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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ________ to _________
Commission file number: 0-26518
FITZGERALDS GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0329170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 FREMONT STREET, LAS VEGAS NV 89101
(Address of principal executive offices)(Zip Code)
(702) 388-2400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Cumulative Redeemable Preferred Stock, $.01 par value
Common Stock, $.01 par value
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 than 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. [X]
As of March 15, 2000, the number of outstanding shares of the Registrant's
Common Stock was 5,508,082. As of March 15, 2000, approximately 1,395,048 shares
of the Registrant's Common Stock was held by non-affiliates of the Registrant.
The Registrant's Common Stock is not listed or traded on any exchange. For
purposes of determining the number of shares held by non-affiliates, all
directors, officers, employees and five percent or greater owners of the
Registrant are deemed to be affiliates. Such determination should not be deemed
to be an admission that such persons are, in fact, affiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit Index located on Page 50
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FITZGERALDS GAMING CORPORATION
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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ITEM PAGE
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PART I..........................................................................................1
ITEM 1. BUSINESS............................................................................1
General.............................................................................1
Operating Strategy..................................................................1
Operating Properties................................................................2
Other Operations....................................................................5
Competition.........................................................................5
Employees...........................................................................8
Trade Names, Trademarks and Service Marks...........................................8
Governmental Regulation.............................................................8
ITEM 2. PROPERTIES.........................................................................19
ITEM 3. LEGAL PROCEEDINGS..................................................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................20
PART II........................................................................................21
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..............21
ITEM 6. SELECTED FINANCIAL DATA............................................................22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.........................................................................24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........................34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.........................................................................35
PART III.......................................................................................36
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF REGISTRANT..............36
ITEM 11. EXECUTIVE COMPENSATION.............................................................40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....................45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................................46
PART IV........................................................................................47
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....................47
SIGNATURES.....................................................................................48
POWER OF ATTORNEY..............................................................................49
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PART I
ITEM 1. BUSINESS
GENERAL
Fitzgeralds Gaming Corporation (the "Company") is a diversified
multi-jurisdictional gaming holding company that owns and operates four
Fitzgeralds-brand casino-hotels, located in downtown Las Vegas, Nevada
("Fitzgeralds Las Vegas"), Reno, Nevada ("Fitzgeralds Reno"), Tunica,
Mississippi ("Fitzgeralds Tunica"), and Black Hawk, Colorado ("Fitzgeralds Black
Hawk"). The Company markets its properties primarily to middle-market customers,
emphasizing its Fitzgeralds brand and its "Fitzgeralds Irish Luck" theme. As of
December 31, 1999, the Company operated a total of 3,741 slot machines, 93 table
games and approximately 1,500 hotel rooms.
The Company currently conducts substantially all of its business through wholly
owned subsidiaries: Fitzgeralds Reno, Inc. ("FRI"); Fitzgeralds South, Inc.
("FSI"); and Fitzgeralds Incorporated ("FI"). FRI directly owns and operates
Fitzgeralds Reno; FSI owns and operates Fitzgeralds Las Vegas and Fitzgeralds
Tunica through wholly owned subsidiaries; and FI owns and operates Fitzgeralds
Black Hawk through wholly-owned subsidiaries, including 101 Main Street Limited
Liability Company ("101 Main").
Unless the context otherwise requires, the "Company" refers to Fitzgeralds
Gaming Corporation and its subsidiaries. The Company was incorporated in Nevada
in 1994 to serve as a holding company. The executive office of the Company is
located at 301 Fremont Street, Las Vegas, Nevada 89101; telephone (702)
388-2400; facsimile (702) 382-5562.
OPERATING STRATEGY
The Company's ongoing operating strategy is to increase profitability by
utilizing its national gaming brand and fully integrated player tracking system
(the "Fitzgeralds Card") to further penetrate the middle-market customer base
and to capitalize on the competitive strengths of its four Fitzgeralds-brand
properties. The Company's operating strategy is characterized by several
principal elements including:
Development of National Gaming Brand
The Company has developed a national gaming brand by using a consistent Irish
Luck theme throughout the casinos, hotels, restaurants and bars at all of its
properties. The Irish Luck theme incorporates various aspects of Irish folklore,
such as leprechauns, horseshoes, four-leaf clovers, the Blarney Stone and a pot
of gold at the end of a rainbow, as well as Irish music. The Company believes
that its theme creates an exciting and comfortable environment together with a
distinctive brand identity for customers. The Irish Luck theme allows the
Company to capitalize on its belief that every casino guest wants to feel lucky
and, by associating luck with the Fitzgeralds name, "Fitzgeralds Irish Luck"
becomes unique.
Middle Market Customer Focus
The Company provides a high-quality casino entertainment experience at an
affordable price to attract the middle market guests which it believes
constitute the largest segment of potential gaming customers whom the Company
can then identify, qualify and target for direct marketing activities. The
importance of friendly and efficient service is stressed continuously through
extensive employee training. The
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Company's approach to business includes personal contact with trained hosts,
moderately priced food, beverages and lodging, and the use of the Fitzgeralds
Card as part of a frequent player recognition program. The Company believes that
such an approach to business provides a comfortable, "Lucky" environment
designed to promote customer loyalty, a high rate of repeat business and the
basis for the further development of its national brand.
Emphasis on Slot Play
The Company emphasizes slot machine play, which it believes to be the fastest
growing and most profitable segment of the casino entertainment business. The
increasing popularity of slot machines is due, in part, to the continuing rapid
technological development that is resulting in the replacement of mechanical
devices with advanced interactive electronic games. These newer games offer
greater variety, higher pay outs and longer periods of play for the casino
entertainment dollar relative to simple mechanical devices. Subject to the
availability of financing, as to which there can be no assurance, the Company
intends to continue investing in state-of-the-art machines and related equipment
and systems, such as bill acceptors and player tracking, and continue replacing
older models with the most current product offerings in an effort to maximize
revenue.
OPERATING PROPERTIES
The Company currently owns and operates two Nevada properties (Fitzgeralds Las
Vegas and Fitzgeralds Reno), one Mississippi property (Fitzgeralds Tunica) and
one Colorado property (Fitzgeralds Black Hawk) hereinafter referred to
collectively as (the "Operating Properties").
Fitzgeralds Las Vegas
Fitzgeralds Las Vegas is located on the city block bounded by Fremont, Carson,
Third and Fourth Streets at the Fremont Street Experience in downtown Las Vegas.
The property is accessible via Interstate 15 and US 95 and markets to Las Vegas
tourists, numbering approximately 33.8 million in 1999 and, to a lesser extent,
to the approximately 1.3 million residents of the Las Vegas valley. The 34-story
building underwent a refurbishment of the hotel and remodeling expansion of the
casino, which was substantially completed in December 1996 at a cost of
approximately $19.4 million. At December 31, 1999, the facility contained a
638-room hotel (including 14 suites) and a casino offering 1,050 slot machines,
25 table games, a 55-seat keno lounge and a sports book (operated by a third
party). Fitzgeralds Las Vegas amenities include five restaurants, three bars, an
ice cream parlor, a special events center, a gift shop and an entertainment
area. Fitzgeralds Las Vegas includes a 327-space parking structure and an
adjacent surface parking area with an additional 30 spaces.
In September 1995, the Company entered into a 13-year franchise license
agreement with Holiday Hospitality Franchising, Inc., to operate the Fitzgeralds
Las Vegas hotel as a Holiday Inn commencing in July 1996. Subject to the terms
and conditions of the agreement, the Fitzgeralds Las Vegas hotel has been
included in the Holiday Inn Worldwide Reservation System and has use of Holiday
Inn copyrights, trademarks and similar proprietary rights used by other Holiday
Inn licensees. The Company is the exclusive licensee of Holiday Inn-branded
hotels within the defined territory encompassing downtown Las Vegas. The Company
pays a monthly royalty based on a percentage of Fitzgeralds Las Vegas revenues
from room rentals after deduction of sales and room taxes and a portion of
complimentary rooms. The Company also pays marketing, reservation and similar
fees based on such revenues or the number of rooms.
In December 1999, the Company entered into a Chilled Water Service Agreement
(the "Agreement") with e.three Custom Energy Solutions, LLC ("E-Three"). E-Three
is constructing a facility on land
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leased from Fitzgeralds Las Vegas for producing and distributing chilled water
to various customers in downtown Las Vegas. The Agreement will become effective
upon completion of the facility in the summer of 2000.
Las Vegas continues to grow rapidly and is one of the world's largest tourist
destinations. In order to more fully participate in that growth, eight downtown
gaming companies, including the Company, opened the Fremont Street Experience in
November 1995 to revitalize the central core of the downtown Las Vegas gaming
district. The Fremont Street Experience converted five blocks of Fremont Street
into a "must see" attraction that restores and enhances the intimacy and visual
excitement of downtown Las Vegas. The Fremont Street Experience includes a
pedestrian mall, shops, restaurants and entertainment beneath an approximately
1,500-foot long, 90-foot high Space Frame, which incorporates approximately 2.1
million lights to offer a number of "Sky Parade Light Shows," as well as a
number of special events and festivals. In addition, there have been extensive
sidewalk and street improvements, and the construction of an approximately
1,400-space parking structure. In 1999, construction was started on a retail
shopping facility located on an adjacent lot; however, one of the major tenants
has filed for bankruptcy and construction has been suspended until a new tenant
can be found. With its appeal to adults, together with its location on Fremont
Street, the Fremont Street Experience is distinguishable from other Las Vegas
attractions and draws both locals and tourists who might not otherwise visit the
downtown area.
Fitzgeralds Tunica
Fitzgeralds Tunica is located in north Tunica County, Mississippi, approximately
30 miles from downtown Memphis, Tennessee. Fitzgeralds Tunica is designed as an
Irish castle and is the focal point of a heavily wooded, 121-acre Company-owned
site situated by the Mississippi River. The Fitzgeralds Tunica casino opened in
June 1994 at a cost of approximately $46.0 million. The facility was expanded to
include a hotel and related amenities. These improvements were substantially
completed in October 1996 at a cost of approximately $34.0 million. At December
31, 1999, the facility included a 507-room hotel, a special events center, an
indoor swimming pool and a casino offering 1,215 slot machines and 34 table
games, two bars, four restaurants and a gift shop.
The Company has developed Fitzgeralds Tunica into a full-service entertainment
destination and has been able to increase and diversify its customer base by
attracting, in addition to its local customers, independent travelers,
tour-and-travel customers and guests for special events and conventions. In
October 1998, a new inter-casino connector road was completed which has
increased accessibility to Fitzgeralds Tunica. In February 2000, the Company
began construction on a 405-space covered parking garage. The project is
scheduled for completion in June 2000 at a cost of approximately $5.2 million.
