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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO______
Commission File No. 0-22088
Monarch Casino & Resort, Inc.
(Exact name of registrant as specified in its charter)
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NEVADA 88-0300760
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1175 W. MOANA LANE, SUITE 200
RENO, NEVADA 89509
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (702) 825-3355
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of February 27, 1998, based on the closing price as reported on
The Nasdaq Stock Market(SM) of $5.75 per share, was approximately $13,403,681.
As of February 27, 1998, Registrant had outstanding 9,436,275 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 1998 Annual Meeting of
Stockholders, which Proxy Statement shall be filed with the Commission not
later than 120 days after the end of the fiscal year covered by this report,
are incorporated by reference into Part III.
STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K WHICH EXPRESS THE "BELIEF",
"ANTICIPATION", "INTENTION" OR "EXPECTATION", AS WELL AS OTHER STATEMENTS
WHICH ARE NOT HISTORICAL FACT, AND STATEMENTS AS TO BUSINESS OPPORTUNITIES,
MARKET CONDITIONS, COST ESTIMATIONS AND OPERATING PERFORMANCE INSOFAR AS THEY
MAY APPLY PROSPECTIVELY, ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934 AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED.
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PART I
ITEM 1. BUSINESS
Monarch Casino & Resort, Inc., through its wholly-owned subsidiary Golden
Road Motor Inn, Inc. ("Golden Road"), owns and operates the tropically-themed
Atlantis Casino Resort in Reno, Nevada (the "Atlantis"). Unless otherwise
indicated, "Monarch" or the "Company" refers to Monarch Casino & Resort, Inc.
and its subsidiaries Golden Road, Dunes Marina Resort & Casino, Inc. ("Dunes
Marina"), and Sea World Processors, Inc. ("Sea World"). Monarch was
incorporated in 1993 under Nevada law for the purpose of acquiring all of the
stock of Golden Road. The principal asset of Monarch is the stock of Golden
Road, which holds substantially all of the assets of the Atlantis. The
Company's principal executive offices are located at 1175 West Moana Lane,
Suite 200, Reno, Nevada 89509, telephone (702) 825-3355.
THE ATLANTIS CASINO RESORT
Through Golden Road, the Company owns and operates the tropically-themed
Atlantis, which is located approximately three miles south of downtown Reno in
the generally more affluent southwest area of Reno. The Atlantis features a
32,000 square-foot casino; a hotel and a motor lodge; five restaurants; six
bars; a nightclub; a swimming pool and health club; a gift shop; an 8,000
square-foot family entertainment center; 10,500 square feet of banquet and
meeting space; and surface parking spaces for approximately 1,440 vehicles.
The Atlantis is the closest hotel casino to the 370,000 square-foot Reno
Sparks Convention Center (the "Convention Center"), and the only hotel casino
located within easy walking distance of the Convention Center.
Casino. The Atlantis' casino features approximately 35 table games,
including blackjack, craps, roulette, mini-baccarat, "Let it Ride(TM)",
"Three Card Poker(TM)", "Caribbean Stud(TM)", "Fortune Pai Gow Poker(TM)", and
"Royal Match(TM)"; approximately 1,000 slot and video poker machines; a race
and sports book (which is operated by an independent third party pursuant to a
lease arrangement with the Company); and keno. During the year ended December
31, 1997, 77% of the Atlantis' casino revenue was from slot and video poker
machines, 20% was from table games, and the remaining 3% was from keno.
The Atlantis offers what the Company believes to be higher-than-average
payout rates on slot machines and has adopted liberal rules for its blackjack
games which include using mostly single decks of cards at its tables and
allowing the player to "double down" on the first two cards. The Company's
present policy is to extend gaming credit only to a limited number of
qualified customers.
Lodging. The Atlantis features two contiguous high-rise hotel towers
offering a total of 443 rooms, and a low-rise motor lodge offering another 149
rooms, for a total guest room count of 592. The first of the two hotel towers
was completed in April 1991, and contains 150 standard rooms and 10 one-
bedroom suites in 13 stories. The second hotel tower was completed in
September 1994, and contains 234 standard rooms, 16 parlor suites, 32 one-
bedroom suites and one two-bedroom suite in 19 stories.
The rooms in both hotel towers feature fresh, colorful interior
decorations and furnishings consistent with the Atlantis' tropical theme, as
well as nine-foot ceilings (most standard hotel rooms feature eight-foot
ceilings), which give the rooms an open and spacious feel. Other guest
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amenities include a third-floor outdoor swimming pool and deck area with an
adjoining indoor health club, and glass elevators which rise the full 19
stories of the taller hotel tower, providing a panoramic view of the northern
Reno valley and the Sierra Nevada mountains.
The two-story, 149-room motor lodge, which has been operated by the
Company since 1973, is located on the back half of the Atlantis' 13-acre site.
The motor lodge rooms, which are also decorated and furnished consistently
with the Atlantis' tropical theme, contain less average square footage than
the hotel rooms and have standard eight-foot ceilings. The Company believes
the motor lodge rooms appeal to value conscious travelers who still want to
enjoy the experience of and amenities associated with a stay at a first-class
hotel casino resort. The Company renovated all of the motor lodge units in
early 1996.
The average occupancy rate at the Atlantis for fiscal years 1997, 1996,
and 1995 was 85.9%, 88.7%, and 91.2%, respectively.
Capital expenditures (including those financed with debt and capitalized
lease obligations) at the Atlantis totaled approximately $2.3 million, $2.8
million, and $2.2 million in fiscal years 1997, 1996, and 1995, respectively.
Capital expenditures during each of these years were primarily directed toward
ongoing refurbishments and enhancements to the Atlantis, including equipment
replacements. During 1996, the Company also renovated all of the Atlantis'
motor lodge rooms at a total cost of approximately $690 thousand.
Operations at the Atlantis are conducted 24 hours a day, every day of the
year. The Atlantis' business is moderately seasonal in nature, with its
highest revenues typically occurring in the summer months and lower amounts
generally in the winter months.
ATLANTIS EXPANSION PROJECT
In September 1995, the Company announced that it had submitted plans for
review and approval of a major expansion of the Atlantis (the "Expansion
Project") to the City of Reno. Those plans, which were subsequently approved
by the City of Reno substantially as submitted, featured a new 27-story hotel
tower with up to 921 rooms, 25,000 square feet of additional casino space, a
four-story, 1,831-space parking garage, and approximately 78,000 square feet
of additional public space including a 50,000 square foot special events
plaza, three new restaurants, and expanded seating in the Atlantis' Purple
Parrot and Toucan Charlie's Buffet and Grille restaurants. The plans also
included two pedestrian overhead walkways; one of the walkways would connect
the Atlantis with the 370,000 square foot Reno Sparks Convention Center, and
the other would connect the Atlantis with the Company's 16-acre site adjacent
to and across Virginia Street from the Atlantis (see Item 2, "PROPERTIES").
Under the terms of the approvals obtained for the Expansion Project, the
Company has the right to scale back the Expansion Project, to build it in
phases, or to not construct the Expansion Project at all.
On December 30, 1997, the Company announced it had completed the
refinancing of its long-term debt through a new $80 million bank construction
and reducing revolving credit facility (the "Credit Facility"). The Credit
Facility replaced approximately $33 million in long-term debt, and provided
additional funds which the Company may use as a source of funding for the
Expansion Project. With this source of funding in place, the Company's
present intention is to construct the Expansion Project in two phases. The
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Company is in the final stages of planning and design for the first phase,
which the Company presently anticipates will feature a new 28-story hotel
tower containing approximately 390 rooms, approximately 16,000 square feet of
additional casino space, additional restaurant capacity, and additional
banquet and meeting space. The first phase might also include the pedestrian
overhead walkway connecting the Atlantis with the Company's 16-acre site
adjacent to and across Virginia Street from the Atlantis. The Company
currently estimates that the cost of the first phase would be $55 to $65
million. Following completion of planning and design for the first phase, the
Company intends to seek bids from qualified general contractors for the first
phase. The Company's decision to move forward with the first phase will
largely depend on obtaining favorable bids during this process. Should the
Company decide to move forward with the first phase, it is likely that
construction would begin in the Company's fiscal quarter ending June 30, 1998.
The Company estimates that the first phase would take approximately 12 to 15
months to complete.
MARKETING
The Company's revenues and operating income are largely dependent on the
level of gaming activity at the Atlantis' casino; therefore, the Company's
predominant marketing goal is to attract gaming customers to its casino. The
Company's primary objective for its hotel, food and beverage outlets, and
other amenities is to utilize those facilities to generate additional casino
play, although as a secondary goal the Company also seeks to maximize revenues
from those areas.
The Company's marketing efforts are directed toward three broad consumer
groups: Reno area residents, non-conventioneer visitors to the Reno area, and
conventioneers. The Company believes that the Atlantis' location outside the
downtown area and near the Convention Center makes the property appealing to
all three groups.
Reno area residents. The Atlantis' proximity to rapidly growing,
generally more affluent southwestern Reno residential areas provides a
significant source of middle to upper-middle income gaming customers. The
Company markets to Reno area residents ("Locals") primarily on the basis of
the Atlantis' location and accessibility, the quality and ambiance of the
Atlantis facility, friendly efficient service, the quality and relative value
of its food and beverage offerings, entertainment offerings, promotions, and
gaming values. The Company believes that Locals as a group tend to prefer
slot and video poker machines over table games, and tend to prefer video poker
machines over reel-spinning (or electronically simulated reel-spinning) slot
machines. Accordingly, the Atlantis provides a large, diverse selection of
video poker machines. Moreover, the Company believes that Locals tend to seek
out and frequent those casinos with higher-than-average payout rates on slot
and video poker machines and liberal rules on table games. The Company
believes that the Atlantis offers higher-than-average payout rates on slot
machines, and has adopted liberal rules for its blackjack games which include
using mostly single decks of cards at its tables and allowing players to
"double down" on the first two cards.
Non-conventioneer Visitors. Reno is a popular gaming and vacation
destination which enjoys direct freeway access to nearly all major northern
California population centers, and non-stop air service from most large cities
in the western United States as well as many midwest and southern population
centers such as Chicago, Detroit, Dallas, Atlanta and St. Louis. The
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principal segments of Reno's non-conventioneer visitor market are leisure
travelers, package tour and travel customers, and higher-level wagerers. The
Company attempts to maximize its gaming revenues and hotel occupancy through a
balanced marketing approach addressing each market segment.
Leisure travelers are not affiliated with groups and make their
reservations directly with hotels of their choice or through independent
travel agents. The Company believes that this segment is largely comprised of
individuals driving, and to a lesser extent, flying to Reno from a regional
market, primarily California and to a lesser extent, the Pacific Northwest.
The Company strives to attract the middle to upper-middle income strata of
this segment through advertising and direct marketing in select markets. This
segment represents a significant portion of the Atlantis' customers,
especially those customers visiting on weekends.
The package tour and travel segment consists of visitors who utilize
travel "packages" produced by wholesale operators. The Company markets to
this segment through relationships with select wholesalers, primarily to
generate customer visits and supplement occupancy mid-week.
The Company selectively markets to higher-level wagerers through direct
sales. The Company utilizes complimentary rooms, food and beverage, special
events and the extension of gaming credit to attract higher-level wagerers.
Conventioneers. Convention business, like package tour and travel,
generates mid-week customer visits and supplements occupancy during low-demand
periods. Conventioneers typically also pay higher average room rates than
non-conventioneers. The Company seeks those convention and meeting groups
which it believes will materially enhance the Atlantis' average occupancy rate
and average daily room rates, as well as those the Company believes will be
more likely to gamble. As the only hotel casino within easy walking distance
of the Convention Center, the Company believes the Atlantis is uniquely well
positioned to capitalize on this segment. The Company believes that this
market segment is presently underserved in the Reno area, and that the
additional rooms and amenities proposed with the Expansion Project at the
Atlantis would significantly enhance the Company's ability to realize the
potential of this market segment.
The Company markets to all customer segments, including conventioneers,
on the basis of the quality and ambiance of the Atlantis facility, friendly
efficient service, the quality and relative value of its rooms and food and
beverage offerings, entertainment offerings, promotions, and gaming values.
The Company has instituted a frequent player club, "Club Paradise", which
allows the Atlantis' customers to earn rewards and special privileges based on
the amount of their play, while at the same time allowing the Company to track
the play of those customers utilizing a computerized player tracking system.
The Company uses this information to determine appropriate levels of
complimentary awards, and also in its direct marketing efforts. The Company
believes that Club Paradise significantly enhances the Company's ability to
build customer loyalty and generate repeat customer visits.
COMPETITION
Competition in the Reno area gaming market is intense. The Company
estimates that there are approximately 16 casinos in the Reno area which
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generate more than $12 million each annually in gaming revenues, approximately
ten of which are located in downtown Reno.
The Company believes that the Atlantis' competition for Locals comes
primarily from other large-scale casinos located outside of downtown Reno that
offer amenities that appeal to middle to upper-middle income customers, and
secondarily with those casinos located in downtown Reno which offer similar
amenities. The Company competes for Locals primarily on the basis of the
desirability of its location, the quality and ambiance of the Atlantis
facility, friendly efficient service, the quality and relative value of its
food and beverage offerings, entertainment offerings, promotions, and gaming
values. The Company believes its proximity to residential areas in southwest
and southeast Reno and its abundant surface parking afford it an advantage
over the casinos located in downtown Reno in attracting Locals.
The Company believes that the Atlantis' primary competition for non-
conventioneer visitors comes from other large-scale casinos, including those
located in downtown Reno and those located away from downtown Reno, that offer
amenities that appeal to middle to upper-middle income customers. The Company
competes for non-conventioneer visitors on the basis of the desirability of
its location, the quality and ambiance of the Atlantis facility, friendly
efficient service, the quality and relative value of its rooms and food and
beverage offerings, entertainment offerings, promotions, and gaming values.
The Company believes that its location away from downtown Reno is appealing to
many customers who prefer to avoid the more congested downtown Reno area;
however, the Atlantis' location is a disadvantage in that it does not afford
the Company the ability to generate walk-in traffic, which is a significant
source of customers for some casinos located in downtown Reno.
The Company believes that the Atlantis' primary competition for
conventioneers comes from other large-scale hotel casinos in the Reno area
that actively target the convention market segment, and secondarily from other
cities on the U.S. west coast with large convention facilities and substantial
hotel capacity, including Las Vegas. The Company competes for conventioneers
based on the desirability of its location, the quality and ambiance of the
Atlantis facility, meeting and banquet rooms designed to appeal to conventions
and groups, friendly efficient service, and the quality and relative value of
its rooms and food and beverage offerings. The Company believes that the
Atlantis' proximity to the Convention Center affords it a distinct competitive
advantage in attracting conventioneers.
The Atlantis also competes for gaming customers with hotel casino
operations located in other parts of Nevada, especially Las Vegas and Lake
Tahoe, and with hotel casinos, Indian casinos, and riverboat casinos located
elsewhere throughout the United States and the world. The Company believes
that the Atlantis also competes to a lesser extent with state-sponsored
lotteries, off-track wagering, card parlors, and other forms of legalized
gaming, particularly in California and the Pacific Northwest.
The Company believes that the legalization of unlimited land-based casino
gaming in or near any major metropolitan area in the Atlantis' key marketing
areas, such as San Francisco or Sacramento, could have a material adverse
effect on its business.
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REGULATION AND LICENSING
Nevada Gaming Regulation
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local regulation.
The Company's 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"), and the Reno City Council ("Reno
Board"). (The Nevada Commission, the Nevada State Gaming Control Board, and
the Reno Board are collectively hereinafter 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: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the prevention of
cheating and fraudulent practices; and (v) to provide a source of state and
local revenues through taxation and licensing fees. Changes in such laws,
regulations and procedures could have an adverse effect on the Company's
gaming operations.
Golden Road, which operates the Atlantis, is required to be licensed by
the Nevada Gaming Authorities. The gaming license requires the periodic
payment of fees and taxes and is not transferable. The Company is registered
by the Nevada Commission as a publicly traded corporation ("Registered
Corporation") and as such, it is required periodically to submit detailed
financial and operating reports to the Nevada Commission and furnish any other
information which the Nevada Commission may require. No person may become a
stockholder of, or receive any percentage of profits from, Golden Road without
first obtaining licenses and approvals from the Nevada Gaming Authorities.
The Company and Golden Road have obtained from the Nevada Gaming Authorities
the various registrations, approvals, permits and 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, the Company or Golden
Road in order to determine whether such individual is suitable or should be
licensed as a business associate of a gaming licensee. Officers, directors
and key employees of Golden Road 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 the Company who
are actively and directly involved in gaming activities of Golden Road 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
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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 a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or Golden Road, the companies involved would
have to sever all relationships with such person. In addition, the Nevada
Commission may require the Company or Golden Road to terminate the employment
of any person who refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not subject to
judicial review in Nevada.
The Company and Golden Road 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 Golden Road
must be reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by Golden Road,
the gaming licenses it holds could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory
procedures. In addition, Golden Road, the Company, 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 the Company's gaming
properties and, under certain circumstances, earnings generated during the
supervisor's appointment (except for the reasonable rental value of the
Company's gaming properties) could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of any gaming license or the
appointment of a supervisor could (and revocation of any gaming license would)
materially adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of
the number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of the Company'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 Gaming Act requires any person who acquires more than 5% of
the Company's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10%
of the Company's voting securities apply to the Nevada Commission for a
finding of suitability within 30 days after the Chairman of the Nevada Board
mails the written notice requiring such filing. Under certain circumstances,
an "institutional investor," as defined in the Nevada Act, which acquires more
than 10%, but not more than 15%, of the Company'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 the board of directors of the Company, any change in the
Company's corporate charter, bylaws, management, policies or operations of
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the Company, or any of its gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding the Company's voting
securities for investment purposes only. Activities which are not deemed to be
inconsistent with holding voting securities for investment purposes only
include: (i) voting on all matters voted on by stockholders; (ii) 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 (iii) 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 30 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 found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of
a Registered Corporation beyond such period of time as may be prescribed by
the Nevada Commission may be guilty of a criminal offense. The Company 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 such
Company or Golden Road, the Company (i) pays that person any dividend or
interest upon voting securities of the Company, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred through
securities held by that person, (iii) pays remuneration in any form to that
person for services rendered or otherwise, or (iv) fails to pursue all lawful
efforts to require such unsuitable person to relinquish his voting securities
for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be
investigated and be found suitable to own the debt security of a Registered
Corporation. 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: (i) pays to the unsuitable
person any dividend, interest, or any distribution whatsoever; (ii) recognizes
any voting right by such unsuitable person in connection with such securities;
(iii) pays the unsuitable person remuneration in any form; or (iv) makes any
payment to the unsuitable person by way of principal, redemption, conversion,
exchange, liquidation or similar transaction.
The Company 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. The Company is also required to render
maximum assistance in determining the identity of the beneficial owner. The
Nevada Commission has the power to require the Company's stock certificates to
bear a legend indicating that the securities are subject to the Nevada Act.
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The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such 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. Any
representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he 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 Nevada Commission in
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 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: (i) assure the financial stability of corporate gaming operators
and their affiliates; (ii) preserve the beneficial aspects of conducting
business in the corporate form; and (iii) promote a neutral environment for
the orderly governance of corporate affairs. Approvals are, in certain
circumstances, required from the Nevada Commission before the Company can make
exceptional repurchases of voting securities above the current market price
thereof and before a corporate acquisition opposed by management can be
consummated. The Nevada Act also requires prior approval of a plan of
recapitalization proposed by the Company's Board of Directors in response to a
tender offer made directly to the Registered Corporation's stockholders for
the purposes of acquiring control of the Registered Corporation.
Licensee 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: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A
casino entertainment tax is also paid by casino operations where entertainment
is furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, a manufacturer
or a distributor 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 of the Nevada Board of their participation in such foreign
-11- <PAGE>
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. A
licensee is also subject to disciplinary action by the Nevada Commission if it
knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fails to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engages in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employs a person in
the foreign operation who has been denied a license or finding of suitability
in Nevada on the ground of personal unsuitability.
EMPLOYEES
As of February 27, 1998, the Company had approximately 1,256 employees.
None of the Company's employees are covered by collective bargaining
agreements. The Company believes that its relationship with its employees is
good.
ITEM 2. PROPERTIES
The Company's properties consist of:
(a) The approximately 13 acre site in Reno, Nevada on which the
Atlantis is situated, including the hotel towers, casino, restaurant
facilities and surrounding parking. These 13 acres are, in part or in whole,
held subject to trust deed encumbrances in favor of financial institutions and
seller financing totaling approximately $35.3 million as of February 27, 1998.
(b) An approximately 16 acre site in Reno, Nevada adjacent to the
Atlantis, approximately four acres of which is paved and used for employee,
valet and overflow customer parking and the remainder of which is undeveloped.
This site is suitable and available for future expansion of the Atlantis
facilities, parking, or complimentary resort and/or entertainment amenities.
The Company has not determined what the ultimate use of this site will be.
These 16 acres are held subject to a trust deed encumbrance in the approximate
amount of $33.4 million as of February 27, 1998, which amount is also secured
by the 13 acre site.
