<TABLE>
<S> <C> <C>
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SUBSTITUTE PART 1 - PLEASE PROVIDE YOUR TIN ON THE LINE AT RIGHT AND TIN_______________________
FORM W-9 CERTIFY BY SIGNING AND DATING BELOW Social Security Number or
Employer Identification Number
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DEPARTMENT OF THE TREASURY NAME (Please Print)
INTERNAL REVENUE SERVICE PART 2
_________________________________________________________
PAYOR'S REQUEST FOR TAXPAYER Awaiting
IDENTIFICATION NUMBER (TIN) AND ADDRESS__________________________________________________
CERTIFICATION
_________________________________________________________ TIN
CITY_____________________________________________________
STATE_______________________________ZIP CODE_____________
--------------------------------------------------------------------------------------------------
Part 3 - CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the number shown on
this form is my correct taxpayer identification number (or I am waiting for a number to be issued
to me), (2) I am not subject to backup withholding either because (i) I am exempt from backup
withholding, (ii) I have not been notified by the Internal Revenue Service ("IRS") that I am
subject to backup withholding as a result of a failure to report all interest or dividends, or
(iii) the IRS has notified me that I am not longer subject to backup withholding, and (3) any
other information provided on this form is true and correct.
SIGNATURE_______________________________________________________________ DATE__________________
You must cross out item (iii) in Part (2) above if you have been notified by the IRS that you are
subject to backup withholding because of underreporting interest or dividends on your tax return
and you have not been notified by the IRS that you are no longer subject to backup withholding.
- -----------------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY, IN CERTAIN CIRCUMSTANCES, RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS
PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTION FORM W-9 FOR ADDITIONAL DETAILS.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered
an application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all payments made to me on account of the New Notes
shall be retained until I provide a taxpayer identification number to the
Exchange Agent and that, if I do not provide my taxpayer identification
number within 60 days, such retained amounts shall be remitted to the
Internal Revenue Service as backup withholding and 31% of all reportable
payments made to me thereafter will be withheld and remitted to the Internal
Revenue Service until I provide a taxpayer identification number.
Signature__________________________________ Date_______________, 1999
- -------------------------------------------------------------------------------
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<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
8-7/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
STATION CASINOS, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent
to this form, must be used to accept the Exchange Offer (as defined below) if
(i) certificates for the Company's (as defined below) 8-7/8% Senior
Subordinated Notes Due 2008 (the "Old Notes") are not immediately available,
(ii) the Old Notes, the Letter of Transmittal and all other required
documents cannot be delivered to First Union National Bank (the "Exchange
Agent") on or prior to the expiration date (as defined in the Prospectus
referred to and as defined below) or (iii) the procedures for delivery by
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand, overnight courier or mail, or
transmitted by facsimile transmission, to the Exchange Agent. See "The
Exchange Offer -- Procedures for Tendering the Old Notes" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST UNION NATIONAL BANK
BY MAIL/OVERNIGHT DELIVERY/HAND:
First Union National Bank
Attn: Mike Klotz
Corporate Trust Reorg. Dept.
1525 West W.T. Harris Blvd.
Charlotte, NC 28288-1153
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(704) 590-7408
FACSIMILE TRANSMISSIONS:
(704) 590-7628
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY
VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
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<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Station Casinos, Inc., a Nevada
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Company's prospectus dated ________, 1999 (as the same may be
amended or supplemented from time to time, the "Prospectus"), and the related
letter of transmittal (the "Letter of Transmittal," which together constitute
the "Exchange Offer"), receipt of which is hereby acknowledged, the aggregate
principal amount of the Old Notes set forth below pursuant to the guaranteed
delivery procedures set forth in the Prospectus under the caption, "The
Exchange Offer -- Procedures for Tendering the Old Notes."
Aggregate Principal Name(s) of Registered Holder(s):
Amount Tendered:
Certificate No(s). Address(es):
(if available):
Area Code and Telephone Number(s):
If the Notes will be tendered by book-entry transfer, provide the following
information:
Signature(s):
-----------------------------------------------------------------
DTC Account Number:
----------------------------------------------------------
Date:
-------------------------------------------------------------------------
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
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<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible
guarantor institution," including (as such terms are defined therein): (i) a
bank; (ii) a broker, dealer, municipal securities broker, municipal
securities dealer, government securities broker, government securities
dealer; (iii) a credit union; (iv) a national securities exchange, registered
securities association or clearing agency; or (v) a savings association that
is a participant in a Securities Transfer Association recognized program
(each of the foregoing being referred to as an "Eligible Institution"),
hereby guarantees to deliver to the Exchange Agent, at one of its addresses
set forth above, either the Old Notes tendered hereby in proper form for
transfer, or confirmation of the book entry transfer of such Old Notes to the
Exchange Agent's account at The Depositary Trust Company ("DTC"), pursuant to
the procedures for book-entry transfer set forth in the Prospectus, in either
case together with one or more properly completed and duly executed Letter(s)
of Transmittal (or facsimile thereof) and any other required documents within
five business days after the date of execution of this Notice of Guaranteed
Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within
the time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
Name of Firm:
-----------------------------------------------------------------
- ------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE) (TITLE)
Address:
----------------------------------------------------------------------
- ------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
-----------------------------------------------
Date:
----------------------------------
NOTE: DO NOT SEND THE OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY.
ACTUAL SURRENDER OF THE OLD NOTES MUST BE MADE PURSUANT TO, AND BE
ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
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