Fitzgeralds Reno
Fitzgeralds Reno is located in downtown Reno on the corner of Virginia Street
and Commercial Row next to the landmark Reno Arch. In 1997, Fitzgeralds Reno
renovated its front entrance and continues to renovate and upgrade its hotel
rooms. At December 31, 1999, the facility consisted of a 16-story, 351-room
hotel and a casino offering 890 slot machines, 28 table games, a 110-seat keno
lounge and a sports book (operated by a third party). Amenities include three
restaurants, three bars, an entertainment lounge and a gift shop. Historically,
Fitzgeralds Reno leased parking spaces in an adjacent 834-space parking garage
on an annual basis with no certainty that the lease would be renewed from year
to year. Since available parking in downtown Reno is limited, losing access to
these spaces would substantially impair the performance of Fitzgeralds Reno
unless an alternative site became available. Therefore, on February 1, 2000,
Fitzgeralds Reno acquired ownership of the garage for $3.0 million as well as an
assignment of
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the underlying ground lease on which the garage is located. The original term of
the ground lease expires on February 28, 2013, and may be extended for one
additional period of ten years.
The Fitzgeralds marketing strategy is to capitalize on the high level of
pedestrian traffic surrounding Fitzgeralds Reno, which is located in the heart
of downtown Reno adjacent to the landmark Reno Arch. Fitzgeralds Reno maintains
active sidewalk marketing programs aimed at attracting pedestrians into the
casino. To further increase Fitzgeralds Reno's appeal and convenience, the
Company constructed an enclosed temperature-controlled, themed pedestrian bridge
(the "Rainbow Skyway"), which connects the sidewalk located across the railroad
tracks near the entrance to the Eldorado Hotel and Casino to the upgraded second
floor casino of Fitzgeralds Reno. Fitzgeralds Reno guests entering via the
Rainbow Skyway step into a themed "Lucky Forest" and are greeted at the
Fitzgeralds Card Center. The second floor of the casino has been further
upgraded with the addition of new slot machines, specialty table gaming products
and a renovated restaurant in anticipation of increased traffic flow from the
Rainbow Skyway. The cost of the Rainbow Skyway was approximately $2.3 million,
of which $1.0 million was funded by the Union Pacific Railroad with the balance
being borne by the Company. The Rainbow Skyway was opened to the public on
February 7, 1998. The Rainbow Skyway was constructed over air rights that were
acquired by the Company from the Southern Pacific Railroad. Such air rights may
be subject to a claim of ownership (or claim of an ownership interest) by the
United States of America. Although the Company believes it is unlikely that the
United States of America would, in a manner adverse to the Company, exercise any
right, title, or interest it may hold or obtain in the air rights parcel, no
assurance can be made that such an exercise will not occur.
The Company believes that the renovation of the front entrance and hotel rooms
has increased visibility and improved operations. In addition, the Company
continues to upgrade its slot and specialty table game products in conjunction
with its fully integrated player tracking system. With regard to the impact of
the Reno Transportation Rail Access Corridor (ReTRAC) Project, see Item 3 -
Legal Proceedings.
Fitzgeralds Black Hawk
Fitzgeralds Black Hawk is located adjacent to the entrance to the downtown
gaming area of Black Hawk, Colorado, next to the Gilpin Casino and across the
street from Bullwhackers. Fitzgeralds Black Hawk consists of a two-story
building, the interior of which features high ceilings and other architectural
details which sets it apart visually from many other Black Hawk casinos. At
December 31, 1999, the casino offered 586 slot machines, 6 table games, a
restaurant, a bar and an entertainment area. The second floor is mostly
unfinished and is being partially used for offices and storage. Fitzgeralds
Black Hawk also has a 400-space, all valet parking garage, adjacent to the
casino.
The Company has experienced significant delays in obtaining zoning and other
permits necessary to undertake the currently planned expansion of the
Fitzgeralds Black Hawk property. As a result, the Company is substantially
revising the expansion plans in an effort to facilitate the process of obtaining
the necessary zoning permits, licenses and construction approvals. Revised plans
will include expanding the existing casino and related administration areas. The
expansion will utilize the adjoining empty lot and two existing office buildings
owned by the Company. Construction costs for the casino expansion and additional
gaming equipment will be adjusted to reflect the design modifications. However,
no assurance can be given that the requisite permits, licenses and construction
approvals will be received.
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OTHER OPERATIONS
Cliff Castle Casino
Cliff Castle Casino ("Cliff Castle") is a gaming facility owned and operated by
the Yavapai-Apache Nation (the "Nation") located in Camp Verde, Arizona. In May
1995, Fitzgeralds Arizona Management, Inc. ("FAMI"), an 85%-owned subsidiary of
the Company, entered into an exclusive agreement (the "Cliff Castle Management
Agreement") to manage Cliff Castle for five years. In June 1998, FAMI entered
into a termination agreement with the Nation, wherein the parties mutually
agreed to terminate the Cliff Castle Management Agreement.
Turning Stone Casino
In consideration of work performed by the Company pursuant to an agreement with
the Oneida Indian Nation to manage Turning Stone Casino ("Turning Stone")
located in Verona, New York, the Company received monthly payments of $133,333
through September 1998.
Certain Hotel Operating Information
The following table on Fitzgeralds hotel operations is provided as additional
supplemental information:
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DECEMBER 31, 1999
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ROOM
NUMBER AVERAGE AVERAGE REVENUE/
YEAR DATE OF RENOVATION RENOVATION OCCUPANCY ROOM AVAILABLE
HOTEL BUILT ACQUIRED ROOMS YEAR(S) AMOUNT RATE RATE ROOMS
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Las Vegas 1979 Nov. 1987 638 1996-1999 $ 4,146,200 92.1% $ 39.03 $ 36.37
Tunica 1996 N/A 507 2000-2001 $ 1,255,000 92.1% $ 46.38 $ 42.71
Reno 1978 Dec. 1986 351 1998-2004 $ 2,000,000 89.8% $ 46.30 $ 42.38
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COMPETITION
There is intense competition among companies in the gaming industry, many of
which have greater name recognition and financial and marketing resources than
the Company. In addition to the regional competitors described below, the
Company competes with gaming facilities nationwide, including land-based casinos
in Nevada and Atlantic City, not only for customers but also for employees and
potential future gaming sites. The Company also competes, to some extent, with
other forms of gaming on both a local and a national level, including
state-sponsored lotteries, on and off-track wagering and card parlors. The
recent and continuing expansion of legalized casino gaming to new jurisdictions
throughout the United States has affected competitive conditions faced by the
Company and will continue to do so in the future.
Nevada Operations
Fitzgeralds Las Vegas competes primarily with other downtown casino properties,
casino properties located near the Nevada/California state line and certain
facilities located on the Las Vegas Strip. The Company also believes that it
competes, to a lesser extent, with the local neighborhood casinos and
casino-hotels on the Boulder Strip and in the Laughlin market.
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The Las Vegas market is highly competitive. The Company has experienced
competition from new and existing Las Vegas casino-hotels which have sought to
attract some of the same "middle-market" players, and tour and travel visitors
targeted by Fitzgeralds Las Vegas. The Company anticipates continuing increased
competition for these customers. Moreover, on the Las Vegas Strip, Bellagio with
3,000 rooms opened in 1998; Mandalay Bay, Venetian and Paris with approximately
9,200 rooms all opened in 1999; and one additional mega resort with
approximately 2,600 rooms is scheduled to open in the summer of 2000. Two other
properties located off the Las Vegas Strip, the Las Vegas Regent and Lake Las
Vegas, also opened in 1999. In addition, casinos catering to local residents
also compete for business from the Company's targeted segment. These new
properties, as well as any other major additions, expansions or enhancements to
existing properties by the Company's competitors, could have a material adverse
effect on the Company's business.
Fitzgeralds Reno encounters strong competition from other hotel and casino
facilities in the Reno area as well as competition from gaming establishments in
other areas of Nevada and, to a lesser extent, other jurisdictions in the United
States where gaming has been legalized (including Indian gaming establishments).
Fitzgeralds Reno competes with other properties principally on the basis of
location and direct marketing. Additional competition may come from the
expansion or construction of other hotel and casino properties or the upgrading
of other existing facilities in the Reno area. There can be no assurance that
such growth will not adversely affect the pricing policies at Fitzgeralds Reno,
including the room pricing policies.
In addition, management believes that the introduction of casino gaming or the
expansion of presently conducted gaming operations, particularly at Indian
casinos in areas in or close to Nevada, such as California, Oregon, Washington,
Arizona and western Canada, could have an adverse effect on operations at the
Company's Las Vegas and Reno properties and, depending on the nature, location
and extent of such operations, such effect could be material.
In November 1998, California voters approved Proposition 5, otherwise known as
the Indian Self-Reliance Initiative, which legalized Nevada-style games for
tribal casinos, subject to specified limitations. Provisions included that
Indian casinos: (i) may be located only on Tribal lands; (ii) may only continue
to offer games in effect prior to the adoption of Proposition 5; and (iii) may
only offer lottery-style gaming in which prizes come from a pool of wagered
money rather than the casino. Specifically, the types of casino gaming permitted
under Proposition 5 would be player-pool card games, pari-mutual betting on
horse racing and video gaming machines with lottery style prize structures. Slot
machines operated by a handle that take and dispense coins or games such as
craps, roulette and baccarat would not be permitted.
However, in August 1999, the California Supreme Court ruled that Proposition 5
was unconstitutional because the state constitution prohibits Las Vegas style
gambling. Governor Gray Davis immediately entered into negotiations with gaming
tribes that resulted in a two-part agreement: (i) to put a constitutional
amendment ("Proposition 1A") on the March 2000 primary ballot and (ii) to sign
tribal-state gaming Compacts that would go into effect if Proposition 1A was
approved by the voters.
On March 7, 2000, California voters approved Proposition 1A. The maximum number
of slots permitted for any one tribe is 2,000, with an estimated 40,000
projected statewide. Three years after any Compact is approved, the tribe may
renegotiate to request an increase in the number of its slot machines. Tribes
also will immediately have the right to operate "any banking or percentage card
game"; however, craps and roulette will be not available for at least a year.
The legal gambling age will be 18, while the drinking age will remain at 21.
Players may not sue a tribe if there is a dispute over a bet; however, tribes
did agree to waive their sovereignty concerning unions and allow workers to
unionize. Tribes are not required to waive their immunity from
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suits for patron injuries, although they will be required to carry at least $5.0
million in public liability insurance for patron claims.
The Company's ability to maintain its competitive position in Las Vegas and Reno
will require the expenditure of sufficient funds for such items as updating slot
machines to reflect changing technology, periodic refurbishing of rooms and
public service areas, and replacing obsolete equipment on an ongoing basis.
Because the Company is highly leveraged, lacks financial flexibility and is in
default on its senior secured debt, there can be no assurance that the Company
will generate sufficient funds internally or obtain sufficient additional
financing to fund such expenditures.
Mississippi Operations
Fitzgeralds Tunica competes primarily with nine other dockside gaming facilities
in the Tunica area, five of which are approximately one mile north of
Fitzgeralds Tunica and four of which are approximately four miles south of
Fitzgeralds Tunica. The latter group includes a gaming facility originally
operated by Harrah's and closed in 1997. The facility was recently acquired by
the Isle of Capri and re-opened in the summer of 1999.
In addition to the substantial competition in the immediate vicinity of
Fitzgeralds Tunica, the Company competes with other Mississippi operations and
may have to compete with surrounding areas for customers in Memphis, Tennessee
and Little Rock, Arkansas. There can be no assurance that the State of Tennessee
or the State of Arkansas will not legalize casino gaming in the future.