ITEM 3. LEGAL PROCEEDINGS
On April 26, 1994 and May 10, 1994, complaints in purported class action
lawsuits (William Poulos v. Caesars World, Inc. et al., Case No. 94-478-Civ-
Orl-22, and William H. Ahern v. Caesars World, Inc. et al., Case No. 94-532-
Civ-Orl-22, respectively) were filed in the United States District Court for
the Middle District of Florida (the "Florida Complaints"). The Florida
Complaints were subsequently transferred to the United States District Court
for the District of Nevada, Southern Division (the "Nevada District Court").
On September 26, 1995, a complaint in a purported class action lawsuit (Larry
Schrier v. Caesars World, Inc. et al., Case No. 95-923-LDG (RJJ)) was filed in
Nevada District Court (along with the Florida Complaints, the "Complaints").
The Complaints allege that manufacturers, distributors and casino operators of
video poker and electronic slot machines, including the Company, have engaged
in a course of conduct intended to induce persons to play such games based on
a false belief concerning how the gaming machines operate, as well as the
extent to which there is an opportunity to win on a given play. The
Complaints charge Defendants with violations of the Racketeer Influenced and
-12- <PAGE>
Corrupt Organizations Act, as well as claims of common law fraud, unjust
enrichment and negligent misrepresentation, and seek damages in excess of $1
billion without any substantiation of that amount. The Company filed motions
to dismiss the Complaints. The Nevada District Court dismissed the
Complaints, granting leave to Plaintiffs to re-file, and denying as moot all
other pending motions, including those of the Company. Plaintiffs filed an
amended complaint on or about May 31, 1996. Subsequently, the Nevada District
Court consolidated the actions (and one other action styled William Poulos v.
American Family Cruise Line, N.V. et al., Case No. CV -S-95-936-LDG (RLH), in
which the Company is not a named defendant), ordered Plaintiffs to file a
consolidated amended complaint on or before February 14, 1997, and ordered all
defense motions, including those of the Company, withdrawn without prejudice.
The parties have established a steering committee to address motion practice,
scheduling and discovery matters. Plaintiffs filed their consolidated amended
complaint on February 14, 1997. The Company renewed its motions to dismiss
and joined in motions to dismiss filed by other defendants. In late December
1997, the Court granted in part and denied in part Defendants' Motions to
Dismiss for Failure to Plead Fraud with Particularity and for Failure to State
a Claim; granted in part and denied in part Defendants' Motion to Strike
Changes Made in Plaintiffs' Consolidated Amended Complaint; denied Cruise Ship
Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction; denied
Defendant Princess Hotel's Motion to Dismiss Under the Act of State Doctrine;
and denied Defendants' Motion for a Stay on Primary Jurisdiction and
Abstention Grounds. In addition, the Nevada District Court requested
additional briefing from the parties with respect to Defendants' Motion to
Dismiss for Lack of Personal Jurisdiction. Plaintiffs filed their Second
Consolidated Amended Complaint on or about January 8, 1998. The Answer to the
Second Consolidated Amended Complaint was filed on February 11, 1998.
Management believes that the substantive allegations in the Complaints are
without merit and intends vigorously to defend the allegations.
On April 10, 1996, Choice Hotels International, Inc. ("Choice") filed an
action (Choice Hotels International, Inc. v. Golden Road Motor Inn, Inc., Case
No. PJM 96-1091) in the United States District Court for the District of
Maryland (the "Choice Action"). Choice was seeking a declaratory judgment
regarding the agreement under which the Company, until April 28, 1996,
operated the Atlantis as a Clarion(TM) hotel (the "Choice Agreement").
Specifically, Choice sought a declaratory judgment as to (i) the effectiveness
of a proposed 1993 modification to the Choice Agreement, (ii) the term of the
Choice Agreement, (iii) the expansion fee provided under the Choice Agreement,
and (iv) the date on which the Choice Agreement was terminable. Subsequently,
Choice amended the Choice Action to include a claim for damages. On December
29, 1997, the Company and Choice entered into an agreement in which the
parties agreed, inter alia, to mutually release each other from matters
arising out of or based upon the Choice Agreement and the Choice Action.
Pursuant to the same agreement, Choice agreed to file a stipulation dismissing
the Choice Action with prejudice to all claims.
On March 16, 1998, in the United States District Court for the Southern
District of California, Dunes Marina entered a plea of guilty to one count of
knowingly discharging plastic and garbage mixed with plastic from the Muskegon
Clipper into ocean waters in violation of 33 U.S.C. Section 1908(a)(2) and 18
U.S.C. Section 2. The violation occurred in 1994 when the Muskegon Clipper
was being towed from Seattle, Washington, to Mobile, Alabama, for
refurbishing. Dunes Marina was fined $250,000.
-13- <PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's common stock trades on The Nasdaq Stock Market(SM)
under the symbol MCRI. The following table sets forth the high and low sales
prices of the Company's common stock, as reported by The Nasdaq Stock
Market(SM), during the periods indicated.
<TABLE>
<CAPTION>
1997 1996
------------- -------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
First quarter........... 2 1/2 2 4 1/2 3 1/4
Second quarter.......... 4 3/8 2 1/4 4 1/8 3 5/16
Third quarter........... 8 3/8 3 5/8 4 3/8 2 3/4
Fourth quarter.......... 7 3/8 4 1/2 3 1/4 2
</TABLE>
(b) As of February 27, 1998, there were approximately 160 holders of
record of the Company's common stock, and approximately 1,300 beneficial
stockholders.
(c) The Company paid no dividends in 1997 or 1996. The Company
presently intends to retain earnings to finance the operation and expansion of
its business and does not anticipate declaring cash dividends in the
foreseeable future. The Company's bank loan agreement also contains
provisions which limit Monarch's ability to pay dividends to its stockholders.
See Item 8, "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, Notes to
Consolidated Financial Statements."
-14- <PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
(In thousands except per share amounts) 1997<F1> 1996<F2> 1995<F3> 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Casino revenues $37,254 $31,836 $30,072 $20,306 $15,856
Other revenues 30,365 29,476 30,099 21,482 15,330
--------------------------------------------
Gross revenues 67,619 61,312 60,171 41,788 31,186
Promotional allowances (8,504) (7,676) (6,772) (5,348) (3,974)
--------------------------------------------
Net revenues 59,115 53,636 53,399 36,440 27,212
Income from operations 8,975 6,049 6,351 636 3,985
Income (loss) before income
taxes and extraordinary item 5,722 1,298 2,323 (1,393) 1,961
Income (loss) before
extraordinary item 3,710 830 1,564 (722) 970
Net income (loss) 3,526 830 1,564 (722) 970
Pro forma net income (unaudited) - - - - 508
- ----------------------------------------------------------------------------------------
INCOME PER SHARE OF COMMON STOCK
Income (loss) before extraordinary item;
pro forma in 1993
Basic $ 0.39 $ 0.09 $ 0.16 $ (0.08) $ 0.06
Diluted $ 0.39 $ 0.09 $ 0.16 $ (0.08) $ 0.06
Net income (loss);
Pro forma in 1993
Basic $ 0.37 $ 0.09 $ 0.16 $ (0.08) $ 0.06
Diluted $ 0.37 $ 0.09 $ 0.16 $ (0.08) $ 0.06
Weighted average number of common shares
and potential common shares outstanding
Basic 9,444 9,502 9,536 9,536 8,070
Diluted 9,479 9,502 9,536 9,536 8,070
- ----------------------------------------------------------------------------------------
OTHER DATA
EBITDA<F4> 13,284 10,191 10,370 3,372 5,657
Depreciation and amortization 4,309 4,142 4,020 2,736 1,672
Interest expense 3,253 3,627 4,087 2,330 2,024
Capital expenditures<F5> 2,270 2,838 2,148 31,384 7,338
- ----------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $67,828 $67,379 $69,269 $69,344 $37,946
Current maturities of long-term debt 2,244 3,487 3,993 5,387 844
Long-term debt, less current maturities 32,908 37,602 39,069 41,357 15,547
Stockholders' equity<F6> 22,694 19,001 18,435 16,871 17,593
<FN>
<F1> 1997 includes a $185 thousand non-cash extraordinary loss on early retirement of
debt, net of applicable income tax benefit.
<F2> 1996 includes non-cash fixed asset impairment charges of $1.3 million (before
minority interests).
<F3> 1995 includes a $433 thousand provision for litigation expenses related to two
unfavorable judgments rendered in unrelated cases, and a $459 thousand charge
for asset impairment associated with changing the name of the Company's hotel
casino to the Atlantis Casino Resort.
<F4> "EBITDA" consists of income from operations plus depreciation and amortization.
EBITDA should not be construed as an alternative to operating income (as determined
in accordance with generally accepted accounting principles) as an indicator of the
Company's operating performance, or as an alternative to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of liquidity. This item enables comparison of the
Company's performance with the performance of other companies that report EBITDA.
<F5> Includes amounts financed with debt or capitalized lease obligations.
<F6> The Company paid no dividends during the five year period ended December 31, 1997.
</FN>
</TABLE>
-15- <PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that may be
considered forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
such as statements relating to anticipated expenses, capital spending and
financing sources. Such forward-looking information involves important risks
and uncertainties that could significantly affect anticipated results in the
future and, accordingly, such results may differ from those expressed in any
forward-looking statements made herein. These risks and uncertainties
include, but are not limited to, those relating to competitive industry
conditions, Reno-area tourism conditions, dependence on existing management,
leverage and debt service (including sensitivity to fluctuations in interest
rates), the regulation of the gaming industry (including actions affecting
licensing), outcome of litigation, domestic or global economic conditions and
changes in federal or state tax laws or the administration of such laws.
RESULTS OF OPERATIONS
1997 Compared with 1996
For the year ended December 31, 1997, the Company generated record
earnings before extraordinary items of $3.7 million, or $.39 per share,
compared to $830 thousand, or $.09 per share, for the year ended December 31,
1996. After giving effect to a non-cash extraordinary loss on the early
retirement of debt (net of an applicable income tax benefit) of $(185)
thousand, or $(.02) per share, the Company reported net income of $3.5 million
or $.37 per share for the fiscal year ended December 31, 1997, compared to
$830 thousand, or $.09 per share for the fiscal year ended December 31, 1996.
The 1997 figures represent the best results reported during any year in the
Company's history, with reported net income more than doubling the previous
record of $1.6 million, or $.16 per share, set in 1995.
Net revenues for 1997 totaled $59.1 million, up 10.2% from $53.6 million
in 1996, while operating costs and expenses rose 5.3% to $50.1 million in 1997
from $47.6 million in 1996. The Company's operating expense margin (operating
expenses as a percentage of net revenues) for 1997 was 84.8%, compared to
88.7% for 1996, resulting in a 48.4% increase in income from operations to
$9.0 million in 1997 from $6.0 million in 1996. The Company believes the
increases in revenue and profitability in 1997 resulted from the increasing
popularity of the Atlantis and its south Reno location with patrons from the
rapidly growing residential and business communities south of the Atlantis in
Reno, as well as with visitors to the Reno area. The Company also credits
effective casino marketing programs, and a continued emphasis on cost control.
Casino revenues increased 17.0% in 1997 compared to 1996, driven by
growth in both slot and table game win. Revenue from slot and video poker
machines ("slot machines") increased approximately 20.4% in 1997 compared to
1996, due to an increase in the average daily win per slot machine, and
contributed approximately 77% of casino revenue in 1997, compared to 75% in
1996. Table game win increased approximately 5.6% in 1997 compared to 1996,
due to an approximately 17.5% increase in table game drop, which was partially
offset by a moderate decline in table game hold. It has been the Company's
experience that table game win is reasonably predictable over time, but can
-16- <PAGE>
vary considerably over shorter periods, especially with respect to play from
higher-level wagerers.
The dominance held by slot machines in the Company's casino revenue mix
is largely by design, as the Company has traditionally found slot machines to
be more profitable than table games, and subject to less volatility.
Nonetheless, table games remain a very important product offering for the
Company, and the Company actively markets to table game customers.
Casino operating expenses amounted to 43.1% of casino revenues during
1997, compared to 45.3% in 1996, with the higher expense levels during 1996
due primarily to higher levels of promotional allowance costs (relative to
gaming revenues) during 1996.
Hotel revenues increased 4.0% in 1997 compared to 1996, with a 7.2%
increase in the Atlantis' average daily room rate ("ADR") more than offsetting
a 2.8 point decline in the Atlantis' average occupancy rate. The Atlantis'
average daily room rate in 1997 was $53.50, compared to $49.90 in 1996. The
average occupancy rate at Atlantis was 85.9% in 1997 compared to 88.7% in
1996. During 1996, the Atlantis' hotel revenues were adversely impacted by
unusually severe price competition in the Reno area lodging market, which the
Company believes also negatively impacted the hotel revenues of the Atlantis'
primary competitors. The Company believes that the decline in the Atlantis'
average occupancy in 1997 was partly due to the approximately 26% increase in
hotel room capacity added to the Reno market during 1995 and 1996 which the
Company believes has not yet been fully absorbed, and partly due to a
concerted effort by the Company to increase the Atlantis' ADR. Hotel
operating expenses in 1997 equaled 36.4% of hotel revenues, essentially
unchanged from 36.6% in 1996.
Food and beverage revenues increased 2.3% in 1997, rising to $17.8
million from $17.4 in 1996, due primarily to higher average tickets at the
Atlantis' food and beverage outlets. Food and beverage operating expenses
during 1997 amounted to 54.3% of food and beverage revenues, compared to 55.8%
in 1996, with the improvement due to lower food costs and improved operating
efficiency.
Selling, general and administrative ("SG&A") expenses amounted to 27.0%
of net revenues in 1997, compared to 28.6% in 1996. The improvement primarily
reflects the higher net revenues generated in 1997, which more than offset the
incremental increase in actual SG&A outlays. The Company's 1996 SG&A expenses
were also adversely affected by name change costs and increased marketing
costs necessitated by the name change and an intensified competitive
environment.
Interest expense declined by 10.3% in 1997 compared to 1996, falling to
$3.3 million from $3.6 million. The decrease reflects lower average
outstanding debt during 1997.
In 1997, the Company incurred a non-cash extraordinary loss on the early
retirement of debt, net of an applicable income tax benefit, of $(185)
thousand, or $(.02) per share. The extraordinary charge was incurred in the
1997 fourth quarter when the Company refinanced its long-term debt with the
Credit Facility, resulting in the write-off of approximately $280 thousand in
unamortized loan origination costs. In 1996, the Company recorded non-cash
fixed asset impairment loss charges totaling $(1.3) million, which were offset
by a minority interest in the net loss of a consolidated subsidiary of $206
-17- <PAGE>
thousand. The impairment losses were recognized on a marine vessel owned by a
subsidiary of the Company, which the Company had intended to use as a
riverboat gaming vessel.
1996 Compared with 1995
For the year ended December 31, 1996, after non-cash fixed asset
impairment charges of $1.3 million (before minority interests), the Company
earned $830 thousand, or $.09 per share, compared to $1.6 million, or $.16 per
share, for the year ended December 31, 1995. Without the non-cash impairment
charges, Monarch's earnings in 1996 would have been approximately $.17 per
share. The impairment losses were recognized on a marine vessel owned by a
subsidiary of the Company, which the Company had intended to use as a
riverboat gaming vessel.
Net revenues for 1996 totaled $53.6 million, virtually unchanged from
$53.4 million for 1995, while operating costs and expenses rose to $47.6
million in 1996 from $47.0 million in 1995. The Company's operating expense
margin for 1996 was 88.7%, compared to 88.1% for 1995, resulting in a drop in
income from operations to $6.0 million in 1996 from $6.4 million in 1995. The
Company's 1996 results reflect intensified competitive conditions in the Reno
area market brought about by substantial increases in the market's hotel room
capacity during the last half of 1995 and the first quarter of 1996, as well
as the name change at the Atlantis completed in the 1996 second quarter. The
Company's results were most acutely impacted by room rate pressures and
increased marketing expenditures necessitated by the name change and the
heightened competitive environment. The Company's results were also adversely
impacted during the 1996 fourth quarter by unusually harsh winter weather
conditions in the Reno area during the period between Christmas and New Year's
eve, which is typically one of the busiest periods of the year at the
Atlantis.
Casino revenues increased 5.9% in 1996 compared to 1995, driven by
improvements in both slot and table game win. Slot machines contributed
approximately 75% of casino revenue in both 1996 and 1995. Slot win increased
approximately 4.0% in 1996 compared to 1995, due to an increase in the average
daily win per slot machine. Table game win increased approximately 15.2% in
1996 compared to 1995, primarily due to a higher table game hold percentage
during 1996.
Casino operating expenses amounted to 45.3% of casino revenues during
1996, compared to 43.1% in 1995, with the higher expense levels during 1996
due primarily to higher levels of promotional allowance costs during 1996.
Hotel revenues declined 10.4% in 1996 compared to 1995, due to a 2.5
point decline in the Atlantis' average occupancy rate and a 8.9% decline in
the average daily room rate. During 1996, the Atlantis had an average
occupancy rate of 88.7%, compared to 91.2% in 1995. The Atlantis' average
daily room rate in 1996 was $49.90, compared to $54.78 in 1995. The drop in
hotel revenues in 1996 was the result of room rate pressures in the Reno area
market, lower levels of convention activity in 1996 than in 1995, and high
levels of activity at the National Bowling Stadium in downtown Reno during
1995, which the Company believes positively impacted its average hotel
occupancy and average daily room rate during 1995. The National Bowling
Stadium did not hold any tournaments similar in scale or duration in 1996.
-18- <PAGE>
Hotel operating expenses in 1996 equaled 36.6% of hotel revenues,
compared to 39.7% in 1995, with the decrease primarily due to lower levels of
licensing fees paid to Choice in 1996. Included in hotel operating expenses
are fees paid to Choice of $213 thousand and $617 thousand in 1996 and 1995,
respectively, under the Company's licensing agreement with Choice. The
Company exercised its option to terminate its licensing agreement with Choice
on April 28, 1996.
Food and beverage revenues totaled $17.4 million in 1996, compared to
$17.3 million in 1995. Food and beverage operating expenses during 1996
amounted to 55.8% of food and beverage revenues, compared to 61.4% in 1995,
with the improvement due primarily to lower food costs and improved operating
efficiency.
Other revenues increased to $2.3 million in 1996, compared to $1.9
million in 1995. The increase primarily reflects the inclusion in the 1996
second quarter of non-recurring income items totaling approximately $300
thousand. Other expenses for 1996 amounted to 17.5% of other revenues,
compared to 19.2% in 1995, primarily reflecting the non-recurring items, for
which there were no corresponding expenses.
SG&A expenses amounted to 28.6% of net revenues in 1996, compared to
26.8% in 1995. The increase primarily reflects increased marketing costs
incurred in response to heightened competitive conditions in the Reno area
market during the 1996 period, as well as name change costs incurred in the
1996 period. Included in the 1995 figure is approximately $433 thousand in
one-time litigation costs related to two unfavorable judgments rendered in
unrelated cases. The Company also recorded a one-time charge in the fourth
quarter of 1995 in the amount of $459 thousand for asset impairment associated
with changing the name of the Atlantis. Gaming development costs decreased to
$87 thousand in 1996, down from $298 thousand in 1995, due to decreased levels
of development activity.
Interest expense for 1996 totaled $3.6 million, compared to $4.1 million
in 1995, reflecting lower average outstanding debt and lower average interest
costs during 1996.
The Company recorded non-cash fixed asset impairment loss charges
totaling $1.3 million in 1996, which were offset by a minority interest in the
net loss of a consolidated subsidiary of $206 thousand. The impairment losses
were recognized on a marine vessel owned by a subsidiary of the Company, which
the Company had intended to use as a riverboat gaming vessel.
OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS
The Company is in the final stages of planning and designing the first
phase of the Expansion Project (see Item 1, "BUSINESS, Atlantis Expansion
Project"), and expects to decide whether or not to proceed with the Expansion
Project in the 1998 second quarter. If the Company proceeds with the
Expansion Project, it will involve major construction activity at the
Atlantis, which could impede access to the property and result in business
disruptions while the construction is underway. The Company believes it can
mitigate the disruptive effects of construction by redirecting traffic flows,
creating alternative access points at the Atlantis, and restricting
construction crews, materials and vehicles to specified areas; however, the
Company believes it is unlikely that such steps would completely alleviate the
disruptive impact of such a large-scale construction project.
-19- <PAGE>
Moreover, if the Company proceeds with the Expansion Project, it will be
subject to certain risks typically associated with large-scale construction
projects including the risks of delay, shortages of materials or skilled
labor, unforeseen engineering, environmental and/or geological problems, work
stoppages, weather interference and unanticipated cost increases.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its daily hotel and casino activities
with net cash provided by operating activities. For the years 1997, 1996, and
1995, net cash provided by operating activities totaled $9.6 million, $5.3
million, and $7.1 million, respectively. During each of the three years, net
cash provided by operating activities was sufficient to fund the day to day
operating expenses of the Company.