To maintain and enhance its competitive position, it will be necessary to incur
capital expenditures at Fitzgeralds Tunica from time to time to add to the
appeal of the property. Because the Company is highly leveraged, lacks financial
flexibility, is in default on its senior secured debt and may not generate
sufficient funds internally, there can be no assurance that the Company will be
able to fund any such expenditures.
Colorado Operations
Competition has intensified in Black Hawk with the opening of the Lodge and the
Isle of Capri in 1998. Two additional properties opened in the first quarter of
2000. All of these properties are larger than Fitzgeralds Black Hawk, are
operated by companies with greater resources and are located at the eastern end
(closest to Denver) of Black Hawk at the first major intersection off State
Highway 119, which may give them a competitive advantage over Fitzgeralds Black
Hawk since they have the initial opportunity to capture visitors to Black Hawk
and Central City from the Denver metropolitan area. The increased competition
may have a material adverse effect on Fitzgeralds Black Hawk operations and may
continue to do so; moreover, the concentration of these properties on the south
end of the street has shifted the center of gaming activity away from
Fitzgeralds Black Hawk, which is located at the north end of the street.
Moreover, there is a fundamental issue concerning the size of the Black Hawk
market and the ability to expand the market because of its mountain location and
the availability of adequate roads and other infrastructure. Although
initiatives to expand gaming venues in Colorado have thus far been unsuccessful,
new initiatives, legislation or regulations could be introduced in the future.
The enactment of any initiative, legislation or regulation legalizing gaming
elsewhere in Colorado could and, if such legalized gaming was closer to Denver,
would have a material adverse effect on Fitzgeralds Black Hawk.
The Company will be required to make substantial capital expenditures to
increase the attractiveness of the Fitzgeralds Black Hawk property in the face
of increasing competition. See Operating Properties -
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Fitzgeralds Black Hawk. Because the Company is highly leveraged, lacks financial
flexibility, is in default on its senior secured debt and may not generate
sufficient funds internally, there can be no assurance that the Company will be
able to fund any such expenditures.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 3,240 people.
Fitzgeralds Las Vegas employed approximately 978 people, approximately 466 of
whom are represented by the Culinary Workers Union, Local No. 226 and the
Bartenders Union, Local No. 165, under a five-year contract expiring on May 31,
2002. In addition, five employees are represented by the United Brotherhood of
Carpenters and Joiners of America, Southern California-Nevada Regional Council
of Carpenters and Its Affiliated Local No. 1780, under a three-year contract
expiring on July 31, 2001. Fitzgeralds Tunica, Fitzgeralds Reno and Fitzgeralds
Black Hawk employed approximately 1,152, 712 and 365 people, respectively, none
of whom are represented by a union. In addition, the Company also employed 33
people in its corporate offices.
TRADE NAMES, TRADEMARKS AND SERVICE MARKS
The Company believes that its distinctive trade names, trademarks and service
marks are important to its efforts to develop a distinctive national brand
identity. Because of their importance, the Company expends considerable effort
to conceptualize, obtain, utilize and protect its trade names, trademarks and
service marks. The Company has proprietary rights in approximately 84 registered
trade names, trademarks and service marks used in connection with its businesses
and created to enhance its Irish luck theme, its gaming activities and its
association with the Fremont Street Experience, including the marks
"Fitzgeralds," "Fitz" and the "Mr. O'Lucky" character design. Registered marks
usually have perpetual life, provided that they are renewed on a timely basis
and continue to be used properly as marks. The Company also has several
non-exclusive licenses and supply agreements permitting it to utilize and offer
at its facilities a variety of casino games, gaming devices, and related
software and technology which are subject to certain third-party patent,
trademark and copyright rights.
GOVERNMENTAL REGULATION
General
The ownership and operation of the Company's casino gaming facilities are
subject to various state and local regulations in the jurisdictions where they
are located. In Nevada, the Company's gaming operations are subject to the
Nevada Gaming Control Act, and to the licensing and regulatory control of the
Nevada Gaming Commission, the Nevada State Gaming Control Board and various
local ordinances and regulations, including, without limitation, applicable city
and county gaming and liquor licensing authorities. In Mississippi, the Company
must register under the Mississippi Gaming Control Act and its gaming operations
are subject primarily to the licensing and regulatory control of the Mississippi
Gaming Commission, the Mississippi State Tax Commission and various local, city
and county regulatory agencies. In Colorado, the Company's gaming operations are
subject to the Limited Gaming Act of 1991, which created the Division of Gaming
within the Colorado Department of Revenue and the Colorado Limited Gaming
Control Commission to license, implement, regulate and supervise the conduct of
limited gaming. The Company's operations are also subject to the Colorado Liquor
Code and the state and local liquor licensing authorities.
The Company holds all licenses and permits it needs to operate its gaming
facilities. Directors, officers and key employees of the Company are required to
hold individual licenses, which requirements vary
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<PAGE> 11
from jurisdiction to jurisdiction. Licenses and permits of gaming operations and
of individual licensees are subject to revocation or non-renewal for cause.
Under certain circumstances, holders of the Company's securities are required to
secure independent licenses and permits.
Nevada Gaming Regulation
The ownership and operation of casino gaming facilities in Nevada are subject to
the Nevada Gaming Control Act and the regulations promulgated thereunder (the
"Nevada Act") and to the licensing and regulatory control of the Nevada Gaming
Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the
"Nevada Board") and various local ordinances and regulations, including, without
limitation, applicable city and county gaming and liquor licensing authorities
(collectively, 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 filing periodic reports with the
Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent
practices; and (v) providing a source of state and local revenues through
taxation and licensing fees. Change in such laws, regulations and procedures
could have an adverse effect on the Company's gaming operations.
The Company's direct and indirect subsidiaries that conduct gaming operations
are required to be licensed by the Nevada Gaming Authorities. The gaming
licenses require the periodic payment of fees and taxes and are not
transferable. The Company is registered by the Nevada Commission as a publicly
traded corporation (a "Registered Corporation") and has been found suitable to
own the stock of FSI and FRI. FSI is registered as an intermediary company (an
"Intermediary Company") and has been found suitable to own the stock of FLVI,
which has been licensed as a manufacturer and distributor of gaming devices and
to conduct nonrestricted gaming operations at Fitzgeralds Las Vegas. FRI has
been licensed as a manufacturer and distributor of gaming devices and to conduct
nonrestricted gaming operations at Fitzgeralds Reno. FLVI and FRI are each a
corporate gaming licensee (a "Corporate Licensee" or individually a "Nevada
Gaming Subsidiary" and collectively the "Nevada Gaming Subsidiaries") under the
terms of the Nevada Act. No person may become a stockholder of, or receive any
percentage of profits from, an Intermediary Company or a Nevada Gaming
Subsidiary without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company, FSI and the Nevada Gaming Subsidiaries have obtained
from the Nevada Gaming Authorities the various registrations, findings of
suitability, approvals, permits and licenses required in order to engage in
gaming activities in Nevada. The following regulatory requirements are currently
applicable to the Company, FSI and the Nevada Gaming Subsidiaries, including
requirements applicable to the Company as a Registered Corporation.
The Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, the Company, FSI or the Nevada
Gaming Subsidiaries in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of the Nevada Gaming Subsidiaries must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers, directors
and key employees of the Company or FSI who are actively and directly involved
in gaming activities of the Nevada Gaming Subsidiaries may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an
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<PAGE> 12
application for licensing for any cause which they deem reasonable. A finding of
suitability is comparable to licensing, and both require submission of detailed
personal and financial information followed by a thorough investigation. The
applicant for licensing or a finding of suitability must pay all the costs of
the investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and, in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in 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, FSI or the Nevada Gaming Subsidiaries, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company, FSI or the Nevada
Gaming Subsidiaries 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, FSI and the Nevada Gaming Subsidiaries are required periodically to
submit detailed financial and operating reports to the Nevada Commission and
furnish any other information which the Nevada Commission may require.
Substantially all material loans, leases, sales of securities and similar
financing transactions by the Nevada Gaming Subsidiaries must be reported to or
approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by FSI or any Nevada
Gaming Subsidiary, the registration or gaming licenses they hold could be
limited, conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, the Company, FSI, the Nevada
Gaming Subsidiaries and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the discretion of the
Nevada Commission. Further, a supervisor could be appointed by the Nevada
Commission to operate Fitzgeralds Las Vegas and Fitzgeralds Reno and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for reasonable rental value of the casino) could be forfeited to the
State of Nevada. Limitation, conditioning or suspension of the gaming licenses
of the Nevada Gaming Subsidiaries or the appointment of a supervisor could (and
revocation of any gaming license would) have a material adverse effect on the
Company's gaming operations.
Any beneficial holder of a Registered Corporation's voting securities (or rights
to acquire such securities), regardless of the number of shares owned, may be
required to file an application, be investigated and have his or her suitability
as a beneficial holder of the Registered Corporation's voting securities
determined if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply to
the Nevada Commission for a finding of suitability within thirty days after the
Chairman of the Nevada Board mails the written notice requiring such filing.
Under certain circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%, of a Registered
Corporation'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
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<PAGE> 13
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 Registered Corporation, any change in the corporate charter, bylaws,
management, policies or operations of the Registered Corporation, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation'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 beyond such period
of time as may be prescribed by the Nevada Commission may be guilty of a
criminal offense. The Company will be 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 the Company or the Nevada Gaming Subsidiaries, 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 including, if necessary, the immediate purchase
of said voting securities for cash at fair market value. Additionally, the City
of Las Vegas and the City of Reno have the authority to approve all persons
owning or controlling the stock of any corporation controlling a gaming
licensee.
The Nevada Commission may, in its discretion, require the holder of any debt or
similar 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 has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. 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 will also be 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. To date, the Nevada
Commission has not imposed such a requirement on the Company.
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<PAGE> 14
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, if given, 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 a Registered Corporation 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 corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to (i) assure the
financial stability of corporate gaming licensees 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 Registered Corporation 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 Registered
Corporation'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.
License fees and taxes, computed in various ways depending on the type of gaming
or activity involved, are payable to the State of Nevada and to the counties and
cities in which the Nevada licensee's respective operations are conducted.
Depending upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon either (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 or serving of food or refreshments or the selling of
merchandise. Nevada licensees that hold a manufacturer's license or a
distributor's license, such as the Nevada Gaming Subsidiaries, also pay certain
fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to be
registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board for their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, foreign Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. Such licensees are also
subject to disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign
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<PAGE> 15
jurisdiction pertaining to the foreign gaming operation, fail to conduct the
foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engage in activities or enter
into associations that are harmful to the State of Nevada or its ability to
collect gaming taxes and fees, or employ, contract with or associate with a
person in the foreign operation who has been denied a license or finding of
suitability in Nevada on the grounds of personal unsuitability.
The sale of alcoholic beverages at Fitzgeralds Las Vegas and at Fitzgeralds Reno
are subject to licensing, control and regulation by the City of Las Vegas and
the City of Reno, respectively. All licenses are revocable and are not
transferable. The agencies involved have full power to limit, condition, suspend
or revoke any such license, and any such disciplinary action could (and
revocation would) have a material adverse effect on the operations of the Nevada
Gaming Subsidiaries.
Mississippi Gaming Regulation
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulations, but primarily the licensing
and regulatory control of the Mississippi Commission (the "Mississippi
Commission") and the Mississippi State Tax Commission. The Company must register
under the Mississippi Gaming Control Act (the "Mississippi Act") and its gaming
operations are subject to the licensing and regulatory control of the
Mississippi Commission and various local, city and county regulatory agencies.
The Mississippi Act, which legalized dockside casino gaming in Mississippi, was
enacted on June 29, 1990. Although not identical, the Mississippi Act is similar
to the Nevada Act. Effective October 29, 1991, the Mississippi Commission
adopted regulations in furtherance of the Mississippi Act which are also similar
in many respects to the Nevada gaming regulations.
Under Mississippi law, gaming vessels in Tunica County must be located on the
Mississippi River or on navigable waters emptying into the Mississippi River.
Fitzgeralds Tunica was constructed on barges situated in a specially constructed
basin made a part of the Mississippi River by a navigable inlet. On May 24,
1993, the Mississippi Commission granted site approval to the Fitzgeralds Tunica
site. On April 21, 1994, FMI dba Fitzgeralds Tunica received a gaming operator's
license from the Mississippi Commission. At the same meeting, certain key
principals of FMI were found suitable. The license was most recently renewed on
March 26, 1998, effective April 23, 1998, and will expire on April 23, 2000. All
related findings of suitability have been maintained and are current. A
condition placed on this license by the Mississippi Commission is that the barge
placement continue to meet the statutory requirements of navigability.
Fitzgeralds Tunica opened on June 6, 1994.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Commission seek to: (i) prevent unsavory or unsuitable persons from
having any direct or indirect involvement with gaming at any time or in any
capacity; (ii) establish and maintain responsible accounting practices and
procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Commission; (iv) prevent cheating and
fraudulent practices; (v) provide a source of state and local revenues through
taxation and licensing fees; and (vi) ensure that gaming licensees, to the
extent practicable, employ Mississippi residents. The regulations are subject to
amendment and interpretation by the Mississippi Commission.
The Mississippi Act provides for legalized dockside gaming at the discretion of
the 14 counties that either border the Gulf Coast or the Mississippi River, but
only if the voters in such counties have not voted to prohibit gaming in that
county. As of November 20, 1997, dockside gaming was permitted in nine of the 14
eligible counties in the State and gaming operations have commenced in Adams,
Coahoma,
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<PAGE> 16
Hancock, Harrison, Tunica, Warren and Washington counties. The law permits
unlimited stakes gaming on permanently moored vessels on a 24-hour basis and
does not restrict the percentage of space which may be utilized for gaming.
There are no limitations on the number of gaming licenses which may be issued in
Mississippi. The legal age for gaming in Mississippi is 21.
The Company and FMI are required to submit detailed financial, operating and
other reports to the Mississippi Commission. Substantially all loans, leases,
sales of securities and similar financing transactions entered into by the
Company and FMI must be reported to or approved by the Mississippi Commission.
FMI is also required to periodically submit detailed financial and operating
reports to the Mississippi Commission and to furnish any other information
required thereby.
Each of the directors, officers and key employees of the Company who are
actively and directly engaged in the administration or supervision of gaming, or
who have any other significant involvement with the activities of the Company,
and each of the officers and directors and certain employees of FMI, must be
found suitable therefor, and may be required to be licensed, by the Mississippi
Commission. The finding of suitability is comparable to licensing, and both
require submission of detailed personal financial information followed by a
thorough investigation. In addition, any individual who is found to have a
material relationship to, or material involvement with, the Company or FMI may
be required to be investigated in order to be found suitable or to be licensed
as a business associate of the Company or FMI. Key employees, controlling
persons or others who exercise significant influence upon the management or
affairs of the Company or FMI may also be deemed to have such a relationship or
involvement. There can be no assurance that such persons will be found suitable
by the Mississippi Commission. An application for licensing may be denied for
any cause deemed reasonable by the Mississippi Commission. Changes in licensed
positions must be reported to the Mississippi Commission. In addition to its
authority to deny an application for a license, the Mississippi Commission has
jurisdiction to disapprove a change in corporate position. If the Mississippi
Commission were to find a director, officer or key employee unsuitable for
licensing or unsuitable to continue having a relationship with the Company or
FMI, the Company or FMI would have to suspend, dismiss and sever all
relationships with such person. The Company or FMI would have similar
obligations with regard to any person who refuses to file appropriate
applications. Each gaming employee must obtain a work permit which may be
revoked upon the occurrence of certain specified events.
Mississippi statutes and regulations give the Mississippi Commission the
discretion to require a suitability finding with respect to anyone who acquires
any security of the Company or FMI, regardless of the percentage of ownership.
The current practice of the Mississippi Commission is to require any individual
acquiring 5% or more and any qualifying institutional investor acquiring 15% or
more of any voting securities of a licensee or a public or private company with
a licensed subsidiary to be found suitable. If the owner of voting securities
who is required to 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 owner of voting securities found unsuitable and who holds, directly or
indirectly, any beneficial ownership of equity interests in the Company or FMI
beyond such period of time as may be prescribed by the Mississippi Commission
may be guilty of a misdemeanor. 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 Mississippi Commission may be found unsuitable. The Company or FMI is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be an owner of or to have any other relationship with it, the
Company or FMI: (i) pays the unsuitable person any dividends or interest upon
any of its securities or any payments or distributions of any kind whatsoever;
(ii) recognizes the exercise, directly or indirectly, of any voting rights in
its securities by the unsuitable person; or (iii) pays the unsuitable
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<PAGE> 17
person any remuneration in any form for services rendered or otherwise, except
in certain limited and specific circumstances. In addition, if the Mississippi
Commission finds any owner of voting securities unsuitable, such owner must
immediately surrender all securities to the Company or FMI, as applicable, and
the Company or FMI must purchase the securities so offered for cash at fair
market value within 10 days.
The Company and FMI will be required to maintain current ownership ledgers in
the State of Mississippi which may be examined by the Mississippi Commission 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 Mississippi Commission. A failure to make such disclosure may be grounds
for finding the record holder unsuitable. The Company and FMI also are required
to render maximum assistance in determining the identity of the beneficial
owner. In addition, the Mississippi Commission under the Mississippi Act may, in
its discretion: (i) require holders of debt securities of registered
corporations to file applications; (ii) investigate such holders; and (iii)
require such holders to be found suitable to own such debt securities. Although
the Mississippi Commission generally does not require the individual holders of
such obligations to be investigated and found suitable, the Mississippi
Commission retains the discretion to do so for any reason, including, but not
limited to, a default, or where the holder of the debt instrument exercises a
material influence over the gaming operations of the entity in question. Any
holder of debt securities required to apply for a finding of suitability must
pay all investigation fees and costs of the Mississippi Commission in connection
with such an investigation.
The regulations provide that a change in control of the Company or FMI may not
occur without the prior approval of the Mississippi Commission. Mississippi law
prohibits the Company from making a public offering or private placement of its
securities without the approval of or waiver of approval by the Mississippi
Commission if any part of the proceeds of the offering is to be used to finance
the construction, acquisition or operation of gaming facilities in Mississippi,
or to retire or extend obligations incurred for one or more of such purposes.
Mississippi law also prohibits the Company from pledging or otherwise placing
restrictions on the stock of FMI without the prior approval of the Mississippi
Commission.
The Mississippi Act requires that certificates representing securities of the
Company or FMI bear a legend to the general effect that the securities are
subject to the Mississippi Act and regulations of the Mississippi Commission.
The Mississippi Commission, through the power to regulate licensees, has the
power to impose additional restrictions on the holders of the Company's or FMI's
securities at any time.
As Mississippi licensees, neither the Company nor FMI may engage in gaming
activities outside Mississippi without approval of the Mississippi Commission.
Such approvals were initially granted on April 21, 1994, and additional
approvals have been granted on a jurisdiction-by-jurisdiction basis.
The licenses obtained by the Company and FMI are not transferable and new
licenses must be obtained every two years. There can be no assurance that any
subsequent application will be approved. Each issuing agency may at any time
dissolve, suspend, condition, limit or restrict a license or approval to own
equity interests in the Company or FMI for any cause deemed reasonable by such
agency. Substantial fines for each violation of gaming laws or regulations may
be levied against the Company or FMI in Mississippi. A violation under any
gaming license held by the Company or FMI may be deemed a violation of all the
other licenses held by the Company or FMI. Suspension or revocation of any of
the foregoing licenses or of the approval of the Company or FMI would have a
material adverse effect upon the business of the Company.
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<PAGE> 18
License fees and taxes, computed in various way depending on the type of gaming
involved, are payable to the State of Mississippi and to the counties and cities
in which FMI's operations will be conducted. Depending upon the particular fee
or tax involved, these fees and taxes are payable either monthly, quarterly or
annually and are based upon: (i) the percentage of the gross gaming revenues
received by the casino operation; (ii) the number of slot machines operated by
the casino; (iii) the number of table games operated by the casino; or (iv) the
number of casino patrons. The foregoing license fees are allowed as a credit
against FMI's Mississippi income tax liability for the year paid.
In October 1994, the Mississippi Commission adopted a regulation requiring, as a
condition of licensure or license renewal, that a gaming establishment's site
development plan include an approved 500-car parking facility in close proximity
to the casino complex and infrastructure facilities which will amount to at
least 25% of the casino cost. Such facilities may include any of the following:
a 250-room hotel of at least a two-star rating (as defined by the current
edition of the Mobil Travel Guide), a theme park, a golf course, marinas, a
tennis complex, entertainment facilities or any other such facility as approved
by the Mississippi Commission as infrastructure. Parking facilities, roads,
sewage and water systems or facilities normally provided by governmental
entities are excluded. The Mississippi Commission may, in its discretion, reduce
the number of hotel rooms and parking spaces required where it is shown, to the
satisfaction of the Mississippi Commission, that sufficient rooms are available
to accommodate the anticipated visitor load. Such reduction in the number of
rooms does not impact the 25% investment requirement imposed by the regulation.
The number of parking spaces may also be reduced to accommodate smaller casinos.
The Company met such requirements with the opening of the Fitzgeralds Tunica
Hotel and related facilities in 1996. On January 21, 1999, the Mississippi
Commission amended this regulation to increase the minimum level of
infrastructure investment from 25% to 100% of the casino cost; however, the 100%
infrastructure investment amendment applies only to new casino developments and
existing casino developments that are not operating at the time of their
acquisition or purchase, and would therefore not apply to Fitzgeralds Tunica.
The sale of alcoholic beverages, including beer and wine, at Fitzgeralds Tunica
is subject to licensing, control and regulation by the Alcoholic Beverage
Control Division (the "ABC") of the Mississippi State Tax Commission. The ABC
requires that all equity owners and managers file personal record forms and
fingerprint forms for their licensing process. In addition, owners of more than
5% of FMI's equity and FMI's officers and managers must submit detailed
financial information to ABC for licensing. All such licenses are revocable and
are non-transferable. The Mississippi State Tax Commission has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
operations of Fitzgeralds Tunica.