Net cash used in investing activities, which consisted entirely of
acquisitions of property and equipment, totaled $1.7 million, $1.5 million,
and $1.7 million in 1997, 1996, and 1995, respectively. Total capital
expenditures, including amounts financed, were $2.3 million, $2.8 million, and
$2.1 million in 1997, 1996, and 1995, respectively. Capital expenditures
during each of these years were primarily directed toward ongoing
refurbishments and enhancements to the Atlantis, including equipment
replacements. Of particular note, during 1996 the Company renovated
substantially all 149 motor lodge rooms at the Atlantis, and during 1995, the
Company purchased a computerized slot data system at the Atlantis used
primarily for improved marketing to slot machine players.
Net cash used in financing activities totaled $6.3 million, $3.5 million,
and $4.1 million in 1997, 1996, and 1995, respectively. During 1997, the
Company reduced its overall long-term debt by approximately $5.9 million,
following reductions of approximately $2.0 million and $3.7 million in 1996
and 1995. The Company also repurchased 17,000 shares of its common stock on
the open market during 1997 at a total cost of approximately $66 thousand.
On December 30, 1997, the Company completed the refinancing of its long-
term debt with the $80 million Credit Facility. The Credit Facility replaced
approximately $33 million in existing long-term debt, and provides additional
funds which the Company may use as a source of funding for the first phase of
the Expansion Project. Under the terms of the Credit Facility, the Company
has until August 1, 1998 to determine whether or not it will proceed with the
Expansion Project. If the Company elects to proceed with the Expansion
Project, the maximum available borrowings under the Credit Facility will be
$80 million. If the Company elects not to proceed with the Expansion Project,
the maximum available borrowings under the Credit Facility will be reduced to
$37.5 million, and the construction provisions of the Credit Facility will be
nullified. At December 31, 1997, the outstanding balance of the Credit
Facility was $32.8 million. The principal terms of the Credit Facility are
summarized at Note 4 of the Notes to Consolidated Financial Statements (see
Item 8, "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, Notes to Consolidated
Financial Statements").
The Company is in the final stages of planning and designing the first
phase of the Expansion Project, which the Company currently estimates would
cost $55 to $65 million (see Item 1, "BUSINESS, Atlantis Expansion Project").
Following completion of planning and design for this expansion, the Company
intends to seek bids from qualified contractors for a fixed-price contract
covering a majority of the hard construction costs. The Company's decision
-20- <PAGE>
to move forward with the Expansion Project will largely depend on obtaining
favorable results from this process. Assuming that a fixed-price contract can
be negotiated with a qualified general contractor within the Company's range
of expectations, and assuming that no major unexpected costs emerge for the
Expansion Project, the Company believes it will have adequate resources
available through cash on hand, cash flow from operations, and borrowings
allowed under the Credit Facility to construct the first phase of the
Expansion Project. However, the Company has not made any commitments to
proceed with the Expansion Project, and presently has the option of scaling
back the project, delaying it or abandoning it altogether should it choose to
do so.
In addition to the potential funding requirements associated with the
Company's proposed expansion of the Atlantis, the Company continues to monitor
expansion opportunities at its other Reno site and elsewhere in Nevada and in
other jurisdictions. The decision by the Company to proceed with any
substantial project will require the Company to secure adequate financing on
acceptable terms. No assurances can be made that if such projects are pursued
that adequate financing would be available on acceptable terms, if at all.
The Company believes that its existing cash balances, cash flow from
operations and borrowings allowed under the Credit Facility will provide the
Company with sufficient resources to fund its operations, meet its existing
debt obligations and fund its capital expenditure requirements; however, the
Company's operations are subject to financial, economic, competitive,
regulatory, and other factors, many of which are beyond its control. If the
Company is unable to generate sufficient cash flow, it could be required to
adopt one or more alternatives, such as reducing, delaying or eliminating
planned capital expenditures, selling assets, restructuring debt or obtaining
additional equity capital.
On April 10, 1995, the Company announced that its Board of Directors
authorized the open market repurchase of up to 200,000 shares of the Company's
common stock. As of February 27, 1998, the Company had repurchased 100,000
shares on the open market at a total cost of approximately $330 thousand. The
Company has funded the purchases made to date and intends to fund any future
repurchases from cash on hand.
The approach of the year 2000 has become a potential problem for
businesses utilizing computers in their operations since many computer
programs are date sensitive and will only recognize the last two digits of the
year, thereby recognizing the year 2000 as the year 1900 or not at all (the
"Year 2000 Issue"). Management has made a comprehensive assessment of the
Company's exposure to the Year 2000 Issue and what will be required to ensure
that the Company is year 2000 compliant. The primary computer programs
utilized in the Company's operations and financial reporting systems have been
acquired from independent software vendors. All of these vendors have been
formally contacted to determine whether their systems are year 2000 compliant,
and, if not, timelines have been or will be established as to when the Company
will receive the required upgrades that assure that these systems will be year
2000 compliant. Maintenance or modification costs associated with the Year
2000 Issue will be expensed as incurred, while the costs of any new software
will be capitalized and amortized over the software's useful life. The
Company does not expect to incur costs in connection with the Year 2000 Issue
that would have a material impact on operations. Although the Company
presently believes that all of its software programs will be year 2000
-21- <PAGE>
compliant, there can be no assurances that the Company will not be adversely
affected by the Year 2000 Issue.
-22- <PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS
MONARCH CASINO & RESORT, INC.
We have audited the accompanying consolidated balance sheets of Monarch
Casino & Resort, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Monarch Casino & Resort, Inc. as of December 31, 1997 and 1996, and the
consolidated results of its operations and its consolidated cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/Grant Thornton LLP
Reno, Nevada
January 30, 1998
-23- <PAGE>
MONARCH CASINO & RESORT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Casino................................ $ 37,254,033 $ 31,836,177 $ 30,071,556
Food and beverage..................... 17,841,009 17,410,800 17,254,440
Hotel................................. 10,199,911 9,811,353 10,955,326
Other................................. 2,323,885 2,253,393 1,889,858
------------ ------------ ------------
Gross revenues..................... 67,618,838 61,311,723 60,171,180
Less promotional allowances........... (8,504,072) (7,675,567) (6,772,428)
------------ ------------ ------------
Net revenues....................... 59,114,766 53,636,156 53,398,752
------------ ------------ ------------
Operating expenses
Casino................................ 16,043,256 14,422,670 12,956,305
Food and beverage..................... 9,682,253 9,714,389 10,597,878
Hotel................................. 3,710,462 3,595,239 4,349,072
Other................................. 430,471 394,256 363,496
Selling, general and administrative... 15,964,188 15,318,911 14,302,522
Depreciation and amortization......... 4,308,991 4,141,528 4,019,602
Impairment of assets.................. - - 459,323
------------ ------------ ------------
Total.............................. 50,139,621 47,586,993 47,048,198
------------ ------------ ------------
Income from operations............. 8,975,145 6,049,163 6,350,554
------------ ------------ ------------
Other income (expense)
Interest expense...................... (3,253,067) (3,626,980) (4,087,093)
Impairment loss on fixed assets....... - (1,330,592) -
Minority interests in net loss of
consolidated subsidiaries............ - 206,456 59,662
------------ ------------ ------------
Total.............................. (3,253,067) (4,751,116) (4,027,431)
------------ ------------ ------------
Income before income
taxes and extraordinary item...... 5,722,078 1,298,047 2,323,123
Provision for income taxes.............. 2,011,930 468,179 758,900
------------ ------------ ------------
Income before extraordinary item... 3,710,148 829,868 1,564,223
Extraordinary item - loss on
early retirement of debt, net
of applicable income tax
benefit of $95,057..................... (184,524) - -
------------ ------------ ------------
Net income......................... $ 3,525,624 $ 829,868 $ 1,564,223
============ ============ ============
INCOME PER SHARE OF COMMON STOCK
Income before extraordinary item
Basic.............................. $ 0.39 $ 0.09 $ 0.16
Diluted............................ $ 0.39 $ 0.09 $ 0.16
Net income
Basic.............................. $ 0.37 $ 0.09 $ 0.16
Diluted............................ $ 0.37 $ 0.09 $ 0.16
Weighted average number of
common shares and potential
common shares outstanding
Basic.............................. 9,444,333 9,501,658 9,536,275
Diluted............................ 9,479,359 9,501,658 9,536,367
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-24- <PAGE>
MONARCH CASINO & RESORT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash........................................ $ 5,527,839 $ 4,021,952
Receivables, net............................ 837,420 519,215
Inventories................................. 570,367 362,193
Prepaid expenses............................ 1,333,176 1,188,650
Deferred income taxes....................... 1,055,000 1,351,000
------------ ------------
Total current assets..................... 9,323,802 7,443,010
------------ ------------
Property and equipment
Land........................................ 10,339,530 10,339,530
Buildings................................... 36,955,345 36,428,415
Furniture and equipment..................... 22,304,919 22,563,156
Improvements................................ 5,040,033 4,855,481
------------ ------------
74,639,827 74,186,582
Less accumulated
depreciation and amortization.............. (17,868,111) (15,267,331)
------------ ------------
Net property and equipment............... 56,771,716 58,919,251
------------ ------------
Other assets.................................. 1,732,569 1,016,711
------------ ------------
$ 67,828,087 $ 67,378,972
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt........ $ 2,243,611 $ 3,487,169
Accounts payable............................ 4,111,457 2,817,766
Accrued expenses............................ 3,383,855 2,644,056
Federal income taxes payable................ 240,970 -
------------ ------------
Total current liabilities................ 9,979,893 8,948,991
Long-term debt, less current maturities....... 32,907,530 37,602,075
Deferred income taxes......................... 2,247,000 1,827,000
Minority interests............................ - -
Commitments and contingencies................. - -
Stockholders' equity
Preferred stock, $.01 par value, 10,000,000
shares authorized; none issued............. - -
Common stock, $.01 par value, 30,000,000
shares authorized; 9,536,275 issued;
9,436,275 and 9,453,275 outstanding........ 95,363 95,363
Additional paid-in capital.................. 17,241,788 17,008,779
Treasury stock.............................. (329,875) (264,000)
Retained earnings........................... 5,686,388 2,160,764
------------ ------------
Total stockholders' equity............... 22,693,664 19,000,906
------------ ------------
$ 67,828,087 $ 67,378,972
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-25- <PAGE>
MONARCH CASINO & RESORT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional Retained
Shares Paid-in Earnings Treasury
Outstanding Amount Capital (Deficit) Stock Total
----------- -------- ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 9,536,275 $ 95,363 $ 17,008,779 $ (233,327)$ - $ 16,870,815
Net income - - - 1,564,223 - 1,564,223
----------- -------- ------------ ----------- --------- ------------
Balance, December 31, 1995 9,536,275 95,363 17,008,779 1,330,896 - 18,435,038
Net income - - - 829,868 - 829,868
Treasury stock acquired,
at cost (83,000) - - - (264,000) (264,000)
----------- -------- ------------ ----------- --------- ------------
Balance, December 31, 1996 9,453,275 95,363 17,008,779 2,160,764 (264,000) 19,000,906
Net income - - - 3,525,624 - 3,525,624
Treasury stock acquired,
at cost (17,000) - - - (65,875) (65,875)
Other - - 233,009 - - 233,009
----------- -------- ------------ ----------- --------- ------------
Balance, December 31, 1997 9,436,275 $ 95,363 $ 17,241,788 $ 5,686,388 $(329,875) $ 22,693,664
=========== ======== ============ =========== ========= ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-26- <PAGE>
MONARCH CASINO & RESORT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 3,525,624 $ 829,868 $ 1,564,223
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization.............. 4,308,991 4,141,528 4,019,602
Gain on disposal of assets................. (4,589) (22,862) -
Impairment of assets....................... - 1,330,592 459,323
(Increase) decrease in receivables, net.... (318,205) (15,932) 78,895
Increase in inventories.................... (208,174) (46,637) (825)
(Increase) decrease in prepaid expenses.... (144,526) 26,196 (21,271)
(Increase) decrease in
deferred income tax asset................ 529,009 (514,000) (679,000)
(Increase) decrease in other assets........ 394,241 63,649 (313,084)
Decrease in due to related parties......... - - (404,603)
Increase (decrease) in accounts payable.... 108,691 (763,703) 1,110,392
Increase in accrued expenses............... 980,769 247,794 318,838
Increase in deferred income tax liability.. 420,000 240,000 1,077,000
Decrease in minority interests............. - (206,456) (59,662)
------------ ------------ ------------
Net cash provided by
operating activities..................... 9,591,831 5,310,037 7,149,828
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets................. 188,040 142,569 -
Acquisition of property and equipment........ (1,933,080) (1,593,865) (1,707,028)
------------ ------------ ------------
Net cash used in investing activities..... (1,745,040) (1,451,296) (1,707,028)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long-term borrowings........... 32,810,000 500,000 11,395,899
Principal payments on long-term debt......... (39,085,029) (3,717,152) (15,518,419)
Acquisition of treasury stock................ (65,875) (264,000) -
------------ ------------ ------------
Net cash used in financing activities..... (6,340,904) (3,481,152) (4,122,520)
------------ ------------ ------------
Net increase in cash...................... 1,505,887 377,589 1,320,282
Cash at beginning of period.................... 4,021,952 3,644,363 2,324,081
------------ ------------ ------------
Cash at end of period.......................... $ 5,527,839 $ 4,021,952 $ 3,644,363
============ ============ ============
Supplemental disclosure of
cash flow information:
Cash paid for interest, net of
capitalized interest....................... $ 3,406,740 $ 3,773,617 $ 4,073,153
Cash paid for income taxes................... 610,000 587,542 326,153
Supplemental schedule of non-cash
investing and financing activities:
The Company financed the purchase of property
and equipment in the following amounts...... 336,926 1,243,878 441,065
Capitalized loan costs included
in accounts payable......................... 1,185,000 - -
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-27- <PAGE>
MONARCH CASINO & RESORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997, 1996, and 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Monarch Casino & Resort, Inc. ("Monarch") was incorporated in 1993.
Golden Road Motor Inn, Inc. ("Golden Road") operates the Atlantis Casino
Resort (the "Atlantis") in Reno, Nevada. Unless stated otherwise, the
"Company" refers collectively to Monarch, its wholly owned subsidiary Golden
Road, and majority owned subsidiaries, Dunes Marina Resort and Casino, Inc.
("Dunes Marina"), formed in December 1993, and Sea World Processors, Inc.
("Sea World"), purchased in February 1994.
The consolidated financial statements include the accounts of Monarch,
Golden Road, Dunes Marina and Sea World, and eliminate intercompany balances
and transactions.
Use of Estimates
In preparing these financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the year. Actual results could
differ from those estimates.
Reclassifications
Certain amounts in the 1996 and 1995 consolidated financial statements
have been reclassified to conform with the 1997 presentation. These
reclassifications had no effect on the Company's net income.
Inventories
Inventories, consisting primarily of food and beverages, are stated at
the lower of cost or market. Cost is determined on a first-in, first-out
basis.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Since inception, property and equipment have been
depreciated principally on an accelerated basis over the estimated service
lives as follows:
Buildings..........30-40 years
Furniture..........5-10 years
Equipment..........5-20 years
Improvements.......15-40 years
-28- <PAGE>
Casino Revenues
Casino revenues represent the net win from gaming activity, which is the
difference between wins and losses. Additionally, net win is reduced by a
provision for anticipated payouts on progressive jackpots.
Promotional Allowances
The retail value of hotel, food and beverage services provided to
customers without charge is included in gross revenue and deducted as
promotional allowances. The estimated departmental costs of providing such
promotional allowances are included in casino costs and expenses as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Hotel.............. $ 401,000 $ 476,000 $ 321,000
Food and beverage.. 5,393,000 5,043,000 4,155,000
----------- ----------- -----------
$ 5,794,000 $ 5,519,000 $ 4,476,000
=========== =========== ===========
</TABLE>
Advertising Costs
All advertising costs are expensed as incurred. Advertising expense
reported was $1,940,628, $1,558,895, and $1,808,386 for 1997, 1996, and 1995,
respectively.
Gaming Development Costs
The Company's policy is to expense gaming development costs in current
periods rather than capitalizing these costs and amortizing them over future
periods. The Company expensed $67,572, $86,966, and $298,310 for gaming
development in 1997, 1996 and 1995, respectively.
Income Taxes
Income taxes are recorded in accordance with the liability method
specified by Statement of Financial Accounting Standards ("SFAS") No. 109.
Under the asset and liability approach for financial accounting and reporting
for income taxes, the following basic principles are applied in accounting for
income taxes at the date of the financial statements: (a) a current liability
or asset is recognized for the estimated taxes payable or refundable on taxes
for the current year; (b) a deferred tax liability or asset is recognized for
the estimated future tax effects attributable to temporary differences and
carryforwards; (c) the measurement of current and deferred tax liabilities and
assets is based on the provisions of the enacted tax law; the effects of
future changes in tax laws or rates are not anticipated; and (d) the
measurement of deferred taxes is reduced, if necessary, by the amount of any
tax benefits that, based upon available evidence, are not expected to be
realized.
-29- <PAGE>
Earnings Per Share
In 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per
Share. Earnings per share for all periods presented have been restated to
reflect the adoption of SFAS No. 128. SFAS No. 128 requires companies to
present basic earnings per share, and, if applicable, diluted earnings per
share. Basic earnings per share excludes dilution and is computed by dividing
net earnings available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if options to issue common
stock were exercised into common stock.
The following is a reconciliation of the number of shares (denominator)
used in the basic and diluted earnings per share computations (Shares in
thousands):
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
Per Share Per Share Per Share
Shares Amount Shares Amount Shares Amount
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Income before
Extraordinary item
Basic..................... 9,444 $0.39 9,502 $0.09 9,536 $0.16
Effect of dilutive
stock options............ 35 - - - 0 -
------ --------- ------ --------- ------ ---------
Diluted................... 9,479 $0.39 9,502 $0.09 9,536 $0.16
====== ========= ====== ========= ====== =========
Net Income
Basic..................... 9,444 $0.37 9,502 $0.09 9,536 $0.16
Effect of dilutive
stock options............ 35 - - - 0 -
------ --------- ------ --------- ------ ---------
Diluted................... 9,479 $0.37 9,502 $0.09 9,536 $0.16
====== ========= ====== ========= ====== =========
</TABLE>
The following options were not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the common shares:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Options to purchase shares of
common stock (in thousands)..... 26 32 21
Exercise prices.................. $4.88-$8.06 $3.50-$8.06 $7.25-$8.06
Expiration dates................. 9/98-6/00 9/98-6/00 9/98-6/99
</TABLE>
Minority Interests
For financial reporting purposes, the assets, liabilities and earnings of
Dunes Marina and Sea World are consolidated with those of the Company, and the
minority shareholder's interest (20%) in Dunes Marina and Sea World is
-30- <PAGE>
included in the Company's financial statements as minority interest. Dunes
Marina was incorporated in December 1993 to pursue gaming opportunities in
Gary, Indiana, and does not own any assets. Sea World was purchased in
February 1994, also to pursue gaming opportunities in Gary, Indiana. Sea
World's sole asset was a marine vessel, which the Company wrote off in 1996
and divested in 1997.
Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires the determination of fair value for certain of the Company's assets,
liabilities and contingent liabilities. When practicable, the following
methods and assumptions were used to estimate the fair value of those
financial instruments included in the following categories:
Long-Term Debt: The fair value of long-term debt is estimated based on the
current borrowing rates offered to the Company for debt of the same remaining
maturities.
It is estimated that the carrying amounts of all of the Company's
financial instruments approximate fair value at December 31, 1997.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of bank deposits and trade
receivables. The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base. The Company believes it is not
exposed to any significant credit risk on cash and accounts receivable.
NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Casino....................... $ 644,426 $ 394,212
Hotel........................ 260,300 180,929
Other........................ 83,419 67,800
----------- -----------
988,145 642,941
Less allowance for
doubtful accounts........... (150,725) (123,726)
----------- -----------
$ 837,420 $ 519,215
=========== ===========
</TABLE>
-31- <PAGE>
NOTE 3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Accrued salaries, wages
and related benefits........ $ 1,063,776 $ 950,173
Progressive slot machine
and other gaming accruals... 1,426,365 764,396
Accrued gaming taxes......... 101,133 173,511
Accrued interest............. 6,843 160,516
Other accrued liabilities.... 785,738 595,460
----------- -----------
$ 3,383,855 $ 2,644,056
=========== ===========
</TABLE>
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Amounts outstanding under bank construction and reducing
revolving credit facility, collateralized by substantially
all property and equipment of Golden Road and guaranteed
by Monarch and it's three largest stockholders, with
floating interest rates tied to a base rate approximately
equal to the prime rate or LIBOR (at the Company's option)
plus a margin which fluctuates according to the Company's
ratio of funded debt to EBITDA. At December 31, 1997,
the Company's average interest rate was approximately 7.5%.