Colorado Gaming Regulation
Colorado legalized limited gaming by constitutional amendment approved by
Colorado voters on November 6, 1990. The Colorado legislature thereafter enacted
the Limited Gaming Act of 1991 (the "Colorado Act") to implement the provisions
of the constitutional amendment and limited gaming commenced in Colorado on
October 1, 1991. The Colorado Act authorizes limited gaming only in certain
designated commercial districts of Central City, Black Hawk and Cripple Creek,
Colorado. Limited gaming consists of poker, blackjack and slot machines, all
with maximum single bets of five dollars. Only persons aged 21 or older may
participate in limited gaming, and limited gaming is prohibited between the
hours of 2:00 a.m. and 8:00 a.m. Limited gaming is only allowed on premises
licensed for that purpose, and the licensed premises of any building may not
exceed 35% of the square footage of the building and no more than 50% of any
floor of such building.
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<PAGE> 19
Pursuant to the Colorado Act and the rules and regulations promulgated
thereunder (collectively, the "rules"), the ownership and operation of limited
gaming facilities in Colorado, however acquired, are subject to extensive
regulation. The Colorado Act created the Division of Gaming (the "Colorado
Division") within the Colorado Department of Revenue and the Colorado Limited
Gaming Control Commission (the "Colorado Gaming Commission") to license,
implement, regulate, and supervise the conduct of limited gaming. The Director
of the Colorado Division (the "Colorado Director"), under the general
supervision of the Colorado Gaming Commission, is granted broad powers to ensure
compliance with the Colorado Act and the rules. The Colorado Act now provides
that the provisions which established the Colorado Division are repealed
effective July 1, 2003, unless continued by act of the General Assembly. If the
repeal takes effect, Colorado law provides a procedure for winding up the
affairs of the Colorado Division, public hearings, analysis and evaluation, and
for determining claims by or against the Colorado Division. The potential effect
of the possible repeal is unknown.
The Colorado Gaming Commission has authority to issue retail gaming, operator,
key employee and support licenses, and licenses for slot machine manufacturers
and distributors. The Colorado Director also has the authority to issue key
employee and support licenses. All such licenses are for renewable one-year
periods. The Colorado Gaming Commission has broad discretion to condition,
suspend, revoke, limit or restrict a license at any time. The Colorado Gaming
Commission may issue temporary licenses with a duration of up to six months. The
Colorado Gaming Commission also has authority to impose fines against licensees.
All license applicants must demonstrate to the Colorado Gaming Commission that
they are suitable for licensing and are of good moral character. Applicants who
are career offenders, have certain criminal convictions, have associations with
career offender cartels or have certain pending criminal charges are
disqualified from licensure. Licensure by the Colorado Gaming Commission or the
Colorado Director is a revocable privilege and not a vested interest or property
right. All licenses are non-transferable.
A retail gaming license is required for all persons permitting or conducting
limited gaming on their premises. In addition, an operator license is required
for all persons who permit slot machines on their premises or who engage in the
business of placing and operating slot machines on the premises of a retail
gaming licensee. No person may have an ownership interest in more than three
retail licenses. With certain exceptions for licensed operators, a slot machine
manufacturer or distributor license is required for all persons who manufacture,
import, distribute, sell or lease for a fixed or flat fee, slot machines in
Colorado.
All natural persons employed in the field of limited gaming and all gaming
employees must hold either a support or key employee license. A key employee is
an executive, employee or agent of a gaming licensee having the power to
exercise a significant influence over decisions concerning any part of the
operation of a gaming licensee. The Colorado Gaming Commission may determine
that any employee of a licensee is a key employee and, therefore, require that
such person apply for licensing as a key employee.
All applicants for Colorado gaming licenses must complete comprehensive
applications, forms, pay required fees, and provide all information required by
the Colorado Gaming Commission and the Colorado Division. The Colorado Division
conducts a thorough background investigation of each applicant or any persons or
entities associated with the applicant. The investigation may cover the
background, personal history, financial associations, character, record and
reputation of the applicant. The applicant pays the full cost of the background
investigation. There is no limit on the cost or duration of the background
investigation. Applicants who do not provide all requested information during a
background investigation may be denied a gaming license.
-17-
<PAGE> 20
The practice of the Colorado Division and the Colorado Gaming Commission, which
may change at any time, is to require every officer and director, or equivalent
office holders for non-corporate applicants, and 5% or greater beneficial owners
of an applicant or licensee to complete background investigation forms, provide
comprehensive information and submit to a full background investigation
conducted by the Colorado Division and Colorado Gaming Commission. The Colorado
Division may, and sometimes does, require information from and conducts
background investigations of persons holding less than a 5% beneficial interest
in an applicant or licensee.
In addition, all persons loaning monies, goods, or real or personal property to
a licensee or applicant, or having any interest in a licensee or applicant, or
entering into any agreement with a licensee or applicant, must provide any
information requested by the Colorado Division or Colorado Gaming Commission;
and in the discretion of the Colorado Division or the Colorado Gaming
Commission, these persons must supply all information relevant to a
determination of any such person's suitability for licensure and must submit to
a full background investigation if ordered by the Colorado Gaming Commission.
Failure to promptly provide all information requested, or to submit to a
suitability or background investigation, may result in the denial of a license
application, suspension or revocation of an existing license, termination of any
lease, note arrangement, or agreement between the applicant or licensee and the
person requested to provide the information, and other sanctions. Applicants and
licensees may be required by the Colorado Gaming Commission to pay the costs of
background, suitability, or other investigations of persons associated with the
applicant or licensee. Investigations for suitability, background, or any other
reason may delay license application or the operation under any agreement with a
licensee. All agreements, contracts, leases or arrangements in violation of the
Colorado Act or the rules are void and unenforceable.
Persons found unsuitable by the Colorado Gaming Commission may be required
immediately to terminate any interest in, association or agreement with, or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant may also jeopardize the licensee's license or applicant's license
application. Licenses may be conditioned upon termination of any relationship
with unsuitable persons.
The Colorado Act and the rules require licensees to maintain detailed books and
records which accurately account for all monies and business transactions. Books
and records must be furnished upon demand to the Colorado Gaming Commission, the
Colorado Division and other law enforcement authorities. The rules also
establish extensive playing procedures, standards, requirements and rules of
play for poker, blackjack and slot machines.
Retail gaming licensees must, in addition, adopt comprehensive internal control
procedures governing their limited gaming operations. Such procedures include
the areas of accounting, internal fiscal control, surveillance, security,
cashier operations, key control, reporting procedures, personnel procedures and
fill and drop procedures, among others. Such procedures must be approved in
advance by the Colorado Division. Licensees are prohibited from engaging in
fraudulent acts which include, among other things, misrepresenting the
probabilities of pay out, improperly canceling a bet, conducting limited gaming
without a valid license and employing an unlicensed person in a position which
requires a licensed employee. Licensees must report to the Colorado Division all
licenses, and all applications for licenses, in foreign jurisdictions.
With limited exceptions applicable to licensees that are publicly traded
entities, no person, including persons who may acquire an interest in a licensee
pursuant to a foreclosure, may sell lease, purchase,
-18-
<PAGE> 21
convey or acquire any interest in a retail gaming or operator license or
business without the prior approval of the Colorado Gaming Commission.
The rules impose certain additional restrictions and reporting and filing
requirements on publicly traded entities holding gaming licenses in Colorado and
on gaming licensees in Colorado owned directly or indirectly, 5% or more, by
publicly traded entities. Such rules apply to the Company. In addition, gaming
licensees, affiliated companies, and controlling persons thereof, must comply
with notice requirements upon the filing of registration statements with the
Securities and Exchange Commission. Such entities also must include certain
provisions in their charter or other organization documents restricting the
transfer of interests in the entity except in compliance with the Colorado Act.
The Colorado Gaming Commission may require persons affiliated with, and certain
direct or indirect owners of, such transferees to apply for a finding of
suitability. If found unsuitable, such persons must terminate their relationship
with the entity and such owners must sell their interest back to the issuer or
to a suitable person approved by the Colorado Gaming Commission. Black Hawk also
imposes taxes and fees on other aspects of the businesses of gaming licensees,
such as parking, liquor license and other municipal taxes and fees. It is not
unreasonable to expect substantial increases in these fees or the imposition of
new taxes and fees.
The State of Colorado has enacted an annual tax on the adjusted gross proceeds
("AGP") from limited gaming. AGP is generally defined as the amounts wagered
minus payments to players. For poker, AGP means those sums wagered on a hand
retained by the licensee as compensation. Currently, the gaming tax on AGP
ranges between 2% and 20%. The gaming tax is paid monthly, with licensees
required to file returns by the 15th of the following month. Effective July 1 of
each year, the Colorado Gaming Commission establishes the gaming tax rates for
the following 12 months. Under the Colorado Constitution, the Colorado Gaming
Commission may increase the gaming tax rate to as much as 40% of AGP.
Violations of the Colorado Act, or any of the rules, is a criminal offense.
Persons violating the Colorado Act or the rules may, in addition to any gaming
license suspension or revocation, be subject to criminal prosecution resulting
in incarceration, fines or both.
The sale of alcoholic beverages in gaming establishments is subject to strict
licensing, control and regulation by state and local authorities. Alcoholic
beverage licenses are revocable and non-transferable. State and local licensing
authorities have full power to limit, condition, suspend or revoke any such
licenses. Violation of these state alcoholic beverage laws is a criminal
offense, and violators are subject to criminal prosecution, incarceration and
fines.
ITEM 2. PROPERTIES
Reference is made to the information contained in Part I, Item 1. Business -
Properties of this Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
RENO TRANSPORTATION RAIL ACCESS CORRIDOR (RETRAC) PROJECT
In October 1998, the Reno City Council approved a special assessment district to
finance a portion of the costs to lower the railroad tracks that run through
downtown Reno, Nevada (the "ReTRAC Project"). Preliminary plans for the ReTRAC
Project provide for the construction of a temporary rail bypass that will
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<PAGE> 22
be used to divert rail traffic around the main railroad during construction. The
City of Reno (the "City") estimates that a period of approximately two and one
half years will be required to complete the ReTRAC Project. The southern
boundary of the bypass will extend out into the middle of Commercial Row, the
street where the Fitzgeralds Reno hotel entrance, valet parking area and hotel
loading zone are situated.
On November 30, 1998, the Company filed a lawsuit against the City to challenge
the method by which the special assessment to be levied against the Company was
determined. Based on preliminary plans prepared by the City, Fitzgeralds Reno
would expect to lose several parking spaces, the current valet parking area, an
outdoor billboard structure advertising available rooms and a building used to
house administrative offices, and be required to relocate the hotel entrance
currently on Commercial Row. The City has also subsequently indicated that the
ReTRAC Project might require the demolition of the Fitzgeralds Reno Rainbow
Skyway. Implementation of the ReTRAC Project as currently proposed would cause
the Company to suffer significant and permanent loss in business revenue and
income; certain operating efficiencies from demolished or impaired physical
structures; and a portion of its existing customer base as a result of the
construction and operation of the proposed rail bypass.
The City filed an answer to the Company's lawsuit on January 19, 1999.