The loan matures in June, 2004 with all unpaid interest
and principal due and payable at that time.................. $ 32,810,000 $ 38,120,000
Land purchase loan to seller, collateralized by real
property, with interest fixed at 6%. Interest only
payable monthly until September 1998, when all unpaid
principal and interest is due............................... 1,897,597 1,897,597
Slot contracts, collateralized by equipment,
maturing in 1998............................................ 215,668 722,200
Notes payable, collateralized by equipment, with
principal and interest due monthly through 2000............. 227,876 349,447
------------ ------------
$ 35,151,141 $ 41,089,244
Less current maturities...................................... (2,243,611) (3,487,169)
------------ ------------
$ 32,907,530 $ 37,602,075
============ ============
</TABLE>
REFINANCING OF LONG-TERM DEBT. On December 30, 1997, Monarch, through
Golden Road, completed the refinancing of its long-term debt through a new $80
million construction and reducing revolving bank credit facility (the "Credit
Facility") arranged and underwritten by Wells Fargo Bank, N.A. (the "Agent
Bank"). The Credit Facility replaced approximately $33 million in existing
-32- <PAGE>
long-term debt, and provides additional funds which the Company may use as a
source of funding for the first phase of the Expansion Project.
THE CREDIT FACILITY. The Credit Facility is a direct obligation of
Golden Road, and is guaranteed by Monarch. The Credit Facility is also
guaranteed by John Farahi, Co-Chairman of the Board, Chief Executive Officer
and Chief Operating Officer of Monarch and Golden Road and General Manager of
the Atlantis; Behrouz Ben Farahi, Co-Chairman of the Board, Chief Financial
Officer, Secretary and Treasurer of Monarch and Golden Road; and Bahram (Bob)
Farahi, Co-Chairman of the Board and President of Monarch and Golden Road,
individually.
Under the terms of the Credit Facility, the Company has until August 1,
1998 to determine whether or not it will proceed with the first phase of the
Expansion Project. The Company may elect to proceed at any time prior to
August 1, 1998 by providing the Agent Bank with certain additional information
and loan documentation; submitting certain construction plans, schedules and
budgets to the Agent Bank for approval; and requesting a construction draw
under the Credit Facility. If the Company elects to proceed, the maximum
available borrowings under the Credit Facility will be $80 million, and once
this election is made, additional draws under the Credit Facility may be used
only for construction of the Expansion Project until the Expansion Project is
completed. Draws for the first phase of the Expansion Project will be subject
to the satisfaction of various conditions typically applicable to construction
loans. Following completion of the first phase of the Expansion Project, the
Company may utilize proceeds from the Credit Facility for working capital
needs and general corporate purposes relating to the Atlantis and for ongoing
capital expenditure requirements at the Atlantis.
Also at any time prior to August 1, 1998, the Company may elect not to
construct the first phase of the Expansion Project by providing an irrevocable
written notice to the Agent Bank. The Company will also automatically be
deemed to have elected not to construct the first phase of the Expansion
Project if it fails to proceed as described above by August 1, 1998. If the
Company elects not to proceed, the maximum available borrowings under the
Credit Facility will be reduced to $37.5 million and the construction
provisions of the Credit Facility will be nullified.
At the Company's option, borrowings under the Credit Facility can accrue
interest at a rate designated by the Agent Bank as its base rate (the "Base
Rate") or at the London Interbank Offered Rate ("LIBOR") for one, two, three
or six month periods. The rate of interest paid by the Company will include a
margin added to either the Base Rate or to LIBOR that is tied to the Company's
ratio of funded debt to EBITDA (the "Leverage Ratio"). Depending on the
Company's Leverage Ratio, this margin can vary between 0.00 percent and 2.00
percent above the Base Rate, and between 1.50 percent and 3.50 percent above
LIBOR. At December 31, 1997, the applicable margin was the Base Rate plus
0.00%, and the applicable LIBOR margin was LIBOR plus 1.5%. The Base Rate at
December 31, 1997 was 8.5%, and the one month LIBOR was approximately 6.00%.
At December 31, 1997, the Company had Base Rate loans outstanding of $310
thousand and LIBOR loans outstanding of $32.5 million.
The maturity date of the Credit Facility is June 30, 2004. If the
Company elects to proceed with the Expansion Project, the maximum principal
available under the Credit Facility will reduce quarterly (commencing on July
1, 2000) from $80 million by an aggregate of $40 million in increasing
increments ranging from $1.5 million to $6 million. If the Company elects
-33- <PAGE>
not to construct the Expansion Project, the maximum principal available under
the Credit Facility will reduce quarterly (commencing on October 1, 1998) from
$37.5 million by an aggregate of $19.1 million in increasing increments
ranging from $.6 million to $1.0 million. The Company may prepay borrowings
under the Credit Facility without penalty (subject to certain charges
applicable to the prepayment of LIBOR borrowings prior to the end of the
applicable interest period) so long as the amount repaid is at least $200
thousand and a multiple of $10 thousand. Following completion of the
Expansion Project, or following an election by the Company not to construct
the Expansion Project, amounts prepaid under the Credit Facility may be
reborrowed so long as the total borrowings outstanding do not exceed the
maximum principal available. The Company may also permanently reduce the
maximum principal available under the Credit Facility at any time so long as
the amount of such reduction is at least $500 thousand and a multiple of $50
thousand.
The Credit Facility is secured by liens on substantially all of the real
and personal property of Golden Road, as well as by the aforementioned parent
and personal guarantees. The Credit Facility contains covenants customary and
typical for a facility of this nature, including, but not limited to,
covenants requiring the preservation and maintenance of the Company's assets
(including provisions requiring that a minimum amount equal to two percent of
the Company's gaming revenues each year must be expended on capital
expenditures at the Atlantis), and covenants restricting the Company's ability
to merge, transfer ownership of Golden Road, incur additional indebtedness,
encumber assets, and make certain investments. The Credit Facility also
contains covenants requiring the Company to maintain certain financial ratios,
and provisions restricting transfers between Golden Road and Monarch and
between Golden Road and other specified persons. The Credit Facility also
contains provisions requiring the achievement of certain financial ratios
before the Company can repurchase its common stock or pay or declare
dividends.
Following completion of the Expansion Project, or following an election
by the Company not to construct the Expansion Project, the Credit Facility
also provides for the Agent Bank to make certain swingline loans to the
Company generally to provide short-term financing pending the funding of a
draw by the lenders under the Credit Facility. Such swingline loans will
accrue interest at the Base Rate in the same manner as other borrowings under
the Credit Facility.
The Company paid various fees and other loan costs upon the closing of
the Credit Facility that will be amortized over the term of the Credit
Facility. Following completion of the Expansion Project, or following an
election by the Company not to construct the Expansion Project, the Company
will be required to pay a fee equal to three eighths of one percent per annum
on the average unused portion of the Credit Facility.
The Company's previous bank loan facility was terminated prior to
maturity in connection with the closing of the Credit Facility. As a result,
the Company incurred an extraordinary pre-tax non-cash charge of approximately
$280 thousand during the 1997 fourth quarter, reflecting the accelerated
write-off of unamortized deferred financing costs.
The schedule of maturities of the Company's long-term debt during the
next five years will be materially different depending on whether or not the
Company proceeds with the first phase of the Expansion Project. Therefore,
-34- <PAGE>
the Company has provided below schedules illustrating estimated annual
maturities of long-term debt, as of December 31, 1997, under both scenarios.
The following schedule assumes that the Company elects to proceed with
the first phase of the Expansion Project:
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
1998.......... $ 2,243,611
1999.......... 94,857
2000.......... 4,002,673
2001.......... 6,000,000
Thereafter 22,810,000
-------------
$ 35,151,141
=============
</TABLE>
The following schedule assumes that the Company elects not to proceed with the
first phase of the Expansion Project:
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
1998.......... $ 2,243,611
1999.......... 94,857
2000.......... 1,650,173
2001.......... 3,400,000
Thereafter 27,762,500
-------------
$ 35,151,141
=============
</TABLE>
NOTE 5. INCOME TAX
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current expense....................... $ 1,062,921 $ 694,747 $ 360,900
Deferred expense (benefit)............ 949,009 (226,568) 398,000
----------- ----------- -----------
$ 2,011,930 $ 468,179 $ 758,900
=========== =========== ===========
</TABLE>
The difference between the Company's provision for federal income taxes
as presented in the accompanying Consolidated Statements of Operations, and
the provision for income taxes computed at the statutory rate is comprised of
the items shown in the following table as a percentage of pre-tax earnings.
-35- <PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income tax at the statutory rate...... 34.0% 34.0% 34.0%
Non-deductible expenses............... 1.2% 3.1% 2.9%
Tax credits........................... - - (1.7)%
Minority stockholder interest
in net loss of subsidiaries
included in tax return............... - - (0.9)%
Other, net............................ - (1.0)% (1.6)%
----------- ----------- -----------
35.2% 36.1% 32.7%
=========== =========== ===========
</TABLE>
The components of the deferred income tax assets and liabilities at
December 31, 1997 and 1996, as presented in the Consolidated Balance Sheets,
are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Compensation and benefits............ $ 73,000 $ 45,000
Bad debt reserves.................... 51,000 42,000
Accrued gaming liabilities........... 136,000 208,000
Accrued other liabilities............ 51,000 -
Alternative minimum tax credit....... 506,000 885,000
General business tax credit.......... 238,000 171,000
----------- -----------
Deferred income tax asset $ 1,055,000 $ 1,351,000
=========== ===========
NONCURRENT ASSETS
Impairment of assets................. $ - $ 382,000
----------- -----------
- 382,000
----------- -----------
NONCURRENT LIABILITIES
Impairment of assets................. (70,000) -
Depreciation......................... (1,899,000) (1,931,000)
Land basis........................... (278,000) (278,000)
----------- -----------
(2,247,000) (2,209,000)
----------- -----------
Deferred income tax liability $(2,247,000) $(1,827,000)
=========== ===========
</TABLE>
NOTE 6. BENEFIT PLANS
Self Insurance - The Company is self-insured for health care claims for
eligible active employees. Benefit plan administrators assist the Company in
determining its liability for self-insured claims, and such claims are not
discounted. The Company is also self-insured for workman's compensation.
Both plans limit the Company's maximum liability under stop-loss agreements
with insurance companies.
-36- <PAGE>
Savings Plan - Effective November 1, 1995, the Company adopted a savings
plan, which qualifies under Section 401(k) of the Internal Revenue Code.
Under the plan, participating employees may defer up to 15% of their pre-tax
compensation, but not more than statutory limits. The Company contributes
twenty five cents for each dollar contributed by a participant, with a maximum
contribution of 4% of a participant's compensation. The Company's matching
contribution was approximately $17,000 in 1997 and 1996.
Stock Option Plans - The Company maintains three stock option plans,
consisting of the Directors' Stock Option Plan, the Executive Long Term
Incentive Plan, and the Employee Stock Option Plan, which collectively provide
for the granting of up to 425,000 common shares. The exercise price of stock
options granted under the plans is established by the respective plan
committees, but the exercise price may not be less than the market price of
the Company's common stock on the date the option is granted. Options expire
five to ten years from the grant date.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting For Stock-Based Compensation, but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plans.
If the Company had elected to recognize compensation cost on the fair market
value at the grant dates for awards under the stock option plans, consistent
with the method prescribed by SFAS No. 123, net income and income per share
would have been changed to the pro forma amounts indicated below:
Year Ended
December 31, 1997
-----------------
Income before
extraordinary item As reported $3,710,148
Pro forma 3,515,191
Net income As reported 3,525,625
Pro forma 3,330,668
Basic earnings per share
before extraordinary item As reported 0.39
Pro forma 0.37
Basic earnings per share As reported 0.37
Pro forma 0.35
Diluted earnings per share
before extraordinary item As reported 0.39
Pro forma 0.37
Diluted earnings per share As reported 0.37
Pro forma 0.35
The fair value of the Company's stock options was estimated as of the
grant date using the Black-Scholes option pricing model with the following
weighted average assumptions for 1997 and 1996: dividend yield of 0.0%;
expected volatility of 35.0% and 55.0%, respectively; a risk free interest
rate of 6.61% and 6.25%, respectively; and an expected holding period of three
to seven years. Based on these assumptions, compensation expense was
immaterial for 1996.
-37- <PAGE>
Presented below is a summary of the status of the Company's stock options
and the related transactions for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
-------- ----------------
<S> <C> <C>
Balance at January 1, 1997..... 31,700 $ 6.44
Granted....................... 233,700 3.21
Exercised..................... - -
Forfeited/expired............. (2,500) (2.88)
-------- --------
Balance at December 31, 1997... 262,900 $ 3.60
======== ========
Weighted average fair value of
options granted during 1997... $ 1.28
========
</TABLE>
<TABLE>
<CAPTION>
Stock Options Outstanding Stock Options Exercisable
------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life Price Shares Price
---------------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
$2.25 to $3.50 167,400 7.72 $ 2.77 52,400 $ 2.37
$4.00 to $5.00 75,400 2.31 4.50 64,400 4.49
$7.25 to $8.13 20,100 1.07 7.59 20,100 7.59
------- -------
Total 262,900 136,900
======= =======
</TABLE>
NOTE 7. LEGAL PROCEEDINGS
The Company is a defendant in various pending legal proceedings. In the
opinion of management, all pending claims in such litigation will not, in the
aggregate, have a material adverse effect on the Company's financial position
or results of operations.
-38- <PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference to the Company's Proxy
Statement to be filed with the Commission in connection with the Annual
Meeting of Stockholders on June 10, 1998.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the Company's Proxy
Statement to be filed with the Commission in connection with the Annual
Meeting of Stockholders on June 10, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the Company's Proxy
Statement to be filed with the Commission in connection with the Annual
Meeting of Stockholders on June 10, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the Company's Proxy
Statement to be filed with the Commission in connection with the Annual
Meeting of Stockholders on June 10, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Included in Part II of this report:
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.
Consolidated Balance Sheets at December 31, 1997 and 1996.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1996 and 1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
2. Schedules are omitted because of the absence of conditions under
which they are required or because the required information is
provided in the financial statements or notes thereto.
-39- <PAGE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the 1997
fourth quarter.
(c) Exhibits
Number Exhibit Description
------ -------------------
3.01 Articles of Incorporation of Monarch Casino & Resort, Inc., filed
June 11, 1993 are incorporated herein by reference from the
Company's Form S-1 registration statement (SEC File 33-64556),
Part II, Item 16, Exhibit 3.01.
3.02 Bylaws of Monarch Casino & Resort, Inc., adopted June 14, 1993
are incorporated herein by reference from the Company's Form S-1
registration statement (SEC File 33-64556), Part II, Item 16,
Exhibit 3.02.
3.03 Articles of Incorporation of Golden Road Motor Inn, Inc. filed
March 6, 1973; Certificate Amending Articles of Incorporation of
Golden Road Motor Inn, Inc. filed August 29, 1973; and
Certificate of Amendment of Articles of Incorporation filed April
5, 1984 are incorporated herein by reference from the Company's
Form S-1 registration statement (SEC File 33-64556), Part II,
Item 16, Exhibit 3.03.
3.04 Bylaws of Golden Road Motor Inn, Inc., adopted March 9, 1973 are
incorporated herein by reference from the Company's Form S-1
registration statement (SEC File 33-64556), Part II, Item 16,
Exhibit 3.04.
4.01 Specimen Common Stock Certificate for the Common Stock of Monarch
Casino & Resort, Inc. is incorporated herein by reference from
the Company's Form S-1 registration statement (SEC File 33-
64556), Part II, Item 16, Exhibit 4.01.
4.02 Amended and Restated Monarch Casino & Resort, Inc. 1993 Directors'
Stock Option Plan.
4.03 Amended and Restated Monarch Casino & Resort, Inc. 1993 Executive
Long Term Incentive Plan.
4.04 Amended and Restated Monarch Casino & Resort, Inc. 1993 Employee
Stock Option Plan.
10.01 Construction and Reducing Revolving Credit Agreement, dated as of
December 29, 1997, among Golden Road Motor Inn, Inc. as Borrower,
Monarch Casino & Resort, Inc., John Farahi, Bahram Farahi, and
Behrouz Farahi as guarantors, the Lenders as defined therein, and
Wells Fargo Bank as administrative and collateral Agent for the
Lenders and Swingline Lender is incorporated herein by reference
to the Company's Form 8-K report (SEC File 0-22088) dated January
14, 1998, Exhibit 10.01.
-40- <PAGE>
10.02 First Amendment to Construction and Reducing Revolving Credit
Agreement, dated as of January 9, 1998, among Golden Road Motor
Inn, Inc. as Borrower, Monarch Casino & Resort, Inc., John Farahi,
Bahram Farahi, and Behrouz Farahi as guarantors, the Lenders as
defined therein, and Wells Fargo Bank as administrative and
collateral Agent for the Lenders, Swingline Lender and L/C Issuer.
10.03 Lease, by and between Sierra Development Company, dba Club Cal-
Neva, Tenant, and Golden Road Motor Inn, Inc., dba Clarion Hotel
and Casino, Landlord, dated June 10, 1991 is incorporated herein
by reference from the Company's Form S-1 registration statement
(SEC File 33-64556), Part II, Item 16, Exhibit 10.03.
10.04 Agreement for Purchase of Real Property between Marcelle M.
Caramella, a widow, individually and Marcelle Margaret Caramella,
as trustee of the Trust created under the Last Will and Testament
of Ernest John Caramella, deceased, Ben A. Caramella and Cecile
D. Caramella, as trustees of the Caramella Family Trust Agreement
dated December 1, 1989, Marcelle Margaret Caramella, Erma V.
Pezzi, Trustee of the Erma V. Pezzi Trust Agreement dated
November 21, 1991, Golden Road Motor Inn, Inc. and Farahi
Investment Company, dated June 1, 1993 is incorporated herein by
reference from the Company's Form S-1 registration statement (SEC
File 33-64556), Part II, Item 16, Exhibit 10.04.
10.05 Agreement between Monarch Casino & Resort, Inc. and Peter Wilday
dated May 13, 1994; First Amendment to Agreement between Monarch
Casino & Resort, Inc. and Peter Wilday dated June 8, 1994; and
Second Amendment to Agreement between Monarch Casino & Resort,
Inc. and Peter Wilday dated March 23, 1995 are incorporated
herein by reference from the Company's Form 10-K report (SEC File
0-22088) for the fiscal year ended December 31, 1994, Item
14(a)(3), Exhibit 10.20.
10.06 Nonstandardized 401(k) Plan Adoption Agreement between Monarch
Casino & Resort, Inc. and Smith Barney Shearson dated November 7,
1995 is incorporated herein by reference to the Company's Form
10-K report (SEC File 0-22088) for the fiscal year ended December
31, 1995, Item 14(a)(3), Exhibit 10.21.
10.07 Recordkeeping Service Agreement between Monarch Casino & Resort,
Inc. and Travelers Recordkeeping dated June 29, 1995 is
incorporated herein by reference to the Company's Form 10-K
report (SEC File 0-22088) for the fiscal year ended December 31,
1995, Item 14(a)(3), Exhibit 10.22.
10.08 Trademark Agreement between Golden Road Motor Inn, Inc. and
Atlantis Lodge, Inc., dated February 3, 1996 is incorporated
herein by reference to the Company's Form 10-K report (SEC File
0-22088) for the fiscal year ended December 31, 1995, Item
14(a)(3), Exhibit 10.23.
-41- <PAGE>
21.01 List of Subsidiaries of Monarch Casino & Resort, Inc. is
incorporated by reference from the Company's Form 10-K report
(SEC File 0-22088) for the fiscal year ended December 31, 1993,
Item 14(a)(3), Exhibit 21.01.
27.01 Financial Data Schedule
-42- <PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MONARCH CASINO & RESORT, INC.
(Registrant)
<TABLE>
<S> <C>
Date: March 26, 1998 By: /s/ BEN FARAHI
------------------------------------
Ben Farahi, Co-Chairman of the Board,
Secretary, Treasurer and Chief
Financial Officer(Principal Financial
Officer and Duly Authorized Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
------------------ ----------------------------------- ----
<S> <C> <C>
/s/ JOHN FARAHI Co-Chairman of the Board of Directors, March 27, 1998
------------------ Chief Executive Officer (Principal
John Farahi Executive Officer) and Director
/s/ BOB FARAHI Co-Chairman of the Board of Directors, March 26, 1998
------------------ President, and Director
Bob Farahi
/s/ BEN FARAHI Co-Chairman of the Board of Directors, March 26, 1998
------------------ Secretary, Treasurer, Chief Financial
Ben Farahi Officer (Principal Financial Officer
and Principal Accounting Officer) and
Director
/s/ JOHN P. UPHOFF Director March 27, 1998
------------------
John P. Uphoff
/s/FRANK A. MODICA Director March 27, 1998
------------------
Frank A. Modica
</TABLE>
-43- <PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ----------- ------------------------------------------------------------------ --------
<S> <C> <C>
3.01 Articles of Incorporation of Monarch Casino & Resort, Inc., filed
June 11, 1993 are incorporated herein by reference from the
Company's Form S-1 registration statement (SEC File 33-64556),
Part II, Item 16, Exhibit 3.01.
3.02 Bylaws of Monarch Casino & Resort, Inc., adopted June 14, 1993
are incorporated herein by reference from the Company's Form S-1
registration statement (SEC File 33-64556), Part II, Item 16,
Exhibit 3.02.
3.03 Articles of Incorporation of Golden Road Motor Inn, Inc. filed
March 6, 1973; Certificate Amending Articles of Incorporation of
Golden Road Motor Inn, Inc. filed August 29, 1973; and
Certificate of Amendment of Articles of Incorporation filed April
5, 1984 are incorporated herein by reference from the Company's
Form S-1 registration statement (SEC File 33-64556), Part II,
Item 16, Exhibit 3.03.