Subsequent thereto, George Karadanis and Robert Maloff d/b/a Sundowner Hotel and
Casino (the "Sundowner") were permitted by court order to file a Complaint in
Intervention. Notwithstanding said intervention, on December 22, 1999, the court
granted the City's Motion for Summary Judgment against the Sundowner which
motion was joined in by the Company. The City and the Company are currently
engaged in negotiations to resolve the pending litigation. However, barring such
a resolution, the parties have stipulated to a briefing schedule that requires
all briefs to be filed by April 3, 2000. It is anticipated that a decision on
the merits of the Company's claims will be made subsequent to the filing of
briefs, however, oral arguments may be requested.
The Company has received no assurance as to whether or when the City will
negotiate mitigation measures and whether such measures could or would fully
compensate the Company for the fair market value of its property and anticipated
operating losses.
OTHER MATTERS
The Company is a party to various lawsuits relating to routine matters
incidental to its business. The Company does not believe that the outcome of
such litigation, individually or in the aggregate, will have any material
adverse effect on its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is not listed or traded on any exchange. As of
February 24, 2000, the Company had 42 shareholders of record.
In December 1995, as part of a public offering of $123.0 million senior secured
notes (the "1995 Notes") and Preferred Stock, the Company issued 2,675,237
warrants, each exercisable for one share of the Company's Common Stock, at an
exercise price of $.01 per share (the "Warrants"). In December 1997,
concurrently with the redemption of the 1995 Notes, the Company canceled 703,402
of the Warrants.
The remaining Warrants had an expiration date of December 19, 1998. The Warrant
Agent received timely notice of exercise for 1,495,236 Warrants and 476,599
Warrants expired. The Company advised each exercising Warrant holder that the
exercise of the Warrants and issuance of the underlying Common Stock might be
subject to certain Nevada, Colorado and Mississippi gaming licensure
requirements, and that no such Common Stock would be issued without compliance
with or exemption from applicable gaming requirements. The Company was
subsequently advised by the applicable gaming authorities for each such
jurisdiction that, based on the information provided by the Warrant Agent, no
licensure was required by virtue of the exercise of the Warrants or issuance of
the underlying Common Stock.
In September 1999, a total of 1,495,236 shares of Common Stock was issued to the
exercising Warrant holders in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act of 1933 on the basis that there
was no public offering of the Common Stock underlying the Warrants. The Company
received $14,952, representing the exercise price of the Warrants.
The Company has not paid any cash dividends on its Common Stock to date. The
Company intends to retain all future earnings for use in the development of its
business and does not anticipate paying cash dividends (including with respect
to its Preferred Stock) in the foreseeable future. The payment of all dividends
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, operations, capital requirements, the
general financial condition of the Company and general business conditions. The
ability of the Company or its subsidiaries to pay dividends is restricted by the
Indenture governing the Company's senior secured debt and the terms of the
credit facility, with respect to which the Company is in default, and by the
certificate of designation for the Preferred Stock with respect to the Common
Stock. If a holder of securities is disqualified from owning such securities by
any gaming authority, such holder will not be permitted to receive any dividends
if, and when, declared by the Company's Board of Directors with respect to such
securities. See Item 1. Business - Governmental Regulation.
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<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA
FITZGERALDS GAMING CORPORATION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Operating Revenues $ 202,398 $ 207,125 $ 179,702 $ 140,530 $ 141,397
Income from Operations (1) 11,399 21,680 13,622 3,871 13,768
Interest Expense, Net 29,168 26,646 25,033 18,187 14,706
Net Loss (17,954) (8,667) (31,542) (13,494) (4,255)
Other Data:
EBITDA:(2)
Fitzgeralds Las Vegas (3) $ 2,594 $ 2,682 $ 2,651 $ 1,656 $ 4,084
Fitzgeralds Tunica 11,553 8,051 11,744 3,790 9,934
Fitzgeralds Reno 4,588 4,805 5,462 4,596 7,009
Fitzgeralds Black Hawk 9,303 10,863 4,842 -- --
Other (4) (2,281) 9,622 4,111 2,874 1,667
--------- --------- --------- --------- ---------
Total Properties 25,757 36,023 28,810 12,916 22,694
Nevada Club (90) (561) (1,282) (148) 392
Harolds Club (64) (111) (1,853) -- (1,307)
--------- --------- --------- --------- ---------
Total EBITDA 25,603 35,351 25,675 12,768 21,779
Adjustments to EBITDA (5) 2,325 (5,328) 4,924 742 1,337
--------- --------- --------- --------- ---------
Adjusted EBITDA $ 27,928 $ 30,023 $ 30,599 $ 13,510 $ 23,116
========= ========= ========= ========= =========
Earnings to Fixed Charges: (6) -- -- -- -- --
Net Cash Provided by (Used in):
Operating activities $ 21,089 $ 12,189 $ 1,287 $ 759 $ 8,468
Investing activities (1,961) (5,451) (24,657) (6,368) (50,404)
Financing activities (10,051) (8,509) 24,830 (885) 49,894
Depreciation and Amortization 14,203 13,671 12,054 8,897 8,010
Capital Expenditures 6,184 9,352 3,944 57,026 14,957
Balance Sheet Data:
Cash $ 22,116 $ 13,039 $ 14,810 $ 13,349 $ 19,844
Total Assets 206,796 209,197 215,695 191,179 197,213
Short-Term Debt 203,840 4,940 7,591 27,750 11,226
Long-Term Debt 598 208,204 206,191 127,882 139,467
Preferred stock, net of offering
costs and discounts 29,963 24,401 19,631 15,489 11,953
Stockholders' Equity (Deficiency) (74,496) (51,300) (37,863) (2,043) 16,061
</TABLE>
- ---------------
(1) Excludes write-off by Fitzgeralds Reno of $3.2 million inter-company debt
from Nevada Club in 1999. The Company recorded allowances of $0.2 million
and $2.2 million in 1998 and 1997, respectively, against the book value of
Nevada Club assets held for sale to write such assets down to estimated
net realizable value, and recorded expenses of $0.1 million and $1.9
million in 1998 and 1997, respectively, for the anticipated net settlement
obligation relating to certain land lease payments and property-related
costs arising out of the Company's purchase and subsequent sale of Harolds
Club in 1995. The Company acquired the remaining 78% interest in
Fitzgeralds Black Hawk in August 1997.
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<PAGE> 25
(2) EBITDA, or "earnings before interest, taxes on income, depreciation, and
amortization," is a supplemental financial measurement used by the Company
in the evaluation of its gaming business and by many gaming industry
analysts. EBITDA is calculated by adding depreciation and amortization
expense to income from operations. At any property, EBITDA is calculated
after the allocation of corporate costs. However, EBITDA should only be
read in conjunction with all of the Company's financial data summarized
above and its financial statements prepared in accordance with GAAP
("Generally Accepted Accounting Principles") appearing elsewhere herein,
and should not be construed as an alternative either to income from
operations (as determined in accordance with GAAP) as an indication of the
Company's operating performance or to cash flows from operating activities
(as determined in accordance with GAAP) as a measure of liquidity. This
presentation of EBITDA may not be comparable to similarly titled measures
reported by other companies.
(3) Fitzgeralds Las Vegas invested $0.9 million, $0.8 million, $0.8 million,
$1.0 million and $0 for 1999, 1998, 1997, 1996 and 1995, respectively, in
the Fremont Street Experience, Limited Liability Company ("FSE"). Prior to
1999, such investments were reported under the equity method with no
impact on earnings. The 1999 investment was charged against earnings. See
Note 5 "Impairment Loss" of the Notes to Consolidated Financial
Statements.
(4) Other includes (i) management fees from Fitzgeralds Black Hawk for 1997,
1996 and 1995; (ii) management fees from Cliff Castle for 1998, 1997, 1996
and 1995; (iii) payments from the Turning Stone settlement agreement for
1998, 1997, 1996 and 1995; (iv) non-recurring revenue of $8.0 million for
termination of the Cliff Castle Management Agreement in 1998; and (v)
corporate expenses not allocated to the Operating Properties for all
periods presented, which includes $2.2 million of restructuring expenses
for 1999.
(5) Adjustments to EBITDA include (i) exclusion of EBITDA for Harolds Club and
Nevada Club for all periods presented; (ii) exclusion of business
development expenses for Sugar Creek, Missouri of $0.4 million for 1995;
(iii) exclusion of write down of Nevada Club assets of $0.03 million, $0.2
million and $2.2 million for 1999, 1998 and 1997, respectively; (iv)
exclusion of Harolds Club lease settlement of $0.06 million, $0.1 million
and $1.9 million for 1999, 1998 and 1997, respectively; (v) inclusion of
$1.0 million for 1997 and $0.6 million for 1996 in cash received by the
Company as a result of its 22% membership in 101 Main; (vi) exclusion of
$6.0 million of the $8.0 million received in connection with the
termination of the Cliff Castle Management Agreement in 1998; and (vii)
exclusion of restructuring expenses of $2.2 million in 1999.
(6) For the Ratio of Earnings to Fixed Charges, earnings are defined as
earnings before income taxes, interest on indebtedness, imputed interest
on capital lease obligations and the portion of rent expense deemed to
represent interest. Fixed charges consist of interest on indebtedness,
imputed interest on capital lease obligations, and the portion of rent
expense deemed to represent interest. Earnings were insufficient to cover
fixed charges by $18.0 million, $10.0 million, $10.6 million, $15.5
million and $0.6 million for the years ended December 31, 1999, 1998,
1997, 1996, and 1995, respectively.
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<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. The following discussion should be read in
conjunction with, and is qualified in its entirety by, the Company's
Consolidated Financial Statements and the Notes thereto listed in Item 14(a).
The following discussion and other material in the report on Form 10-K contain
certain forward-looking statements. The forward-looking statements are
necessarily based upon a number of estimates and assumptions that, while
considered reasonable, are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond the
control of the Company, and upon assumptions with respect to future business
decisions which are subject to change. Risks to which the Company is subject
include, but are not necessarily limited to, its efforts to restructure its
indebtedness and capital structure, competition, high level of indebtedness, the
need for additional financing, development and construction risks, market
fluctuations, gaming, liquor and other regulatory matters, taxation, the
availability and retention of key management, environmental matters and other
factors discussed in the Company's other filings with the Securities and
Exchange Commission. Accordingly, actual results could differ materially from
those contemplated by such forward-looking statements.
OVERVIEW
Fitzgeralds Reno, Fitzgeralds Las Vegas and Fitzgeralds Tunica have been owned
and operated by the Company or its affiliates since 1985, 1987 and 1994,
respectively. Between December 1994 and February 1995, a business combination
was effected, resulting in the existing single ownership structure for the
companies operating Fitzgeralds-brand casinos. In May 1995, the Company, under
exclusive management contracts, opened two properties outside of Nevada,
Fitzgeralds Black Hawk and Cliff Castle, and in December 1995, the Company
acquired those portions of Fitzgeralds Tunica (20%) and Fitzgeralds Inc. (2%)
which it did not own. In August 1997, the Company acquired the remaining 78%
membership interest in 101 Main not previously owned.