3.04 Bylaws of Golden Road Motor Inn, Inc., adopted March 9, 1973 are
incorporated herein by reference from the Company's Form S-1
registration statement (SEC File 33-64556), Part II, Item 16,
Exhibit 3.04.
4.01 Specimen Common Stock Certificate for the Common Stock of Monarch
Casino & Resort, Inc. is incorporated herein by reference from
the Company's Form S-1 registration statement (SEC File 33-
64556), Part II, Item 16, Exhibit 4.01.
4.02 Amended and Restated Monarch Casino & Resort, Inc. 1993 Directors' 46
Stock Option Plan.
4.03 Amended and Restated Monarch Casino & Resort, Inc. 1993 Executive 51
Long Term Incentive Plan.
4.04 Amended and Restated Monarch Casino & Resort, Inc. 1993 Employee 60
Stock Option Plan.
10.01 Construction and Reducing Revolving Credit Agreement, dated as of
December 29, 1997, among Golden Road Motor Inn, Inc. as Borrower,
Monarch Casino & Resort, Inc., John Farahi, Bahram Farahi, and
Behrouz Farahi as guarantors, the Lenders as defined therein, and
Wells Fargo Bank as administrative and collateral Agent for the
Lenders and Swingline Lender is incorporated herein by reference
to the Company's Form 8-K report (SEC File 0-22088) dated January
14, 1998, Exhibit 10.01.
10.02 First Amendment to Construction and Reducing Revolving Credit 66
Agreement, dated as of January 9, 1998, among Golden Road Motor
Inn, Inc. as Borrower, Monarch Casino & Resort, Inc., John Farahi,
Bahram Farahi, and Behrouz Farahi as guarantors, the Lenders as
defined therein, and Wells Fargo Bank as administrative and
collateral Agent for the Lenders, Swingline Lender and L/C Issuer.
10.03 Lease, by and between Sierra Development Company, dba Club Cal-
Neva, Tenant, and Golden Road Motor Inn, Inc., dba Clarion Hotel
and Casino, Landlord, dated June 10, 1991 is incorporated herein
by reference from the Company's Form S-1 registration statement
(SEC File 33-64556), Part II, Item 16, Exhibit 10.03.
-44- <PAGE>
10.04 Agreement for Purchase of Real Property between Marcelle M.
Caramella, a widow, individually and Marcelle Margaret Caramella,
as trustee of the Trust created under the Last Will and Testament
of Ernest John Caramella, deceased, Ben A. Caramella and Cecile
D. Caramella, as trustees of the Caramella Family Trust Agreement
dated December 1, 1989, Marcelle Margaret Caramella, Erma V.
Pezzi, Trustee of the Erma V. Pezzi Trust Agreement dated
November 21, 1991, Golden Road Motor Inn, Inc. and Farahi
Investment Company, dated June 1, 1993 is incorporated herein by
reference from the Company's Form S-1 registration statement (SEC
File 33-64556), Part II, Item 16, Exhibit 10.04.
10.05 Agreement between Monarch Casino & Resort, Inc. and Peter Wilday
dated May 13, 1994; First Amendment to Agreement between Monarch
Casino & Resort, Inc. and Peter Wilday dated June 8, 1994; and
Second Amendment to Agreement between Monarch Casino & Resort,
Inc. and Peter Wilday dated March 23, 1995 are incorporated
herein by reference from the Company's Form 10-K report (SEC File
0-22088) for the fiscal year ended December 31, 1994, Item
14(a)(3), Exhibit 10.20.
10.06 Nonstandardized 401(k) Plan Adoption Agreement between Monarch
Casino & Resort, Inc. and Smith Barney Shearson dated November 7,
1995 is incorporated herein by reference to the Company's Form
10-K report (SEC File 0-22088) for the fiscal year ended December
31, 1995, Item 14(a)(3), Exhibit 10.21.
10.07 Recordkeeping Service Agreement between Monarch Casino & Resort,
Inc. and Travelers Recordkeeping dated June 29, 1995 is
incorporated herein by reference to the Company's Form 10-K
report (SEC File 0-22088) for the fiscal year ended December 31,
1995, Item 14(a)(3), Exhibit 10.22.
10.08 Trademark Agreement between Golden Road Motor Inn, Inc. and
Atlantis Lodge, Inc., dated February 3, 1996 is incorporated
herein by reference to the Company's Form 10-K report (SEC File
0-22088) for the fiscal year ended December 31, 1995, Item
14(a)(3), Exhibit 10.23.
21.01 List of Subsidiaries of Monarch Casino & Resort, Inc. is
incorporated by reference from the Company's Form 10-K report
(SEC File 0-22088) for the fiscal year ended December 31, 1993,
Item 14(a)(3), Exhibit 21.01.
27.01 Financial Data Schedule
</TABLE>
-45- <PAGE>
Amended and Restated
MONARCH CASINO & RESORT, INC.
1993 Directors' Stock Option Plan
Adopted by the Board of Directors June 15, 1993
Amended by the Board of Directors September 14, 1993
Approved by the Stockholders June 15, 1994
Amended by the Board of Directors May 14, 1997
1. Purpose
The Monarch Casino & Resort, Inc. 1993 Directors' Stock Option Plan (the
"Plan") is intended to promote the interests of Monarch Casino & Resort, Inc.
(the "Corporation") and its subsidiaries by offering members of the Board of
Directors of the Corporation who are not employed as regular salaried officers
or employees of the Corporation or any of its subsidiaries (hereinafter
referred to as "Non-Employee Directors" or "Optionees") the opportunity to
participate in a stock option plan in order to encourage Non-Employee
Directors to take a long term view of the affairs of the Corporation; to
attract and retain new top-notch Non-Employee Directors; and to aid in
rewarding Non-Employee Directors for their services to the Corporation.
2. Administration
The Plan shall be administered by a Committee (the "Committee") of not
less than two Directors of the Corporation who are not eligible to participate
under the Plan, selected by and serving at the pleasure of its Board of
Directors (the "Board").
The Committee shall have the authority to otherwise interpret the Plan
and make all determinations necessary or advisable for its administration.
The Committee's decisions under the Plan shall be subject to the approval
of the Board
3. Eligibility
Only Non-Employee Directors will be eligible to be granted awards.
4. Stock Subject to the Plan
The stock from which awards may be granted shall be the Corporation's
$.01 par value Common Stock ("Common Stock"). When options are exercised, the
Corporation may either issue authorized but unissued shares of Common Stock or
transfer issued shares of Common Stock held in its treasury. The total number
of shares of Common Stock which may be granted as stock options shall not
exceed 75,000. If an option expires, or is otherwise terminated prior to its
exercise, the Common Stock covered by such an option immediately prior to such
expiration or other termination shall continue to be available for grant under
the Plan.
5. Grant and Amount of Options
5.1. Basic Grant
The date of the initial option grant for a Non-Employee Director serving
his or her term upon approval of the Plan shall be the date that the Plan is
approved by the stockholders. The date of the initial option grant for a Non-
Employee Director commencing his or her term shall be the date that he or she
becomes a member of the Board of Directors.
The initial option grant shall be to purchase 2 400 shares of Common
Stock (subject to adjustment per Section 7).
All annual awards of options shall be granted immediately following the
close of the annual stockholders' meeting, with the first annual grant
effective at the 1994 annual stockholders' meeting. All annual awards of such
option grants will be to purchase 2,400 shares of Common Stock (subject to
adjustment per Section 7) for five years following election to the Board.
5.2. Discretionary Grants
The Committee may recommend discretionary grants of options on terms
deemed appropriate by the Committee, subject to the approval of the Board.
6. Terms and Conditions of Options
Options shall be designated non-qualified options or not qualified as
Incentive Stock Options under Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"), and shall be evidenced by written instruments
approved by the Committee. Such instruments shall conform to the following
terms and conditions.
6.1. Option Price
The option price shall be not less than the fair market value of the
shares of Common Stock under option. The fair market value per share shall be
the last reported sale price of the stock on such date on the NASDAQ National
Market System, or on such other stock exchange that the stock may be listed
from time to time. The option price shall be paid (i) in cash or (ii) in
shares of Common Stock of the Corporation having a fair market value equal to
such option price or (iii) in a combination of cash and shares of Common
Stock. The fair market value of shares of Common Stock delivered to the
Corporation pursuant to the immediately preceding sentence shall be determined
on the basis of the last reported sale price of the stock on the NASDAQ
National Market System on the day next preceding the day of exercise on which
there was such a sale.
6.2. Exercise and term of options
Each option shall be exercisable six months and one day after the date of
grant.
Except in special circumstances or as provided in Discretionary Grants
pursuant to Section 5.1 hereof, each option shall expire the latter of the
fifth anniversary of the date of its grant or nine months after the Non-
Employee Director retires, whichever occurs first.
After becoming exercisable, each option shall remain exercisable until
expiration or termination of the option. After becoming exercisable an option
may be exercised by the Optionee from time to time, in whole or part, up to
the total number of shares with respect to which it is then exercisable. The
Committee may provide that payment of the option exercise price may be made
following delivery of the certificate for the exercised shares.
Upon the exercise of a stock option, the purchase price will be payable
in full in cash or its equivalent in property acceptable to the Corporation.
In the discretion of the Committee, the purchase price may be paid by the
assignment and delivery to the Corporation of shares of Common Stock or a
combination of cash and such shares equal in value to the purchase price. Any
shares of Common Stock so assigned and delivered to the Corporation in payment
or partial payment of the purchase price will be valued at Fair Market Value
on the exercise date. Upon the exercise of a non-qualified stock option, the
Corporation shall withhold from the shares of Common Stock to be issued to the
eligible Optionee the number of shares necessary to satisfy the Corporation's
obligation to withhold Federal taxes, such determination to be based on the
shares' Fair Market Value on the date of exercise.
6.3. Termination of Directorship
If an Optionee ceases, other than by reason of death or retirement to be
elected to serve on the Board of Directors, all options granted to such
Optionee and exercisable on the date of termination of Directorship shall
expire on the earlier of (i) the fifth anniversary after the date of grant or
(ii) nine months after the day such Optionee's term ends.
6.4. Exercise upon death of optionee
If an Optionee dies, the option may be exercised, to the extent of the
number of shares that the Optionee could have exercised on the date of such
death, by the Optionee's estate, personal representative or beneficiary who
acquires the option by will or by the laws of descent and distribution. Such
exercise may be made at any time prior to the earlier of (i) the fifth
anniversary after the date of grant or (ii) the second anniversary of such
Optionee's death. On the earlier of such dates, the option shall terminate.
The Committee may approve all cash payments to the estate of an Optionee if
circumstances warrant such a decision.
6.5. Assignability
No option shall be assignable or transferable by the Optionee except by
will or by the laws of descent and distribution and during the lifetime of the
Optionee the option shall be exercisable only by such Optionee.
7. Capital Adjustments
The number and price of shares of Common Stock covered by each award of
options and the total number of shares that may be granted under the Plan
shall be proportionally adjusted to reflect, as deemed equitable and
appropriate by the Committee and subject to any required action by the
stockholders, any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares or
other similar corporate change.
8. Change of Control
Notwithstanding the provisions of Section 6, in the event of a change of
control, all vesting on all unexercised stock options will accelerate to the
change of control date. For purposes of this Plan, a "Change of Control" of
the Corporation shall be deemed to have occurred at such time as (a) any
"person" (as the term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934 ("Exchange Act")) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 25 0% or more of the combined
voting power of the Corporation's outstanding securities ordinarily having the
right to vote at the election of directors; or (b) individuals who constitute
the Board of Directors on the date hereof (the "Incumbent Board") cease for
any reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved
by at least a majority of the directors comprising the Incumbent Board, or
whose nomination for election was approved by a majority of the Board of
Directors of the Corporation serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as he or she were a member of the
Incumbent Board; or (c) merger, consolidation or sale of all or substantially
all the assets of the Corporation occurs, unless such merger or consolidation
shall have been affirmatively recommended to the Corporation's stockholders by
a majority of the Incumbent Board; or (d) a proxy statement soliciting proxies
from stockholders of the Corporation by someone other than the current
management of the Corporation seeking stockholder approval of a plan or
reorganization, merger or consolidation of the Corporation with one or more
corporations as a result of which the outstanding shares of the Corporation's
securities are actually exchanged for or converted into cash or property or
securities not issued by the Corporation unless the reorganization, merger or
consolidation shall have been affirmatively recommended to the Corporation's
stockholders by a majority of the Incumbent Board.
9. Approvals
The issuance of shares pursuant to this Plan is expressly conditioned
upon obtaining all necessary approvals from the Nevada Gaming Commission and
upon obtaining stockholder approval of the Plan.
10. Effective Date of Plan
The effective date of the Plan is June 14, 1993.
11. Term: Amendment of Plan
This Plan shall expire on June 13, 2003 (except to options outstanding on
that date). The Board may terminate the Plan at any time. The Board may amend
the Plan at any time, provided however, the provisions of Section 5 pertaining
to the amount of options to be granted and the timing of such option grants
and the provisions of Section 6.1 pertaining to the option price of the Common
Stock under option shall not be amended more than once every six months, other
than to comport with changes in the Internal Revenue Code or the rules
thereunder. Further provided however, that, without the approval of the
holders of a majority of the outstanding shares of Common Stock; the total
number of shares that may be sold, issued or transferred under the Plan may
not be increased (except by adjustment pursuant to Section 7); the provisions
of Section 3 regarding eligibility may not be modified; the purchase price at
which shares may be offered pursuant to options may not be reduced (except by
adjustment pursuant to Section 7); and the expiration date of the Plan may not
be extended and no change may be made which would cause the Plan not to comply
with Rule 1 6b-3 of the Exchange Act, as amended from time to time. No action
of the Board or stockholders, however, may, without the consent of an
Optionee, alter or impair such Optionee's rights under any option previously
granted.
12. Withholding Taxes
The Corporation shall have the right to deduct withholding taxes from any
payments made pursuant to the Plan or to make such other provisions as it
deems necessary or appropriate to satisfy its obligations to withhold Federal,
state or local income or other taxes incurred by reason of payments or the
issuance of shares of Common Stock under the Plan. Whenever under the Plan,
shares of Common Stock are to be delivered upon exercise of an option, the
Committee shall be entitled to require as a condition of delivery that the
grantee remit an amount sufficient to satisfy all Federal, state and other
government withholding tax requirements related thereto.
13. Plan Not A Trust
Nothing contained in the Plan and no action taken pursuant to the Plan
shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Corporation and any Optionee, the executor,
administrator or other personal representative, or designated beneficiary of
such Optionee, or any other persons. Any reserves that may be established by
the Corporation in connection with the Plan shall continue to be part of the
general funds of the Corporation and no individual or entity other than the
Corporation shall have any interest in such funds until paid to an Optionee.
If and to the extent that any Optionee or such Optionee's executor,
administrator or other personal representative, as the case may be, acquires a
right to receive any payment from the Corporation pursuant to the Plan, such
right shall be no greater than the right of an unsecured general creditor of
the Corporation.
14. Notices
Each Optionee shall be responsible for furnishing the Committee with the
current and proper address for the mailing of notices and delivery of
agreements, Common Stock and cash pursuant to the Plan. Any notices required
or permitted to be given shall be deemed given if directed to the person to
whom addressed at such address and mailed by regular United States mail,
first-class and prepaid. If any item mailed to such address is returned as
undeliverable to the addressee, mailing will be suspended until the Optionee
furnishes the proper address. This provision shall not be construed as
requiring the mailing of any notice or notification if such notice is not
required under the terms of the Plan or any applicable law.
15. Separability of Provisions
If any provision of this Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provisions
hereof, and this Plan shall be construed and enforced as if such provisions
had not been included.
16. Payment to Minors, etc.
Any benefit payable to or for the benefit of a minor, an incompetent
person or other person incapable of receipting therefor shall be deemed paid
when paid to such person's guardian or to the party providing or reasonably
appearing to provide for the care of such person, and such payment shall fully
discharge the Committee, the Corporation and other parties with respect
thereto.
17. Headings and Captions
The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
18. Controlling Law
This Plan shall be construed and enforced according to the laws of the
State of Nevada to the extent not preempted by Federal law, which shall
otherwise control.
<PAGE>
Amended and Restated
MONARCH CASINO & RESORT, INC.
1993 EXECUTIVE LONG TERM INCENTIVE PLAN
Amended by the Board of Directors May 14, 1997
1. Purpose
The 1993 Executive Long Term Incentive Plan (the "Plan") is intended to
promote the interest of Monarch Casino & Resort, Inc. and its subsidiaries
(collectively the "Corporation") by offering those executive officers and key
employees of the Corporation who are primarily responsible for the management,
growth and success of the business of the Corporation the opportunity to
participate in a long-term incentive plan designed to reward them for their
services and to encourage them to continue in the employ of the Corporation.
2. Definitions
For all purposes of this Plan, the following terms shall have the
following meanings:
"Common Stock" means Monarch Casino & Resort common stock, $.01 par
value.
"ISO" means incentive stock options qualified under Section 422A of the
Internal Revenue Code of 1954, as amended.
"Monarch" means Monarch Casino & Resort, Inc.
"Non-qualified Options" means stock options not qualified under Section
422A of the Internal Revenue Code of 1986, as amended.
"Restricted Shares" means shares of Common Stock which have not been
registered under federal securities law.
"Subsidiary" means any company of which Monarch Casino & Resort, Inc.
owns, directly or indirectly, the majority of the combined voting power of all
classes of stock.
3. Administration
The Plan shall be administered by a Committee (the "Committee") of not
less than two directors of Monarch selected by, and serving at the pleasure
of, Monarch's Board of Directors ("Monarch Board"). Except for Directors who
are ineligible to participate under this Plan, directors who are also
employees of Monarch or any Subsidiary, or who have been such employees within
one year, may not serve on the Committee.
Initially, the Subsidiary will recommend to the Committee persons to whom
awards may be granted. The Committee then shall have the authority, subject
to the terms of the Plan, to determine, based upon recommendations from the
Subsidiaries, the persons to whom awards shall be granted ("Participants"),
the number of shares covered by each award, the time or times at which awards
shall be granted, the timing of when awards shall vest, and the terms and
provisions of the instruments by which awards shall be evidenced; and to
interpret the Plan and make all determinations necessary or advisable for its
administration. The Committee shall notify the Monarch Board of all decisions
concerning awards granted to Participants under the Plan, the interpretation
thereof, and determinations concerning its administration.
4. Eligibility
Awards shall be granted only to employees who (a) serve as executives or
other key employees of the Corporation and (b) do not, at the time of grant,
own (within the meaning of Section 425(d) of the Code) stock possessing more
than 10% of the total combined voting power of all classes of stock of Monarch
or of any Subsidiary.
5. Stock Subject to the Plan
The stock from which awards may be granted shall be shares of Common
Stock. When Restricted Shares are vested or when options are exercised,
Monarch may either issue authorized but unissued Common Stock or Monarch, or
the Subsidiary which employs the Participant, may transfer issued Common Stock
held in its treasury. Each of the respective Boards of the Corporation will
fund the Plan to the extent so required to provide Common Stock for the
benefit of Participants employed by Monarch or the Subsidiary, respectively.
The total number of shares of Common Stock which may be granted as Restricted
Shares or stock options shall not exceed, in the aggregate, 250,000 shares in
total. Any Restricted Shares awarded and later forfeited are again subject to
award under the Plan. If an option expires, or is otherwise terminated prior
to its exercise, the shares of Common Stock covered by such an option
immediately prior to such expiration or other termination shall continue to be
available for grant under the Plan.
6. Granting of Options
The date of grant of options to Participants under the Plan will be the
date on which the options are awarded by the Committee. The grant of any
option to any Participant shall neither entitle nor disqualify such
Participant from participating in any subsequent grant of options.
7. Terms and Conditions of Options
Options shall be designated Non-qualified Options or Incentive Stock
Options qualified under Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code"), and shall be evidenced by written instruments approved
by the Committee. Such instruments shall conform to the following terms and
conditions:
7.1 Option price
The option price per share for Incentive Stock Options shall be the
fair market value of the Common Stock under option on the day the option is
granted, which shall be an amount equal to the last reported sale price of the
Common Stock on such date on the NASDAQ National Market System, or such other
stock exchange on which the Common Stock may be listed from time to time. The
price for Non-qualified Options shall be an amount equal to the price of the
Common Stock under option as determined above. The option price shall be paid
(i) in cash or (ii) in Common Stock having a fair market value equal to such
option price or (iii) in a combination of cash and Common Stock. The fair
market value of Common Stock delivered to the Corporation pursuant to the
immediately preceding sentence shall be determined on the basis of the last
reported sale price of the Common Stock on the NASDAQ National Market System
on the day of exercise or, if there was no such sale price on the day of
exercise, on the day next preceding the day of exercise on which there was
such a sale.
7.2 Term and exercise of options
Unless the Committee specifies otherwise, and except as otherwise
provided in this Plan, each option shall expire on the tenth anniversary of
the date of its grant and shall be exercisable according to a vesting schedule
to be determined by the Committee. However the Committee may include in any
option instrument, initially or by amendment at any time, a provision making
any installment or installments exercisable at such earlier date, if the
Committee deems such provision to be in the interests of the Corporation or
necessary to realize the reasonable expectation of the optionee.
After becoming exercisable, each installment shall remain
exercisable until expiration or termination of the option. After becoming
exercisable an option may be exercised by the optionee from time to time, in
whole or part, up to the total number of shares with respect to which it is
then exercisable. The Committee may provide that payment of the option
exercise price may be made following delivery of the certificate for the
exercised shares.
Upon the exercise of a stock option, the purchase price will be
payable in full in cash or its equivalent in property acceptable to Monarch or
the Subsidiary which employs the Participant. In the discretion of the
Subsidiary which employs the Participant grantee, the purchase price may be
paid by the assignment and delivery to Monarch or Subsidiary who employs the
Participant of shares of Common Stock or a combination of cash and such shares
equal in value to the purchase price. Any shares of Common Stock so assigned
and delivered to Monarch or the Subsidiary, as applicable, in payment or
partial payment of the purchase price will be valued at Fair Market Value on
the exercise date. Upon the exercise of a Non-qualified Option, Monarch or
the employing Subsidiary shall withhold from the shares of Common Stock to be
issued to the Participant the number of shares necessary to satisfy Monarch's
or the Subsidiary's, as applicable, obligation to withhold Federal taxes, such
determination to be based on the shares Fair Market Value on the date of
exercise.
7.3 Termination of employment
In the event the employment of an optionee terminates, for whatever
reason, prior to the date upon which options become exercisable, then such
options shall terminate and lapse on the date upon which the employment of
such optionee terminates.
If the employment of an optionee terminates for a reason other than
for cause, retirement (as defined and determined under any of the Company's
pension plans), disability (as defined and determined by the Committee) or
death, then all options granted to the optionee and exercisable on the date of
such termination shall expire on the earlier of the tenth anniversary of the
date of grant or the first anniversary of the day of such optionee's
termination of employment due to such reasons; provided, however, such
options, to the extent unexercised, expire on the date that such optionee (i)
uses for profit or discloses to unauthorized persons, confidential information
or trade secrets of the Company, or (ii) breaches any contract with or
violates any fiduciary obligation to the Company, or (iii) engages in unlawful
trading in the Company's securities or the securities of another Company based
on information gained as a result of that optionee's employment with the
Company, or (iv) violates (as determined by the Committee) any covenant not to
compete in effect between the Company and the optionee.
In the event that an optionee is or has been terminated for cause,
such cause including, but not limited to, (i) use for profit or disclosure to
unauthorized persons of confidential information or trade secrets of the
Company, or (ii) breach of any contract with or violation of any fiduciary
obligation to the Company, or (iii) unlawful trading in the Company's
securities or the securities of another Company based on information gained as
a result of that optionee's employment with the Company, or (iv) violation (as
determined by the Committee) of any covenant not to compete in effect between
the Company and the optionee, then that optionee shall forfeit all rights to
any unexercised options granted under the Plan and all of that optionee's
outstanding options shall automatically terminate and lapse, unless the
Committee shall determine otherwise.
If an optionee retires, all options granted to such optionee, and
exercisable on the date of such optionee's retirement shall expire on the
earlier of (i) the tenth anniversary after the date of grant or (ii) the
second anniversary of the day of such optionee's retirement. Any installment
not exercisable on the date of such termination or retirement shall expire and
be thenceforth unexercisable. Whether authorized leave of absence or absence
in military or governmental service may constitute employment for the purposes
of the Plan shall be conclusively determined by the Committee. The Committee
can increase or reduce the amount of options that are exercisable up to but
not exceeding the tenth anniversary of the date of grant, in the event of
optionee termination for other than death or retirement.
7.4 Exercise upon death of optionee
If an optionee dies, the option may be exercised, to the extent of
the number of shares that the optionee could have exercised on the date of
such death, by the optionee's estate, personal representative or beneficiary
who acquires the option by will or by the laws of descent and distribution.
Such exercise may be made at any time prior to the earlier of (i) the tenth
anniversary after the date of grant or (ii) the second anniversary of such
optionee's death. On the earlier of such dates, the option shall terminate.
The Committee may approve all cash payments to the estate of an optionee if
circumstances warrant such a decision.
7.5 Assignability
No option shall be assignable or transferable by the optionee except
by will or by the laws of descent and distribution and during the lifetime of
the optionee the option shall be exercisable only by such optionee.
7.6 Limitation on Incentive Stock Options
During a calendar year, the aggregate fair market value of the
option stock (determined at the time of the ISO grant) for which ISOs are
exercisable for the first time under the Plan, cannot exceed $100,000.
8. Restricted Share Awards
8.1 Grant of Restricted Share Awards
The Committee will determine for each Participant the time or times
when Restricted Shares shall be awarded and the number of shares of Common
Stock to be covered by each Restricted Share Award.
<PAGE>
8.2 Restrictions
Shares of Common Stock issued to a Participant as a Restricted Share
Award will be subject to the following restrictions ("Share Restrictions"):
(a) Except as set forth in Sections 8.4 and 8.5, all of the
Restricted Shares subject to a Restricted Award will be forfeited and returned
to Monarch or, in the event such Restricted Shares were provided to the
Participant from shares of Common Stock purchased by the Subsidiary, then the
Restricted Shares will be returned to the Subsidiary. In either case, all
rights of the Participant to such Restricted Shares will terminate without any
payment of consideration by Monarch or the employing Subsidiary unless the
Participant remains in the continuous employment (employment may include
consulting agreements) of Monarch or a Subsidiary for a period of time
determined by the Committee.
(b) During the Restriction Period relating to a Restricted Share
Award, none of the Restricted Shares subject to such award may be sold,
assigned, bequeathed, transferred, pledged, hypothecated or otherwise disposed
of in any way by the Participant.
(c) The Committee may require the Participant to enter into an
escrow agreement providing that the certificates representing Restricted
Shares sold or granted pursuant to the Plan will remain in the physical
custody of Monarch or the employing Subsidiary or an escrow holder during the
Restriction Period.
(d) Each certificate representing a Restricted Share sold or granted
pursuant to the Plan will bear a legend making appropriate reference to the
restrictions imposed on the Restricted Share.
(e) The Committee may impose other restrictions on any Restricted
Shares sold pursuant to the Plan as it may deem advisable, including without
limitation, restrictions under the Securities Act of 1933, as amended, under
the requirements of any stock exchange upon which such share or shares of the
same class are then listed and under any state securities laws or other
securities laws applicable to such shares.
8.3 Rights as a Stockholder
Except as set forth in Section 8.2(b), the recipient of a Restricted
Share Award will have all of the rights of a stockholder of Monarch with
respect to the Restricted Shares, including the right to vote the Restricted
Shares and to receive all dividends or other distributions made with respect
to the Restricted Shares.
8.4 Lapse of Restrictions at Termination of Employment
In the event of the termination of employment of a Participant
during the Restriction Period by reason of death, total and permanent
disability, retirement as determined under any of the Corporation's pension
plans, or discharge from employment other than a discharge for cause, the
Committee may, at its discretion, remove Share Restrictions on Restricted
Shares subject to a Restricted Share Award.
Restricted Shares to which the Share Restrictions have not so lapsed
will be forfeited and returned to the Corporation as provided in Section
8.2(a).
8.5 Lapse of Restrictions at Discretion of the Committee
The Committee may shorten the Restriction Period or remove any or
all Share Restrictions if, in the exercise of its absolute discretion, it
determines that such action is in the best interests of the Corporation and
equitable to the Participant.
8.6 Listing and Registration of Shares
Monarch may, in its discretion, postpone the issuance and/or
delivery of Restricted Shares until completion of stock exchange listing, or
registration, or other qualification of such Restricted Shares under any law,
rule or regulation.
8.7 Designation of Beneficiary
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any Restricted Shares to
which such Participant would then be entitled. Such designation will be made
upon forms supplied by and delivered to the Committee and may be revoked in
writing by the Participant. If a Participant fails effectively to designate a
beneficiary, then such Participant's estate will deemed to be the beneficiary.
8.8 Withholding of Taxes for Restricted Shares
When the Participant, as holder of the Restricted Shares, recognizes
income, either on the Date of Grant or the date the restrictions lapse,
Monarch or the Subsidiary, as applicable, shall withhold from the shares of
Common Stock, the number of shares necessary to satisfy Monarch's or the
Subsidiary's, as applicable, obligation to withhold Federal taxes, such
determination to be based on the shares' Fair Market Value as of the date
income is recognized.
9. Capital Adjustments
The number and price of Common Stock covered by each award of options
and/or Restricted Shares and the total number of shares that may be granted or
sold under the Plan shall be proportionally adjusted to reflect, as deemed
equitable and appropriate by the Committee and subject to any required action
by stockholders, any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares or
other similar corporate change.
10. Change of Control
Notwithstanding the provisions of Section 9, in the event of a change of
control, all share restrictions on all Restricted Shares will lapse and
vesting on all unexercised stock options will accelerate to the change of
control date. For purposes of this plan, a "Change of Control" of Monarch
shall be deemed to have occurred at such time as (a) any "person" (as that
term is used in Section 13(d) and 14(d) of the Exchange Act) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Monarch representing 25.0% or more of the
combined voting power of Monarch's outstanding securities ordinarily having
the right to vote at the election of directors; or (b) individuals who
constitute the Board of Directors of Monarch on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by at least a majority of the directors
comprising the Incumbent Board, or whose nomination or election was approved
by a majority of the Board of Directors of Monarch serving under an Incumbent
Board, shall be, for purposes of this clause (b), considered as if he or she
were a member of the Incumbent Board; or (c) merger, consolidation or sale of
all or substantially all the assets of Monarch occurs, unless such merger or
consolidation shall have been affirmatively recommended to Monarch's
stockholders by a majority of the Incumbent Board; or (d) a proxy statement
soliciting proxies from stockholders of Monarch, by someone other than the
current management of Monarch seeking stockholder approval of a plan or
reorganization, merger or consolidation of Monarch with one or more
corporations as a result of which the outstanding shares of Monarch's
securities are actually exchanged for or converted into cash or property or
securities not issued by Monarch unless the reorganization, merger or
consolidation shall have been affirmatively recommended to Monarch's
stockholders by a majority of the Incumbent Board.
11. Approvals
The issuance of shares pursuant to this Plan is expressly conditioned
upon obtaining all necessary approvals from the Nevada Gaming Commission and
upon obtaining stockholder approval of the Plan.
12. Effective Date of Plan
The effective date of the Plan is June 14, 1993.
13. Term: Amendment of Plan
This Plan shall expire on June 13, 2003 (except to options outstanding on
that date). Monarch's Board may terminate or amend the Plan in any respect at
any time, except that, without the approval of the holders of a majority of
the outstanding Common Stock: the total number of shares that may be sold,
issued or transferred under the Plan may not be increased (except by
adjustment pursuant to Section 9); the provisions of Section 4 regarding
eligibility may not be modified; the purchase price at which shares may be
offered pursuant to options may not be reduced (except by adjustment pursuant
to Section 9); and the expiration date of the Plan may not be extended and no
change may be made which would cause the Plan not to comply with Rule 16(b)3
of the Securities Exchange Act of 1934, as amended from time to time. No
action of the Monarch Board or Monarch's stockholders, however, may, without
the consent of an optionee, alter or impair such optionee's rights under any
option previously granted.
14. No Right of Employment
Neither the action of the Corporation in establishing this Plan, nor any
action taken by any Board of Monarch or any Subsidiary or the Committee under
the Plan, nor any provision of the Plan itself, shall be construed to limit in
any way the right of the Corporation to terminate a Participant's employment
at any time; nor shall it be evidence of any agreement or understanding,
expressed or implied, that the Corporation will employ an employee in any
particular position nor ensure participation in any future compensation or
stock purchase program.
15. Withholding Taxes
Monarch or the Subsidiary, as applicable, shall have the right to deduct
withholding taxes from any payments made pursuant to the Plan or to make such
other provisions as it deems necessary or appropriate to satisfy its
obligations to withhold Federal, state or local income or other taxes incurred
by reason of payments or the issuance of Common Stock under the Plan.
Whenever under the Plan, Common Stock is to be delivered upon vesting of
Restricted Shares or exercise of an option, the Committee shall be entitled to
require as a condition of delivery that the Participant remit an amount
sufficient to satisfy all Federal, state and other government withholding tax
requirements related thereto.
16. Plan not a Trust
Nothing contained in the Plan and no action taken pursuant to the Plan
shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Corporation and any Participant, the executor,
administrator or other personal representative, or designated beneficiary of
such Participant, or any other persons. Any reserves that may be established
by the Corporation in connection with the Plan shall continue to be part of
the general funds of the Corporation and no individual or entity other than
the Corporation shall have any interest in such funds until paid to a
Participant. If and to the extent that any Participant of such Participant's
executor, administrator or other personal representative, as the case may be,
acquires a right to receive any payment from the Corporation pursuant to the
Plan, such right shall be no greater than the right of an unsecured general
creditor of the Corporation.
17. Notices
Each Participant shall be responsible for furnishing the Committee with
the current and proper address for the mailing of notices and delivery of
agreements, Common Stock and cash pursuant to the Plan. Any notices required
or permitted to be given shall be deemed given if directed to the person to
whom addressed at such address and mailed by regular United States mail,
first-class and prepaid. If any item mailed to such address is returned as
undeliverable to the addressee, mailing will be suspended until the
Participant furnishes the proper address. This provision shall not be
construed as requiring the mailing of any notice or notification if such
notice is not required under the terms of the Plan or any applicable law.
18. Separability of Provisions
If any provision of this Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provisions
hereof, and this Plan shall be construed and enforced as if such provisions
had not been included.
19. Payment to Minors, etc.
Any benefit payable to or for the benefit of a minor, an incompetent
person or other person incapable of receipting therefor shall be deemed paid
when paid to such person's guardian or to the party providing or reasonably
appearing to provide for the care of such person, and such payment shall fully
discharge the Committee, the Corporation and other parties with respect
thereto.
20. Headings and Captions
The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
<PAGE>
21. Controlling Law
This Plan shall be construed and enforced according to the laws of the
State of Nevada to the extent not preempted by Federal law, which shall
otherwise control.
<PAGE>
Amended and Restated
MONARCH CASINO & RESORT, INC.
1993 EMPLOYEE STOCK OPTION PLAN
Amended by the Board of Directors May 14, 1997
1. Purpose.
The 1993 Employee stock Option Plan (the "Plan") is intended to promote
the interests of the Company by providing long-term incentives and rewards to
its employees in order to: improve individual employee performance; assist
the Company in attracting, retaining and motivating employees with experience
and ability; and associate the interests of the Company's employees with those
of its shareholders.
2. Definitions.
For all purposes of this Plan, the following terms shall have the
following meanings:
(a) "Committee" means the Compensation Committee of the Board of
Directors ("Board") of the Company as appointed from time to time by the
Board, consisting of not less than two members of the Board who are not
eligible to participate in the Plan and who have not, within one year prior to
their appointment to the Committee, participated in the Plan.
(b) "Common Stock" means Monarch Casino & Resort, Inc.'s, $.O1 par
value, common stock.
(c) "Company" means Monarch Casino & Resort, Inc. and its
subsidiaries.
(d) "Fair Market Value" means an amount equal to the last reported
sale price of the Common Stock on the NASDAQ National Market System, or such
other stock exchange on which the Common Stock may be listed from time to
time, on that day (or, if no sale of Common Stock is recorded on such day,
then on the next preceding day on which there was such a sale).
(e) "Option" or "Non-qualified Stock Option" means a stock option not
qualified under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
(f) "Option Exercise Price" means the price at which a share of
Common Stock covered by an Option granted hereunder may be purchased.
(g) "Optionee" or "Participant" means an eligible employee of the
Company who has received an Option granted under the Plan.
3. Administration.
The Plan shall be administered by the Committee, which shall have full
power and authority to administer and interpret the Plan and to adopt such
rules, regulations, agreements, guidelines and instruments for the
administration of the Plan as the Committee deems necessary or advisable. The
Committee's powers include, but are not limited to (subject to the specific
limitations described herein), authority to determine the employees to be
granted options under the Plan, to determine the size and applicable terms and
conditions of grants to be made to such employees, and to authorize grants to
eligible employees.
The Committee's interpretations of the Plan, the actions taken by the
Committee thereunder and determinations made by the Committee in connection
with any matter arising under or with respect to the Plan or any Option
granted hereunder, shall be final, binding and conclusive on all interested
parties, including the Company, its shareholders and all former, present and
future employees of the Company. The Committee may as to all questions of
accounting rely conclusively upon any determination made by the independent
public accountants of the Company.
4. Stock Subject to the Plan.
The stock which is subject to Options granted pursuant to the Plan shall
be shares of Common Stock. The aggregate number of shares of Common Stock
available for grant under the Plan is 100,000, subject to adjustment pursuant
to Section 12. Shares of Common Stock issued pursuant to the Plan may be
either authorized but unissued shares or shares now or hereafter held in the
treasury of the Company. If an Option expires, is surrendered or canceled, or
is otherwise terminated prior to its exercise, the shares of Common Stock
covered by such an Option immediately prior to such expiration, surrender,
cancellation or other termination shall continue to be available for grant
under the Plan.
5. Granting of Options.
The date of grant of Options to Participants under the Plan will be the
date on which the Options are awarded by the Committee. The grant of any
Option to any Participant shall neither entitle nor disqualify such
Participant from participating in any subsequent grant of Options.
6. Terms and Conditions of Options.
Options shall be designated and constitute Non-qualified Stock Options
and shall be evidenced by written instruments approved by the Committee. Such
instruments shall conform to the following terms and conditions:
6.1. Option Price.
The Option price per share for each Option shall not be less than 100% of
the Fair Market Value of the Common Stock on the date of grant.
6.2. Exercise and Conditions of Options.
(a) Exercisability.
Unless the Committee specifies otherwise, and except as otherwise
provided in this Plan, each Option shall expire on the tenth anniversary of
the date of its grant and shall be exercisable according to a vesting schedule
to be determined by the Committee. However, the Committee may include in any
option instrument, initially or by amendment at any time, a provision making
any installment or installments exercisable at such earlier date, if the
Committee deems such provision to be in the interests of the Corporation or
necessary to realize the reasonable expectation of the Optionee. After
becoming exercisable, each Option shall remain exercisable until it expires or
terminates.
(b) Method of Exercise.
Optionees may exercise Options by giving written notice to the secretary
of the Company or his designee stating the number of shares of Common Stock
with respect to which the Options are being exercised and tendering payment
therefor. At the time that an Option granted under the Plan, or any part
thereof, is exercised, payment for the Common Stock issuable thereupon shall
be made in full in cash, money order or certified check or, if the Committee
in its discretion agrees to accept, in shares of Common Stock of the Company
(the number of such shares paid for each share subject to the Option, or part
thereof, being exercised shall be determined by dividing the Option price by
the Fair Market Value per share of the Common Stock on the date of exercise).
The Committee in its discretion may provide for exercise of Options pursuant
to Federal Reserve Board Regulation T and permit the payment of any
withholding taxes incurred by an Optionee pursuant to such exercise to be paid
with shares purchased thereunder. In addition, in order to enable the Company
to meet any applicable foreign, federal (including FICA) state and local
withholding tax requirements, an Optionee shall also be required to pay the
amount of tax to be withheld at the time of exercise. No share of Common
Stock will be delivered to any Optionee until all such amounts have been paid.
As soon as reasonably possible following such exercise, a certificate
representing shares of Common Stock purchased, registered in the name of the
Optionee, or that Optionees agent, shall be delivered to the Optionee or that
Optionee's agent.
(c) Conditions.
Options shall be subject to such terms and conditions, shall be
exercisable at such time or times, and shall be evidenced by such instrument
between the Optionee and the Company, as the Committee shall determine.
6.3. Termination of Options.
In the event the employment of an Optionee terminates, for whatever
reason, prior to the date upon which Options become exercisable, then such
Options shall terminate and lapse on the date upon which the employment of
such Optionee terminates.
If the employment of an Optionee terminates for a reason other than for
cause, or by reason of retirement (as defined and determined under any of the
Company's pension plans), disability (as defined and determined by the
Committee) or death, then all Options granted to the Optionee and exercisable
on the date of such termination shall expire on the earlier of the tenth
anniversary of the date of grant or the first anniversary of the day of such
Optionee's termination of employment due to such reasons; provided, however,
such Options, to the extent unexercised, expire on the date that such Optionee
(i) uses for profit or discloses to unauthorized persons, confidential
information or trade secrets of the Company, or (ii) breaches any contract
with or violates any fiduciary obligation to the Company, or (iii) engages in
unlawful trading in the Company's securities or the securities of another
Company based on information gained as a result of that Optionee's employment
with the Company, or (iv) violates (as determined by the Committee) any
covenant not to compete in effect between the Company and the Optionee.