In December 1997, the Company issued $205.0 million of 12.25% Senior Secured
Notes due 2004 (the "Senior Secured Notes") secured by a lien on substantially
all of the assets of the Company. In October 1998, the Company established a
$15.0 million line of credit (the "Credit Facility") with a lending institution,
of which $5.0 million is permitted to be used for capital projects at
Fitzgeralds Black and $10.0 million of which is permitted to be used for general
corporate purposes. The Credit Facility is secured by a lien on substantially
all of the assets of the Company, which lien is senior to the lien securing the
Senior Secured Notes.
On May 13, 1999, the Company's Board of Directors determined that, pending a
restructuring of its indebtedness, it would not be in the best interest of the
Company to make the regularly scheduled interest payments on its Senior Secured
Notes. Accordingly, the Company has not paid the regularly scheduled interest
payments of $12.5 million that were due and payable June 15, 1999 and December
15, 1999. Under the Indenture pursuant to which the Senior Secured Notes were
issued, an Event of Default occurred on July 15, 1999, and is continuing as of
the date hereof. An additional $2.2 million of interest incurred from the
default on the Senior Secured Notes has also not been paid. No action has been
taken by either the Indenture Trustee or holders of at least 25% of the Senior
Secured Notes to accelerate the Senior Secured Notes and declare the unpaid
principal and interest to be due and payable.
-24-
<PAGE> 27
An informal committee (the "Committee"), representing holders of a majority in
interest of the Senior Secured Notes, has been formed. The Committee has
retained both a financial adviser and legal counsel, certain costs of which are
being borne by the Company. The Company has initiated and is continuing
discussions with representatives of the Committee concerning a restructuring of
the Company's indebtedness and reorganization of the Company that may include
the sale of some or all of the Company's properties.
On a consolidated basis, net operating revenues (excluding Nevada Club)
decreased to $202.4 million in 1999 from $207.1 million in 1998, primarily as a
result of the termination of the Cliff Castle Management Agreement and
completion of the settlement agreement with Turning Stone which provided
revenues of $9.8 million and $1.1 million, respectively, in 1998.
Casino operations provided an average of approximately 84.9% and 78.5% of the
Company's net operating revenues during 1999 and 1998, respectively, and
substantially all of its income from operations. Slot machine income has been
the primary component of the Company's gaming revenues, providing an average of
approximately 83.9% and 82.7% of such revenues during 1999 and 1998,
respectively.
Unless otherwise noted, the narrative discussion below is focused on the results
of the Company's Operating Properties which together with Cliff Castle and
Turning Stone for 1998 and 1997 are collectively referred to as (the
"Properties"). Unless the context otherwise indicates, the discussion below
excludes Nevada Club, which was closed in December 1997 pending completion of
its sale which occurred in June 1999, and in management's opinion, is not
material to the ongoing operations of the Company. Corporate expense of $1.0
million per year is allocated to each of the Operating Properties as an
operating expense. The remainder of the unallocated corporate expense is
included in Other Operations of the Properties. See Note 2 of Statement of
Operations Data.
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<PAGE> 28
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain Statement of
Operations Data and Other Data for the Company's Properties.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
Statement of Operations Data 1999 1998 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Net Operating Revenues:
Fitzgeralds Las Vegas $ 51,845 $ 50,987 $ 46,540
Fitzgeralds Tunica 74,332 68,349 68,734
Fitzgeralds Reno 40,019 39,729 39,803
Fitzgeralds Black Hawk (1) 36,202 36,256 12,692
Other (2) -- 11,742 5,695
--------- --------- ---------
Total Properties 202,398 207,063 173,464
Nevada Club -- 62 6,238
--------- --------- ---------
Total $ 202,398 $ 207,125 $ 179,702
========= ========= =========
Income (Loss) From Operations:
Fitzgeralds Las Vegas $ (1,115) $ (594) $ (498)
Fitzgeralds Tunica 5,322 2,063 6,013
Fitzgeralds Reno (3) 2,151 2,400 3,211
Fitzgeralds Black Hawk (1) 7,517 9,074 4,215
Other (2) (2,322) 9,414 4,011
--------- --------- ---------
Total Properties 11,553 22,357 16,952
Nevada Club (90) (566) (1,477)
Harolds Club (64) (111) (1,853)
--------- --------- ---------
Total $ 11,399 $ 21,680 $ 13,622
========= ========= =========
Other Data
EBITDA (4):
Fitzgeralds Las Vegas (5) $ 2,594 $ 2,682 $ 2,651
Fitzgeralds Tunica 11,553 8,051 11,744
Fitzgeralds Reno 4,588 4,805 5,462
Fitzgeralds Black Hawk (1) 9,303 10,863 4,842
Other (2) (2,281) 9,622 4,111
--------- --------- ---------
Total Properties 25,757 36,023 28,810
Nevada Club (90) (561) (1,282)
Harolds Club (64) (111) (1,853)
--------- --------- ---------
Total EBITDA 25,603 35,351 25,675
Adjustments to EBITDA 2,325 (5,328) 4,924
--------- --------- ---------
Adjusted EBITDA $ 27,928 $ 30,023 $ 30,599
========= ========= =========
Net Cash Provided by (Used in)
Operating Activities $ 21,089 $ 12,189 $ 1,287
Investing Activities (1,961) (5,451) (24,657)
Financing Activities (10,051) (8,509) 24,830
Depreciation and Amortization 14,203 13,671 12,054
Capital Expenditures 6,184 9,352 3,944
Earnings to Fixed Charges (6) -- -- --
</TABLE>
- ------------
(1) Includes Fitzgeralds Black Hawk operating results commencing August 15,
1997.
(2) Other includes (i) management fees from Fitzgeralds Black Hawk for 1997;
(ii) management fees from Cliff Castle for 1998 and 1997; (iii) payments
from the Turning Stone settlement agreement for 1998 and 1997; (iv)
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<PAGE> 29
non-recurring revenue of $8.0 million for termination of the Cliff
Castle Management Agreement in 1998; (v) corporate expenses not
allocated to the Operating Properties for all periods presented, which
includes $2.2 million of restructuring expenses for 1999.
(3) Excludes inter-company debt write-off of $3.2 million from Nevada Club
in 1999.
(4) For a definition of EBITDA and Adjustments to EBITDA, see Notes 2 and 5
of Notes to Selected Financial Data.
(5) Fitzgeralds Las Vegas invested $0.9 million, $0.8 million and $0.8
million for 1999, 1998 and 1997, respectively, in FSE. Prior to 1999,
such investments were reported under the equity method with no impact on
earnings. The 1999 investment was charged against earnings. See Note 5
"Impairment Loss" of Notes to Consolidated Financial Statements.
(6) For the Ratio of Earnings to Fixed Charges, earnings are defined as
earnings before income taxes, interest on indebtedness, imputed interest
on capital lease obligations and the portion of rent expense deemed to
represent interest. Fixed charges consist of interest on indebtedness,
imputed interest on capital lease obligations and the portion of rent
expense deemed to represent interest. Earnings were insufficient to
cover fixed charges by $18.0 million, $10.0 million and $10.6 million
for the years ended December 31, 1999, 1998 and 1997, respectively.
FISCAL 1999 COMPARISON TO FISCAL 1998
Operating Revenues
Total revenues for the Properties were $221.5 million and net operating revenues
were $202.4 million for 1999, representing decreases of 1.3% and 2.3%,
respectively, over total revenues for the Properties of $224.4 million and net
operating revenues of $207.1 million for 1998. Such decreases were largely the
result of the termination of the Cliff Castle Management Agreement and
completion of the settlement agreement with Turning Stone, which provided
revenues of $9.8 million and $1.1 million, respectively, in 1998. To maintain
market share in each of its four existing markets, the Company has found it
necessary to increase its promotional and complimentary expenses to meet the
challenges of the intense competition, resulting in reduced operating margins.
The Company's business can be separated into four operating departments: casino,
food and beverage, rooms (except for Fitzgeralds Black Hawk) and other. Casino
revenues (of which approximately 83.9% and 82.7% are derived from slot machine
revenues for 1999 and 1998, respectively) increased 5.7% to $171.7 million for
1999 from the $162.5 million recorded for 1998.
Room revenues (at 9.7% and 9.5% of total revenues for 1999 and 1998,
respectively) increased 1.6% from 1998. Fitzgeralds Las Vegas room revenues
increased 6.3% due to an increase in occupancy rates to 92.1% in 1999 from 88.8%
in 1998, while its average daily rate increased 3.7%. Fitzgeralds Reno room
revenues decreased 2.5%, as an increase in occupancy to 89.8% in 1999 from 89.7%
in 1998 was offset by a 1.0% decrease in the average daily rate. Fitzgeralds
Tunica room revenues decreased 0.4% due to a decrease in occupancy to 92.1% in
1999 from 94.3% in 1998, which was offset by a 1.9% increase in the average
daily rate.
Food and beverage revenues (at 11.1% and 11.2% of total revenues for 1999 and
1998, respectively) decreased 1.3% from 1998. Decreases in food revenues of 7.4%
and 8.1% at Fitzgeralds Las Vegas and Fitzgeralds Black Hawk, respectively, were
offset by increases of 4.2% and 4.0% at Fitzgeralds Reno and Fitzgeralds Tunica,
respectively. The decrease at Fitzgeralds Las Vegas is due to changes in
utilization
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<PAGE> 30
of food product as a marketing strategy to generate traffic volumes while the
decrease at Fitzgeralds Black Hawk is due to increased gaming competition in the
Black Hawk market.
Other revenues decreased $12.1 million or 76.9% for 1999, primarily due to the
termination of the Cliff Castle Management Agreement and completion of the
Turning Stone settlement agreement in 1998.
Promotional allowances showed a net increase of $1.8 million or 10.7% for 1999,
reflecting the increased level of competition in all four markets.
Operating Costs and Expenses
Total operating costs and expenses for the Properties increased 3.3%, to $190.8
million for 1999 from $184.7 million for 1998.
Casino expenses were $83.9 million for 1999, a 3.0% increase from $81.4 million
for 1998, primarily due to increases in promotional expenses associated with the
Fitzgeralds Card. Food and beverage expenses decreased 15.2% to $15.5 million
for 1999 from $18.3 million for 1998, due to improved cost controls at all of
the Operating Properties with Fitzgeralds Las Vegas and Fitzgeralds Tunica
achieving the largest improvement as expenses decreased 22.9% and 14.7%,
respectively, for 1999. Room expenses decreased 0.1% for 1999 from $12.6 million
in 1998. Selling, general and administrative expenses increased 10.7% to $62.6
million for 1999 from $56.6 million for 1998, which in 1999, includes $2.2
million of professional fees and expenses incurred in conjunction with the
ongoing development and negotiation of the Company's restructuring. Such
expenses also include professional fees and expenses paid by the Company for the
financial and legal advisors to the Committee.
Personnel expenses increased 3.0%, to $79.6 million for 1999 from $77.4 million
for 1998. The increase is due to continued competitive pressures in the Tunica
and Black Hawk markets as personnel expenses at Fitzgeralds Tunica and
Fitzgeralds Black Hawk increased 5.8% and 6.8%, respectively, from 1998.
Marketing expenses, which include advertising, promotional material and special
events, increased 2.0% for 1999. The increase reflects more intensive marketing
efforts at each property undertaken in response to increasing competition in
each of the markets in which the Company operates, particularly at Fitzgeralds
Black Hawk. The Company's strategy is to utilize its expanded and renovated
facilities as additional marketing elements and to continue to adjust marketing
expense levels as needed to respond to competition.