In the event that an Optionee is or has been terminated for cause, such
cause including, but not limited to, (i) use for profit or disclosure to
unauthorized persons of confidential information or trade secrets of the
Company, or (ii) breach of any contract with or violation of any fiduciary
obligation to the Company, or (iii) unlawful trading in the Company's
securities or the securities of another Company based on information gained as
a result of that Optionee's employment with the Company, or (iv) violation (as
determined by the Committee) of any covenant not to compete in effect between
the Company and the Optionee, then that Optionee shall forfeit all rights to
any unexercised Options granted under the Plan and all of that Optionee's
outstanding Options shall automatically terminate and lapse, unless the
Committee shall determine otherwise.
6.4. Assignability.
No Option shall be assignable or transferable by the Optionee except by
will or by the laws of descent and distribution and during the lifetime of the
Optionee the Option shall be exercisable only by such Optionee. No Option
shall be otherwise transferred, assigned, pledged or hypothecated for any
purpose whatsoever, nor shall any Option be subject in whole or in part, to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge or hypothecation or other disposition of the Option, other than in
accordance with terms set forth herein, shall be null and void, and of no
effect.
7. Eligibility.
Only the following employees shall be eligible to participate in the
Plan: (a) Full-time, salaried or hourly, union-represented or unrepresented
employees regularly scheduled for and working at least thirty (30) hours per
week; (b) part-time, salaried or hourly, union-represented or unrepresented
employees regularly scheduled for and working less than thirty (30) hours per
week and at least two (2) weeks per month; and (c) all those employees of the
Company as shall be determined from time to time by the Committee; provided,
however, that no person then eligible to be granted an option under the
Company's 1993 Executive Long Term Incentive Plan, 1993 Directors' Stock
Option Plan or any other Company sponsored stock option plan may be granted an
Option hereunder.
Inclusion of union-represented employees in this Plan is subject to
discussions with their respective collective bargaining representatives.
8. Term/Amendment.
This Plan shall expire on June 13, 2003 (except as to Options outstanding
on that date). The Committee may from time to time alter, amend or suspend
the Plan or any Option granted hereunder or may at any time terminate the
Plan, except that the provisions of Section 7 may not be modified to increase
eligibility to include directors and/or executive officers, who are otherwise
eligible to participate in the Company's 1993 Executive Long-Term Incentive
Plan and 1993 Directors' Stock Option Plan without the approval of the holders
of a majority of the outstanding Common Stock. No action taken by the
Committee under this Section, either with or without the approval of the
stockholders of the Company, may materially and adversely affect any
outstanding Option without the consent of the holder thereof.
9. Registration, Listing and Qualification of Shares.
Each Option shall be subject to the requirement that if at any time the
Committee shall determine that the registration, listing or qualification of
the shares covered thereby upon any securities exchange or under any foreign,
federal, state or local law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of or in connection
with, the granting of such Option or the purchase of shares thereunder, no
such Option may be exercised unless and until such registration, listing,
qualification, consent or approval shall have been effected or obtained free
of any condition not acceptable to the Committee. Any person exercising an
Option shall make such representations and agreements and furnish such
information as the Committee may request to assure compliance with the
foregoing or any other applicable legal requirements.
10. Dissolution, Merger and Consolidation.
Upon the dissolution or liquidation of the Company, or upon a merger or
consolidation of the Company in which the Company is not the surviving
corporation, each Option granted hereunder shall expire as of the effective
date of such transaction; provided, however, that the Committee shall give at
least 30 days' prior written notice to all Optionees of such event during
which time such Optionees shall have a right to exercise wholly or partially
unexercised Options (without regard to installment exercise limitations, if
any) and, subject to prior expiration pursuant to Section 6.3, each Option
shall be exercisable after receipt of such written notice and prior to the
effective date of such transaction.
11. Effective Date and Conditions Subsequent to Effective Date.
The Plan shall become effective on the date of adoption of the Plan by
the Company's Board of Directors. The Plan shall be null and void and of no
effect if the foregoing condition is not fulfilled, and in such event, each
Option granted hereunder shall, notwithstanding any of the provisions of the
Plan, be null and void and of no effect.
No grant or award shall be made under the Plan after June 13, 2003;
provided, however, that the Plan and all Options granted under the Plan prior
to such date shall remain in effect, and subject to adjustment and amendment
as herein provided, until they have been exercised or terminated in accordance
with the terms of the respective grants or awards and the related instruments.
12. Capital Adjustments.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock split, stock dividend, recapitalization, merger,
consolidation, combination or exchange of shares or other similar corporate
change, such equitable adjustments may be made in the Plan and the Options
granted hereunder as the Committee determines are necessary or appropriate,
including, if necessary, an adjustment in the number of shares and Option
Exercise Prices per share applicable to Options then outstanding and in the
number of shares which are reserved for issuance under the Plan. Any such
adjustment shall be conclusive and binding for all purposes of the Plan.
13. Approvals.
The issuance of shares pursuant to this Plan is expressly conditioned
upon obtaining all necessary approvals from the Nevada Gaming Commission.
14. No Right to Options or Employment.
No employee or other person shall have any claim or right to be granted
an Option under the Plan. Having received an Option under the Plan shall not
give an employee any right to receive any other grant under the Plan. An
Optionee shall have no rights to or interest in any Option except as set forth
herein. Neither the action of the Company in establishing the Plan nor any
action taken hereunder, nor any provision of the Plan itself shall be
construed to limit in any way the right of the Company to terminate an
Optionee's employment at any time; nor shall it be evidence of any agreement
or understanding, expressed or implied, that the Company will employ an
employee in any particular position nor ensure participation in any future
compensation or stock program.
15. Rights as Shareholder.
An Optionee under the Plan shall have no rights as a holder of Common
Stock with respect to Options granted hereunder, unless and until certificates
for shares of Common Stock are issued to such Optionee.
16. Other Actions.
This Plan shall not restrict the authority of the Committee or the
Company for proper corporate purposes, to grant or assume stock options, other
than under the Plan, to or with respect to any employee or other person.
17. Costs and Expenses.
Except with respect to withholding taxes and expenses of brokerage fees,
commissions and expenses incurred by an Optionee pursuant to exercise of an
Option, the costs and expenses of administering the Plan shall be borne by
the Company and shall not be charged to any Option nor to any Optionee.
18. Plan Not a Trust.
Nothing contained in the Plan and no action taken pursuant to the Plan
shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Company and any Participant, the executor,
administrator or other personal representative, or designated beneficiary of
such Participant, or any other persons. Any reserves that may be established
by the Company in connection with the Plan shall continue to be part of the
general funds of the Company and no individual or entity other than the
Company shall have any interest in such funds until paid to a Participant. If
and to the extent that any Participant or such Participant's executor,
administrator or other personal representative, as the case may be, acquires a
right to receive any payment from the Company pursuant to the Plan, such right
shall be no greater than the right of an unsecured general creditor of the
Company.
19. Leaves of Absence and Disability.
The Committee shall have full power and authority to make such rules,
regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence taken by or disability of any Optionee.
Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan, and
(ii) the impact, if any, of any such leave of absence on awards under the Plan
theretofore made to any Optionee who takes such leave of absence.
20. Notices.
Every direction, revocation or notice authorized or required by the Plan
shall be deemed delivered to the Company (1) on the date it is personally
delivered to the Secretary of the Company at its principal executive offices
or (2) five business days after it is sent by registered or certified mail,
postage prepaid, addressed to the Secretary at such offices, and shall be
deemed delivered to an Optionee (1) on the date it is personally delivered to
him or her or (2) five business days after it is sent by registered or
certified mall, postage prepaid, addressed to him or her at the last address
shown for him or her on the records of the Company.
Each Participant shall be responsible for furnishing the Committee with
the current and proper address for the mailing of notices, delivery of
instruments and Common Stock pursuant to the Plan. If any item mailed to such
address is returned as undeliverable to the addressee, mailing will be
suspended until the Participant furnishes the proper address. This provision
shall not be construed as requiring the mailing of any notice or notification
if such notice is not required under the terms of the Plan or any applicable
law.
21. Separability of Provisions.
If any provision of this Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provisions
hereof, and this Plan shall be construed and enforced as if such provisions
had not been included.
22. Payments to Minors, Etc.
Any benefit payable to or for the benefit of a minor, an incompetent
person or other person incapable of receipting therefor shall be deemed paid
when paid to such person's guardian or to the party providing or reasonably
appearing to provide for the care of such person, and such payment shall fully
discharge the Committee, the Company and other parties with respect thereto.
23. Headings and Captions.
The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
24. Governing Law.
This Plan shall be construed and enforced according to the laws of the
State of Nevada to the extent not preempted by federal law, which shall
otherwise control.
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("First Amendment") is made and
entered into as of the 9th day of January, 1998, by and among GOLDEN ROAD
MOTOR INN, INC., a Nevada corporation (the "Borrower"), MONARCH CASINO &
RESORT, INC., a Nevada corporation ("MCRI"), JOHN FARAHI, BAHRAM FARAHI and
BEHROUZ FARAHI (collectively "Farahi" and together with MCRI, collectively the
"Guarantors") and WELLS FARGO BANK, National Association, as Lender, Swingline
Lender and L/C Issuer and as the administrative and collateral agent for the
Lender, Swingline Lender and L/C Issuer (herein in such capacity called the
"Agent Bank" and, together with the Lender, Swingline Lender and L/C Issuer
collectively referred to as the "Banks").
R_E_C_I_T_A_L_S:
WHEREAS:
A. Borrower, Guarantors, Agent Bank, Swingline Lender and Lender
entered into a Credit Agreement dated as of December 29, 1997 (the "Existing
Credit Agreement") for the purpose of establishing a reducing revolving line
of credit in favor of Borrower, up to the maximum principal amount of Eighty
Million Dollars ($80,000,000.00), including a Swingline Facility in the
maximum amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00) at
any time outstanding.
B. For the purpose of this First Amendment, all capitalized words and
terms not otherwise defined herein shall have the respective meanings and be
construed herein as provided in Section 1.01 of the Existing Credit Agreement
and any reference to a provision of the Existing Credit Agreement shall be
deemed to incorporate that provision as a part hereof, in the same manner and
with the same effect as if the same were fully set forth herein.
C. Borrower and Guarantors desire to amend the Existing Credit
Agreement for the purpose of establishing an additional subfacility for the
issuance of standby and commercial letters of credit up to the maximum
aggregate amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00)
at any time outstanding.
D. Banks have agreed to establish an additional subfacility for the
issuance of standby and documentary letters of credit to be issued by L/C
Issuer at the request of Borrower up to the maximum aggregate amount of Two
Million Five Hundred Thousand Dollars ($2,500,000.00) at any time outstanding,
subject to the terms, conditions and provisions set forth in this First
Amendment.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do agree to the amendments and modifications
to the Existing Credit Agreement as specifically hereinafter provided as
follows:
1. Definitions. Section 1.01 of the Existing Credit Agreement
entitled "Definitions" shall be and is hereby amended to include the following
definitions. Those terms which are currently defined by Section 1.01 of the
Existing Credit Agreement and which are also defined below shall be superseded
and restated by the applicable definition set forth below:
"Agent Bank" shall mean WFB in its capacity as administrative and
collateral agent for Lenders, Swingline Lender and L/C Issuer.
"Aggregate Outstandings" shall mean collective reference to the sum of
the Funded Outstandings, Swingline Outstandings and L/C Exposure as of any
given date of determination.
"Available Borrowings" shall mean, at any time, and from time to time,
the aggregate amount available to Borrower for a Borrowing, a Construction
Disbursement, a Swingline Advance or issuance of a Letter of Credit not
exceeding the amount of the Maximum Availability, as of each date of
determination.
"Bank Facilities" shall mean collective reference to the Credit Facility,
Swingline Facility and L/C Facility.
"Bank Facility Termination" shall mean indefeasible payment in full of
all sums owing under the Bank Facilities and each of the other Loan Documents,
the occurrence of the Stated Expiry Date or other termination of all
outstanding Letters of Credit, and the irrevocable termination of: (i) the
obligation of Lenders to advance Borrowings and Construction Disbursements
under the Credit Facility, (ii) the obligation of Swingline Lender to advance
Swingline Advances under the Swingline Facility, and (iii) the obligation of
L/C Issuer to issue Letters of Credit under the L/C Facility.
"Borrowing(s)" shall mean such amounts as Borrower may request from Agent
Bank from time to time to be advanced under the Credit Facility by Notice of
Borrowing in the manner provided in Section 2.03 and/or Construction
Disbursement Request in the manner provided in Section 2.09 or at the request
of Agent Bank pursuant to Section 2.08 or Section 2.16.
"Cash Collateral Account" shall mean the restricted depository savings
account to be established by Borrower or Agent Bank on behalf of Borrower with
L/C Issuer at its offices located at One East First Street, Reno, Nevada, or
at such other office located in the United States as may be designated from
time to time by L/C Issuer, for the purpose of depositing Cash collateral for
the aggregate L/C Exposure upon the occurrence of any Event of Default.
"Cash Collateral Pledge Agreement" shall mean the Pledge and Assignment
of Savings Account Agreement to be executed by Borrower in favor of L/C
Issuer as of the First Amendment Effective Date as the same may be amended or
modified from time to time under the terms of which all sums held from time to
time in the Cash Collateral Account are pledged in favor of L/C Issuer to
secure repayment of any funding required under any outstanding Letters of
Credit, a copy of the form of which Cash Collateral Pledge Agreement is marked
"Exhibit O", affixed to the First Amendment and by this reference incorporated
herein and made a part hereof.
"Commercial Letter(s) of Credit" shall mean a letter or letters of credit
issued by L/C Issuer pursuant to Section 2.16 of the Credit Agreement for the
purpose of assuring payment for goods, equipment or materials supplied to
Borrower.
"Credit Agreement" shall mean the Existing Credit Agreement as amended by
the First Amendment, together with all Schedules, Exhibits and other
attachments thereto, as it may be further amended, modified, extended, renewed
or restated from time to time.
"Existing Credit Agreement" shall have the meaning set forth in Recital
Paragraph A of the First Amendment.
"First Amendment" shall mean the First Amendment to Credit Agreement.
"First Amendment Effective Date" shall mean the date upon which each of
the conditions precedent set forth in Paragraph 11 of the First Amendment
shall have occurred to the satisfaction of Agent Bank.
"Funded Outstandings" shall mean the unpaid principal amount outstanding
on the Credit Facility as of any given date of determination for Borrowings
and Construction Disbursements made thereunder, not including Swingline
Outstandings or the amount of any L/C Exposure.
"Funding Date" shall mean each date upon which Lenders fund Borrowings or
Construction Disbursements requested by Borrower in accordance with the
provisions of Section 2.03 or 2.09 or at the request of Agent Bank pursuant to
Section 2.08 or 2.16.
"Indebtedness" of any Person includes all obliga-tions, contingent or
otherwise, which in accordance with GAAP should be classified upon such
Person's balance sheet as liabilities, but in any event including liabilities
for borrowed money or other liabilities secured by any lien existing on
property owned or acquired by such Person, Affiliate or a Subsidiary thereof
(whether or not the liability secured thereby shall have been assumed),
obligations which have been or under GAAP should be capitalized for financial
reporting purposes, the face amount of all Letters of Credit issued for the
account of such Person and all guaranties, endorse-ments, and other contingent
obligations with respect to Indebtedness of others, including, but not limited
to, any obligations to acquire any of such Indebtedness, to purchase, sell, or
furnish property or services primarily for the purpose of enabling such other
Person to make payment of any of such Indebtedness, or otherwise to assure the
owner of any of such Indebtedness against loss with respect thereto.
"L/C Agreement(s)" shall mean collective reference to the Application and
Agreement for Standby Letter of Credit and Application for Commercial Letter
of Credit and addendum(s) thereto executed by an Authorized Officer of
Borrower in favor of L/C Issuer in L/C Issuer's standard form, setting forth
the terms and conditions upon which L/C Issuer shall issue a Letter(s) of
Credit, as the same may be amended or modified from time to time.
"L/C Exposure" shall mean the aggregate amount which L/C Issuer may be
required to fund or is contingently liable for disbursement under all issued
and outstanding Letter(s) of Credit, which amount shall be determined by
subtracting from the aggregate of the Stated Amount of each such Letter(s) of
Credit (to the extent such Letter of Credit is not secured by Cash deposited
into the Cash Collateral Account and subject to the Cash Collateral Pledge
Agreement), the principal amount of all L/C Reimbursement Obligations which
have accrued and have been fully satisfied as of each date of determination.
"L/C Facility" shall mean the agreement of L/C Issuer to issue Letters of
Credit subject to the terms and conditions and up to the maximum amounts and
duration as set forth in Section 2.16 of the Credit Agreement.
"L/C Fee" shall have the meaning set forth in Section 2.10(c) of the
Credit Agreement.
"L/C Issuer" shall mean WFB in its capacity as the issuer of Letters of
Credit under the L/C Facility.
"L/C Reimbursement Obligation(s)" shall mean the obligation of Borrower
to reimburse L/C Issuer for amounts funded or disbursed under a Letter(s) of
Credit, together with accrued interest thereon.
"Letter(s) of Credit" shall mean collective reference to the Standby
Letter(s) of Credit and/or Commercial Letter(s) of Credit, as the case may be,
issued by L/C Issuer on behalf of Borrower, as the same may be extended,
renewed or reissued from time to time.
"Loan Documents" shall mean collective reference to the Credit Agreement,
the Revolving Credit Note, the Swingline Note, the Security Documentation,
Cash Collateral Pledge Agreement, the Environmental Certificate and all other
documents and instruments which may hereafter be executed and delivered by or
on behalf of Borrower or any other Person in connection with the Bank
Facilities for the benefit of Banks or Agent Bank on behalf of the Lenders,
the Swingline Lender and/or the L/C Issuer.
"Standby Letter(s) of Credit" shall mean a letter or letters of credit
issued by L/C Issuer pursuant to Section 2.16 of the Credit Agreement for the
purpose of securing payment or performance of a financial obligation of
Borrower, other than in connection with the payment for goods, equipment or
materials.
"Stated Amount" shall mean the maximum amount which L/C Issuer may be
required to disburse to the beneficiary(ies) of a Letter(s) of Credit under
the terms thereof.
"Stated Expiry Date(s)" shall mean the date set forth on the face of a
Letter(s) of Credit as the date when all obligations of L/C Issuer to advance
funds thereunder will terminate, as the same may be extended from time to
time.
2. Amendment of Section 2.03(a). As of the First Amendment Effective
Date, the last sentence of Section 2.03(a) of the Existing Credit Agreement
shall be and is hereby deleted and the following is substituted as a full
restatement thereof:
"Borrower shall be entitled to no more than one (1) Construction
Disbursement during each month during the Construction Period and no more than
three (3) Borrowings during each calendar month during the Preconstruction
Period and the Revolving Credit Period, exclusive of Borrowings or
Construction Disbursements made for the sole purpose of funding repayment of a
Swingline Advance or L/C Reimbursement Obligation."
3. Amendment of Section 2.04. As of the First Amendment Effective
Date, the first sentence of Section 2.04 of the Existing Credit Agreement
shall be and is hereby deleted and the following is substituted as a full
restatement thereof:
"During the Revolving Credit Period, Borrowings, other than
Borrowings made at the request of Agent Bank for the purpose of funding
repayment of Swingline Outstandings and/or L/C Reimbursement Obligations as
hereinafter provided, will only be made so long as Borrower is in full
compliance with each of the requirements and conditions precedent set forth in
Article III B of this Credit Agreement."
4. Addition to Section 2.10. As of the First Amendment Effective
Date, Section 2.10 of the Credit Agreement entitled "Fees" shall be and is
hereby amended by adding Subsection (c) thereto as follows:
"c. Concurrently with the issuance of each Letter of Credit,
Borrower shall pay an issuance fee to the L/C Issuer ("L/C Fee") in an amount
equal to the Stated Amount of each such Letter of Credit multiplied by one and
one-half percent (1.50%) per annum for the number of days elapsing from the
issuance date to the Stated Expiry Date of each such Letter of Credit, but in
no event shall the L/C Fee be less than Five Hundred Dollars ($500.00) for
each Letter of Credit. From each L/C Fee the greater of Five Hundred Dollars
($500.00) or one quarter of one percent (.25%) of the Stated Amount of each
such Letter of Credit, calculated on a per annum basis as provided
hereinabove, shall be retained by L/C Issuer for its own account and the
balance of each L/C Fee shall be promptly distributed by Agent Bank to Lenders
in proportion to their respective Syndication Interests in the Credit
Facility. All L/C Fees paid by Borrower are nonrefundable and shall be deemed
fully earned upon issuance of the applicable Letter of Credit."
5. Amendment of Section 2.12. As of the First Amendment Effective
Date, the first sentence of Section 2.12 of the Existing Credit Agreement
entitled "Net Payments" shall be and is hereby deleted and the following is
substituted as a full restatement thereof:
"All payments under the Credit Agreement, the Revolving Credit Note,
the Swingline Note and/or a L/C Reimbursement Obligation shall be made without
set-off, counterclaim, recoupment or defense of any kind and in such amounts
as may be necessary in order that all such payments, after deduction or
withholding for or on account of any future taxes, levies, imposts, duties or
other charges of whatsoever nature imposed by the United States or any
Governmental Authority, other than franchise taxes or any tax on or measured
by the gross receipts or overall net income of any Lender pursuant to the
income tax laws of the United States or any State, or the jurisdiction where
each Lender's principal office is located (collectively "Taxes"), shall not be
less than the amounts otherwise specified to be paid under the Credit
Agreement and the Notes."
6. Addition of Letter of Credit Provisions. As of the First
Amendment Effective Date, Section 2.16 entitled "Issuance of Letters of
Credit" shall be and is hereby added to the Credit Agreement as follows:
"Section 2.16. Issuance of Letters of Credit.
a. Any Authorized Officer of Borrower may from time to time
request that a Standby Letter of Credit or Commercial Letter of Credit be
issued by delivering to L/C Issuer (with a telecopy to the Agent Bank) on a
Banking Business Day, at least five (5) Banking Business Days prior to the
date of such proposed issuance, an L/C Agreement in L/C Issuer's then standard
form (consistent with the terms of the Credit Agreement), completed to the
satisfaction of L/C Issuer and such other certificates as the L/C Issuer may
reasonably request; provided, however, that no Letter of Credit shall be
issued (a) if any Default or Event of Default has occurred and remains
continuing, or (b) if after giving effect to the issuance thereof, the
aggregate Stated Amount of outstanding Letters of Credit would exceed Two
Million Five Hundred Thousand Dollars ($2,500,000.00), or (c) the Stated
Amount of the requested Letter of Credit exceeds the Maximum Availability.
Each Letter of Credit shall be issued by the L/C Issuer on the Banking
Business Day specified in the Borrower's application therefor. Each request
for a Letter of Credit and each Letter of Credit shall be subject to the
Uniform Customs and Practice for Documentary Credits, International Chamber of
Commerce Publication New 1994 Revision No. 500, or any successor publication
then in effect. Each Standby Letter of Credit will be issued for a term not
greater than one (1) year and shall not include any provision for automatic
renewal. Each Commercial Letter of Credit will be issued for a term not
greater than one hundred eighty (180) calendar days. In no event shall any
Letter of Credit have a Stated Expiry Date later than thirty (30) days prior
to the Maturity Date. Promptly after receipt of each request for the issuance
of a Letter of Credit and immediately prior to the issuance thereof, L/C
Issuer shall obtain telephonic verification from Agent Bank that the amount of
such request does not exceed the then Available Borrowings. The L/C Issuer
shall promptly notify the Agent Bank of the aggregate L/C Exposure of
outstanding Letters of Credit each time there is a change therein.
b. Upon presentation of a draft drawn under any Letter of
Credit, L/C Issuer shall promptly notify the Agent Bank and Borrower of the
amount under such draft and the date upon which such draft is to be funded.
On or before two (2) Banking Business Days following such notice (unless
Borrower has made other arrangements acceptable to the L/C Issuer to pay the
amount of such draft in full), Borrower shall advance to L/C Issuer the amount
of such draft from Borrower's available funds or shall request a Borrowing or
Construction Disbursement under the Credit Facility in an amount sufficient to
pay the amount of such draft in full. The Agent Bank, upon receipt of such
funds from the Lenders, shall automatically provide such amount to the L/C
Issuer for payment of the amount of such draft and the balance of the
Borrowing or Construction Disbursement, as the case may be, shall be deposited
in immediately available funds to the Designated Deposit Account. In the
event Borrower fails to advance to L/C Issuer the amount of such draft from
Borrower's available funds or to request a Borrowing within two (2) Banking
Business Days from receipt of the notice as specified above, on the third
(3rd) Banking Business Day following Agent Bank's receipt of such notice,
Agent Bank shall, without notice to or consent of the Borrower and without
regard to any other conditions precedent for the making of Borrowings or
Construction Disbursements under the Credit Facility, cause a Borrowing (or
Construction Disbursement if made during the Construction Period) to be made
and funded by the Lenders under the Credit Facility in the amount necessary to
pay the amount of such draft in full. Upon the occurrence of any Event of
Default, L/C Issuer shall, without notice or further authorization or consent
of Borrower whatsoever, be authorized to immediately cause the Cash Collateral
Account to be established and funded by Lenders with a Borrowing (or
Construction Disbursement if made during the Construction Period) advanced to
Agent Bank equal to the aggregate amount of the L/C Exposure then outstanding.
All amounts held by L/C Issuer in the Cash Collateral Account shall be held as
security for the repayment of any L/C Reimbursement Obligation thereafter
arising pursuant to the terms of the L/C Agreement(s) and the Cash Collateral
Pledge Agreement. Borrowings and Construction Disbursements advanced by
Lenders to pay drafts drawn upon or to secure repayment of the L/C Exposure
under Letters of Credit pursuant to this subsection shall: (i) constitute
Borrowings (or Construction Disbursements if made during the Construction
Period) under the Credit Facility, (ii) initially be Base Rate Loans and (iii)
be subject to all of the provisions of this Credit Agreement concerning
Borrowings (or Construction Disbursements if made during the Construction
Period) under the Credit Facility, except that such Borrowings or Construction
Disbursements shall be made upon demand of the Agent Bank as set forth above
rather than upon Notice of Borrowing or Construction Disbursement Request by
Borrower and shall be made, notwithstanding anything in this Credit Agreement
to the contrary, without regard to any other conditions precedent to the
making of Borrowings or Construction Disbursements under the Credit Agreement
and notwithstanding any Default or Event of Default thereunder. All amounts
paid by L/C Issuer on a draft drawn under any Letter of Credit which has not
been funded or concurrently reimbursed by Borrower or through a Borrowing or
Construction Disbursement as provided hereinabove, shall bear interest at the
Base Rate plus the Applicable Margin per annum until repaid or reimbursed to
L/C Issuer.
c. Each Lender's obligation to advance Borrowings or
Construction Disbursements in the proportionate amount of its Syndication
Interest in the Credit Facility of any unreimbursed amounts outstanding under
any Letter of Credit pursuant hereto is several, and not joint or joint and
several. The failure of any Lender to perform its obligation to advance a
Borrowing or Construction Disbursement in a proportionate amount of such
Lender's Syndication Interest of any unreimbursed amounts outstanding under a
Letter of Credit will not relieve any other Lender of its obligation hereunder
to advance such Borrowing or Construction Disbursement in the amount of such
other Lender's proportionate Syndication Interest of such amount, nor relieve
the Lender which has failed to fund of its obligation to fund hereunder. The
Borrower agrees to accept the Borrowings or Construction Disbursements for
payment of Letters of Credit as provided hereinabove, whether or not such
Borrowings or Construction Disbursements could have been made pursuant to the
terms of Article III B or C, Article IX or any other section of the Credit
Agreement.
d. Letters of Credit shall be used and issued for the
benefit of Borrower for the general corporate purposes of Borrower relating to
the Hotel/Casino Facility and/or the Expansion Project."
7. Amendment of Paragraph B of Article III Entitled "Conditions
Precedent to all Borrowings". As of the First Amendment Effective Date,
Paragraph B of Article III of the Existing Credit Agreement shall be and is
hereby deleted and the following is substituted as a full restatement thereof:
"B. Conditions Precedent to all Borrowings. The obligation of
each Lender and Agent Bank to make any Borrowing requested to be made on any
Funding Date, except Borrowings made upon the demand of Agent Bank for the
purpose of funding repayment of Swingline Outstandings and/or L/C
Reimbursement Obligations, is subject to the occurrence of each of the
following conditions precedent as of such Funding Date:"
8. Additions to Section 7.02. As of the First Amendment Effective
Date, Section 7.02 entitled "Default Remedies" shall be and is hereby amended
by adding thereto the additional Subsections (e), (f) and (g) as follows:
"(e) The Swingline Lender shall, upon receipt of written
notice of the occurrence of an Event of Default, terminate its obligation to
make any advances under the Swingline Facility and may declare all outstanding
unpaid Indebtedness hereunder and under the Swingline Note, together with all
accrued interest thereon immediately due and payable without presentation,
demand, protest or notice of any kind. This remedy will be deemed to have
been automatically exercised on the occurrence of any event set out in
Sections 7.01(g), (h) or (i).
(f) The L/C Issuer shall, upon receipt of written notice of
the occurrence of an Event of Default, terminate its obligation to issue
Letters of Credit and/or any Letter of Credit which may be terminated in
accordance with its terms. This remedy will be deemed to have been
automatically exercised on the occurrence of any event set out in Sections
7.01(g), (h) or (i).
(g) Agent Bank and/or L/C Issuer may, or at the direction
of the Requisite Lenders will, direct the Borrower to pay (and Borrower hereby
agrees upon receipt of such notice to pay) to the L/C Issuer an amount in Cash
equal to the then outstanding L/C Exposure, such Cash to be held by L/C Issuer
in the Cash Collateral Account as security for the repayment of all L/C
Reimbursement Obligations thereafter occurring."
9. Amendment of Section 10.04(b). As of the First Amendment
Effective Date, the penultimate sentence of Section 10.04(b) shall be and is
hereby deleted and the following is substituted as a full restatement thereof:
"No Nonusage Fee or L/C Fees shall accrue in favor of, or be payable
to, such Defaulting Lender from the date of any failure to fund Borrowings,
Construction Disbursements or to reimburse Agent Bank for any Liabilities and
Costs as herein provided until such failure has been cured, and Agent Bank
shall be entitled to (A) withhold or setoff, and to apply to the payment of
the defaulted amount and any related interest, any amounts to be paid to such
Defaulting Lender under the Credit Agreement, and (B) bring an action or suit
against such Defaulting Lender in a court of competent jurisdiction to recover
the defaulted amount and any related interest."
10. Amendment of Section 11.01. As of the First Amendment Effective
Date, Section 11.01 entitled "Amendments and Waivers" shall be and is hereby
amended by inserting at the end thereof the following:
"No modification of Section 2.08 or the Swingline Note shall be made
without the consent of the Swingline Lender. No modification of Section 2.16
shall be made without the consent of the L/C Issuer."
11. Conditions Precedent to First Amendment Effective Date. The
occurrence of the First Amendment Effective Date is subject to Agent Bank
having received the following documents and payments, in each case in a form
and substance reasonably satisfactory to Agent Bank, and the occurrence of
each other condition precedent set forth below on or before January 30, 1998:
a. Due execution by Borrower, Guarantors and Banks of seven (7)
duplicate originals of this First Amendment;
b. Corporate resolutions or other evidence of requisite
authority of Borrower and Guarantors, as applicable, to execute the First
Amendment;
c. Due execution by Borrower of an original Cash Collateral
Pledge Agreement;
d. Reimbursement to Agent Bank by Borrower for all reasonable
fees and out-of-pocket expenses incurred by Agent Bank in connection with the
First Amendment, including, but not limited to, reasonable attorneys' fees of
Henderson & Nelson and all other like expenses remaining unpaid as of the
First Amendment Effective Date; and
e. Such other documents, instruments or conditions as may be
reasonably required by Lenders.
12. Representations of Borrower. Borrower hereby represents to the
Banks that:
a. the representations and warranties contained in Article IV of
the Existing Credit Agreement and contained in each of the other Loan
Documents (other than representations and warranties which expressly speak
only as of a different date, which shall be true and correct in all material
respects as of such date) are true and correct on and as of the First
Amendment Effective Date in all material respects as though such
representations and warranties had been made on and as of the First Amendment
Effective Date, except to the extent that such representations and warranties
are not true and correct as a result of a change which is permitted by the
Credit Agreement or by any other Loan Document or which has been otherwise
consented to by Agent Bank;
b. Since the date of the most recent financial statements
referred to in Section 5.08 of the Existing Credit Agreement, no Material
Adverse Change has occurred and no event or circumstance which could
reasonably be expected to result in a Material Adverse Change or Material
Adverse Effect has occurred;
c. no event has occurred and is continuing which constitutes a
Default or Event of Default under the terms of the Credit Agreement; and
d. The execution, delivery and performance of this First
Amendment has been duly authorized by all necessary action of Borrower and
Guarantors and this First Amendment constitutes a valid, binding and
enforceable obligation of Borrower and Guarantors.
13. Affirmation and Ratification of Continuing Guaranty. Guarantors
join in the execution of this First Amendment for the purpose of ratifying and
affirming their respective obligations under the Continuing Guaranty for the
guaranty of the full and prompt payment and performance of all of Borrower's
indebtedness and obligations under the Bank Facilities and each of the Loan
Documents, as modified and amended under this First Amendment.
14. Incorporation by Reference. This First Amendment shall be and is
hereby incorporated in and forms a part of the Existing Credit Agreement.
15. Governing Law. This First Amendment to Credit Agreement shall be
governed by the internal laws of the State of Nevada without reference to
conflicts of laws principles.
16. Counterparts. This First Amendment may be executed in any number
of separate counterparts with the same effect as if the signatures hereto and
hereby were upon the same instrument. All such counterparts shall together
constitute one and the same document.
17. Continuance of Terms and Provisions. All of the terms and
provisions of the Credit Agreement shall remain unchanged except as
specifically modified herein.
18. Additional Exhibit Attached. The following additional Exhibit is
attached hereto and incorporated herein and made a part of the Credit
Agreement as follows:
Exhibit O - Cash Collateral Pledge Agreement - Form
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the day and year first above written.
BORROWER:
GOLDEN ROAD MOTOR INN, INC.,
a Nevada corporation
By /s/ Ben Farahi
----------------------
Ben Farahi,
Secretary
Address:
1175 West Moana Lane
Suite 200
Reno, NV 89509
Telephone: (702) 825-3355
Facsimile: (702) 825-7705
<PAGE>
GUARANTORS:
MCRI:
MONARCH CASINO & RESORT, INC.,
a Nevada corporation
By /s/ Ben Farahi
----------------------
Ben Farahi,
Secretary
Address:
1175 West Moana Lane
Suite 200
Reno, NV 89509
Telephone: (702) 825-3355
Facsimile: (702) 825-7705
/s/ John Farahi
------------------------
John Farahi
/s/ Bahram Farahi
------------------------
Bahram Farahi
/s/ Behrouz Farahi
------------------------
Behrouz Farahi
<PAGE>
BANKS:
WELLS FARGO BANK,
National Association,
Agent Bank, Lender,
Swingline Lender and
L/C Issuer
By /s/ Rob Medeiros
----------------------
Rob Medeiros,
Vice President
Address:
One East First Street
Reno, NV 89501
Telephone: (702) 334-5747
Facsimile: (702) 334-5637
<PAGE>
PLEDGE AND ASSIGNMENT OF
SAVINGS ACCOUNT AGREEMENT
THIS PLEDGE AND ASSIGNMENT OF SAVINGS ACCOUNT AGREEMENT ("Pledge
Agreement") is made and entered into as of this 9th day of January, 1998, by
and between, GOLDEN ROAD MOTOR INN, INC., a Nevada corporation, Debtor and
Assignor, hereinafter referred to as "Borrower", party of the first part, and
WELLS FARGO BANK, National Association, hereinafter referred to as "L/C
Issuer" party of the second part.
R_E_C_I_T_A_L_S:
WHEREAS:
A. In this Pledge Agreement all capitalized words and terms not
otherwise specifically herein defined shall have the respective meanings and
be construed herein as provided in or incorporated into Section 1.01 entitled
"Definitions" of the Credit Agreement (as may be amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), dated as of
December 29, 1997, as amended by First Amendment to Credit Agreement executed
concurrently herewith by and among Borrower, the Guarantors therein named, L/C
Issuer and the Banks therein described, and any reference to a provision of
the Credit Agreement shall be deemed to incorporate that provision as a part
hereof in the same manner and with the same effect as if the same were fully
set forth herein.
B. Pursuant to the Credit Agreement, L/C Issuer has agreed, subject
to the terms and conditions specified therein, to issue Letters of Credit on
behalf of Borrower up to the maximum aggregate Stated Amount of Two Million
Five Hundred Thousand Dollars ($2,500,000.00) at any time outstanding. As
security for the prompt payment of each and every L/C Reimbursement Obligation
arising after the occurrence of an Event of Default, L/C Issuer may establish
a restricted depository savings account for the account of Borrower (the "Cash
Collateral Account"). It is a condition of the Credit Agreement and the
issuance of Letters of Credit that all Borrowings, Construction Disbursements,
Cash, securities and other property of Borrower which may hereafter be
deposited into the Cash Collateral Account be presently and irrevocably
pledged and assigned to L/C Issuer to be held by L/C Issuer in the manner and
for the purposes set forth in the Credit Agreement and L/C Agreements.
NOW, THEREFORE, in consideration of the Letters of Credit to be issued by
L/C Issuer for the benefit of Borrower, the receipt and sufficiency of which
consideration is hereby acknowledged, the Borrower hereby pledges and assigns
to L/C Issuer all of its right, title and interest in and to the Cash
Collateral Account and any Borrowings, Construction Disbursements, Cash,
securities and other property of Borrower hereafter held or deposited therein,
as follows:
1. Borrower shall and does hereby agree that L/C Issuer shall have
the right, on and after the occurrence of an Event of Default, to establish
and maintain the Cash Collateral Account for the purpose set forth herein and
in the Credit Agreement. The Borrower by these presents does hereby presently
and irrevocably grant, bargain, sell, assign, transfer and set over unto L/C
Issuer, its successors and assigns, all of Borrower's right, title and
interest in and to the Cash Collateral Account and any Borrowings,
EXHIBIT O<PAGE>
Construction Disbursements, Cash, securities and other property of Borrower
hereafter held or deposited therein.
2. In addition to all rights of setoff for repayment of any L/C
Reimbursement Obligation against any Borrowings or Construction Disbursements
held in the Cash Collateral Account, monies, securities or other property
given to L/C Issuer by law, L/C Issuer shall have a right of setoff for the
repayment of any L/C Reimbursement Obligation against any Borrowings,
Construction Disbursements, monies, securities and other property of Borrower
now or hereafter held or deposited in the Cash Collateral Account or on
deposit with L/C Issuer whether held in a general or special account or
deposit, or for safekeeping or otherwise; and every such right of setoff for
the repayment of any L/C Reimbursement Obligation may be exercised without
demand upon or notice to Borrower. No right of setoff shall be deemed to have
been waived by any act or conduct on the part of L/C Issuer or by any neglect
to exercise such right of setoff, or by any delay in doing so; and every right
of setoff shall continue in full force and effect until specifically waived or
released by an instrument in writing executed by L/C Issuer.
3. No delay or failure by L/C Issuer, Agent Bank or any of the Banks
to exercise any right or remedy against the Borrower under the Loan Documents
shall be construed as a waiver of such right or remedy. All remedies of L/C
Issuer, Agent Bank and Banks against the Borrower under the Loan Documents are
cumulative.
4. This Pledge Agreement may not be amended, changed or terminated
except by an agreement in writing signed by the party or parties against whom
enforcement of the change is sought. This Pledge Agreement shall be governed
by and construed in accordance with the laws of the State of Nevada and if any
action is taken to enforce the terms of this Pledge Agreement such action
shall be commenced and maintained within the State of Nevada.
5. If and to the extent that the amounts held from time to time in
the Cash Collateral Account (including any interest) exceed the Stated Amount
of all undrawn Letters of Credit and all unpaid L/C Reimbursement Obligations,
L/C Issuer shall, on or before ten (10) days following receipt of written
request by Borrower, apply such excess in the order of priority set forth in
Section 7.03 of the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have executed the foregoing
instrument on the day and year first above written.
BORROWER: L/C ISSUER:
GOLDEN ROAD MOTOR INN, INC., WELLS FARGO BANK,
a Nevada corporation National Association,
Agent Bank
By By
-------------------- --------------------
Ben Farahi, Rob Medeiros
Secretary Vice President
<PAGE>
STATE OF NEVADA )
) ss
COUNTY OF WASHOE )
This instrument was acknowledged before me on January ___, 1998, by BEN
FARAHI as Secretary of/for GOLDEN ROAD MOTOR INN, INC.
____________________________
Notary Public
STATE OF NEVADA )
) ss
COUNTY OF WASHOE )
This instrument was acknowledged before me on January ___, 1998, by ROB
MEDEIROS as Vice President of/for WELLS FARGO BANK.
____________________________
Notary Public
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND THE ACCOMPANYING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,527,839
<SECURITIES> 0
<RECEIVABLES> 988,145
<ALLOWANCES> 150,725
<INVENTORY> 570,367
<CURRENT-ASSETS> 9,323,802
<PP&E> 74,639,827
<DEPRECIATION> 17,868,111
<TOTAL-ASSETS> 67,828,087
<CURRENT-LIABILITIES> 9,979,893
<BONDS> 32,907,530
0
0
<COMMON> 95,363
<OTHER-SE> 22,598,301
<TOTAL-LIABILITY-AND-EQUITY> 67,828,087
<SALES> 0
<TOTAL-REVENUES> 59,114,766
<CGS> 0
<TOTAL-COSTS> 29,866,442
<OTHER-EXPENSES> 4,308,991
<LOSS-PROVISION> 244,730
<INTEREST-EXPENSE> 3,253,067
<INCOME-PRETAX> 5,722,078
<INCOME-TAX> 2,011,930
<INCOME-CONTINUING> 3,710,148
<DISCONTINUED> 0
<EXTRAORDINARY> 184,524
<CHANGES> 0
<NET-INCOME> 3,525,624
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