Depreciation and amortization expense increased 3.9% to $14.2 million for 1999
from $13.7 million for 1998, due to the acquisition of additional property and
equipment.
Income from Operations
As a result of the foregoing, income from operations for the Properties
decreased 48.3% to $11.6 million for 1999 from $22.4 million in 1998.
Net Interest Expense
Interest expense (net of interest income) increased 10.6% to $29.2 million for
1999 from $26.4 million for 1998, due primarily to $2.2 million of additional
interest resulting from the default on the Senior Secured Notes. Failure to make
the regularly scheduled interest payment on June 15, 1999 resulted in a 1.0%
increase in the interest rate to 13.25%, effective June 16, 1999.
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<PAGE> 31
Net Loss
Net loss increased to $20.9 million in 1999 compared to $8.0 million in 1998.
FISCAL 1998 COMPARISON TO FISCAL 1997
During 1998, the Company experienced minimal revenue growth after taking into
account completion of the Company's acquisition of Fitzgeralds Black Hawk in
August 1997 and the non-recurring fees from termination of the Cliff Castle
Management Agreement. To maintain market share in each of its four existing
markets, the Company has found it necessary to increase its promotional and
complimentary expenses to meet the challenges of the intense competition,
resulting in reduced operating margins.
Operating Revenues
Total revenues for the Properties were $224.4 million and net operating revenues
for the Properties were $207.1 million for 1998, representing increases of 19.2%
and 19.4%, respectively, over the Properties' total revenues of $188.2 million
and net operating revenues of $173.5 million for 1997. Such increases were
largely the result of the consolidation of operating results of Fitzgeralds
Black Hawk for the full year 1998.
The Company's business can be separated into four operating departments: casino,
food and beverage, rooms and other. Casino revenues for the Properties (of which
approximately 82.7% and 79.6% are derived from slot machine revenues for 1998
and 1997, respectively) increased 19.6% to $162.5 million for 1998 from the
$135.9 million recorded for 1997, primarily due to the inclusion of operating
results of Fitzgeralds Black Hawk for the full year 1998.
Room revenues for the Properties (at 9.5% and 11.3% of total revenues for the
Properties for 1998 and 1997, respectively) decreased 0.5% from 1997 as slight
revenue increases in Tunica and Reno were offset by a decrease in Las Vegas
revenues. Tunica room revenues increased 0.7% due to an increase in occupancy
rates to 94.3% in 1998 from 89.3% in 1997, while its average daily rate
decreased 6.0%. Fitzgeralds Reno room revenues increased 0.1%, as a decrease in
occupancy to 89.7% in 1998 from 90.2% in 1997 was offset by a 1.5% increase in
the average daily rate. Las Vegas room revenues decreased 2.0% due to a decrease
in occupancy to 88.8% in 1998 from 89.7% in 1997 as well as a decrease of 1.1%
in the average daily rate.
Food and beverage revenues for the Properties (at 11.2% of total revenues for
the Properties for both 1998 and 1997) increased $3.8 million or 18.2% from 1997
to 1998. This increase was the result of the inclusion of Fitzgeralds Black Hawk
revenues of approximately $1.6 million as well as increased food revenues at
Fitzgeralds Reno, Fitzgeralds Las Vegas and Fitzgeralds Tunica, which posted
gains of 9.9%, 6.5% and 18.8%, respectively.
Other revenues for the Properties increased $5.8 million or 58.0% for 1998,
primarily due to the proceeds from the termination of the Cliff Castle
Management Agreement.
Promotional allowances for the Properties showed a net increase of $2.5 million
or 17.0% for 1998. This increase resulted primarily from an increase of
approximately $1.9 million for Fitzgeralds Tunica as well as an increase in
Fitzgeralds Black Hawk promotional allowances of approximately $1.0 million.
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<PAGE> 32
Operating Costs and Expenses
Total operating costs and expenses for the Properties increased 18.0%, to $184.7
million for 1998 from $156.5 million for 1997, primarily due to an increase in
Fitzgeralds Black Hawk operating expenses of approximately $18.7 million.
Casino expenses for the Properties were $81.4 million for 1998, a 23.3% increase
from the $66.0 million for 1997, primarily due to increased volume and increased
personnel as well as the increase of expenses from Fitzgeralds Black Hawk for
the full year. Food and beverage expenses for the Properties increased 13.1%, to
$18.3 million for 1998 from $16.2 million for 1997, primarily as the result of
an increase in Fitzgeralds Black Hawk food and beverage expenses of
approximately $0.8 million. Room expenses for the Properties increased 0.5% to
$12.6 million for 1998 from $12.5 million for 1997. Selling, general and
administrative expense for the Properties increased 19.1% to $56.6 million for
1998 from $47.5 million for 1997, due mostly to increases in personnel and
marketing expenses as explained further below.
Personnel expenses for the Properties increased 14.1%, to approximately $77.4
million for 1998 from approximately $67.8 million for 1997. This increase
resulted primarily from the inclusion of Fitzgeralds Black Hawk personnel
expenses for the full year 1998 as well as a 12.2% increase for Fitzgeralds
Tunica.
Marketing expenses for the Properties, which include advertising, promotional
material, special events and the operations of the Fitzgeralds Card, increased
26.6% for 1998. The increase reflects more intensive marketing efforts at each
property undertaken in response to increasing competitive activity in each of
the markets in which the Company operates, particularly in Tunica, and the
inclusion of Fitzgeralds Black Hawk marketing expenses for the full year 1998.
The Company's strategy is to utilize its expanded and renovated facilities as
additional marketing elements and to continue to adjust marketing expense levels
as needed to respond to competition.
Depreciation and amortization expense of the Properties increased 15.2%, to
$13.7 million for 1998 from $11.9 million for 1997. The increase was primarily
due to the inclusion of Fitzgeralds Black Hawk depreciation and amortization for
the full year 1998.
Income from Operations
As a result of the foregoing, income from operations for the Properties
increased 31.9%, to $22.4 million for 1998 from $17.0 million in 1997.
Net Interest Expense
Interest expense for the Properties (net of interest income), increased 6.7%, to
$26.4 million for 1998 from $24.7 million for 1997, due primarily to increased
debt as a result of the acquisition of the remaining 78% membership interest in
101 Main in August 1997.
Loss Before Income Taxes and Extraordinary Item
For the reasons described above, the Properties recorded a loss before income
taxes and extraordinary item of $8.0 million in 1998 compared to an $8.4 million
loss before taxes recorded in 1997.
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<PAGE> 33
Extraordinary Item and Net Loss
In connection with the Company's issuance of the Senior Secured Notes in
December 1997, an extraordinary loss of $19.2 million was recorded to reflect
the cost associated with the early retirement of certain debt of the Company.
Net loss for the Properties decreased to $8.0 million in 1998 compared to $27.6
million in 1997, reflecting the impact of the extraordinary item.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had unrestricted cash of $22.1 million
compared to $13.0 million at December 31, 1998. The Company's primary sources of
liquidity and cash flows during 1999 were $21.1 million from operations and $4.2
million from the sale of assets, which was comprised primarily of Nevada Club
and Harolds Club assets. Uses of liquidity during 1999 included $5.6 million for
the acquisition of property and equipment and $9.6 million for payments on debt.
Net cash used in investing activities was $2.0 million for 1999 compared to $5.5
million for 1998. Net cash used in financing activities was $10.1 million for
1999 compared to $8.5 million for 1998.
The Company's principal sources of capital will consist of cash from operations,
the Credit Facility, to the extent the lender permits the Company to utilize the
Credit Facility while it is in default on its Senior Secured Notes, and vendor
or third party financing of gaming and other equipment. In October 1998, the
Company established the $15.0 million Credit Facility with a lending
institution, of which up to $5.0 million was permitted to be used for capital
projects at Fitzgeralds Black Hawk and up to $10.0 million of which was
permitted to be used for general corporate purposes. The Credit Facility is
secured by a lien on substantially all of the Company's assets, which lien is
senior to the lien securing the Senior Secured Notes. The Company believes that
it has adequate sources of liquidity to meet its normal operating requirements.
However, its relatively high degree of leverage has prevented it from making the
level of capital expenditures required to maintain and enhance the competitive
position of its properties. Management and the Board of Directors did not see
any way to resolve this problem without restructuring the Company's
indebtedness. On May 13, 1999, the Company's Board of Directors determined that,
pending a restructuring of its indebtedness, it would not be in the best
interest of the Company to make the regularly scheduled interest payments on its
Senior Secured Notes. The Company has not made the regularly scheduled interest
payments of $12.5 million due and payable on June 15, 1999 and December 15,
1999. An Event of Default under the Indenture pursuant to which the Senior
Secured Notes were issued occurred on July 15, 1999, and is continuing as of the
date hereof. An additional $2.2 million of interest incurred from the default on
the Senior Secured Notes has also not been paid. No action has been taken by
either the Indenture Trustee or holders of at least 25% of the Senior Secured
Notes to accelerate the Senior Secured Notes and declare the unpaid principal
and interest to be due and payable. In the event the Senior Secured Notes are
accelerated, the Company would not have the resources available to repay such
indebtedness. The Company has initiated and is continuing discussions with
representatives of the Committee concerning a restructuring of the Company's
indebtedness and reorganization of the Company that may include the sale of
some or all of the Company's properties.
A default on the Senior Secured Notes also constitutes a default under the
Credit Facility and, although the Company believes the lending institution will
continue to have adequate security for the Company's obligations thereunder,
there can be no assurance that the lending institution will continue to make
additional advances. The Company has repaid all amounts borrowed under the
Credit Facility.
By suspending the interest payments on the Senior Secured Notes until such time
as a restructuring plan has been negotiated and implemented, the Company
believes that its liquidity and capital resources will be sufficient to maintain
all of its normal operations at current levels during the restructuring period
and
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<PAGE> 34
does not anticipate any adverse impact on its operations, customers or
employees. However, costs incurred and to be incurred in connection with any
restructuring plan have been and will continue to be substantial and, in any
event, there can be no assurance that the Company will be able to successfully
restructure its indebtedness or that its liquidity and capital resources will be
sufficient to maintain its normal operations during the restructuring period.
EBITDA AND ADJUSTED EBITDA
The Company's earnings before interest, income taxes, depreciation and
amortization ("EBITDA") was $25.6 million for 1999 and $35.4 million for 1998.
EBITDA is calculated by adding depreciation and amortization expenses to income
from operations. The Company's Adjusted EBITDA was $27.9 million for 1999 and
$30.0 for 1998. Adjusted EBITDA is determined based on the adjustments described
in Note 5 to "Statement of Operations Data." However, EBITDA should only be read
in conjunction with all of the Company's financial data summarized above and its
financial statements prepared in accordance with GAAP appearing elsewhere
herein, and should not be construed as an alternative either to income from
operations (as determined in accordance with GAAP) as an indication of the
Company's operating performance or to cash flows from operating activities (as
determined in accordance with GAAP) as a measure of liquidity. This presentation
of EBITDA may not be comparable to similarly titled measures reported by other
companies.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges measures the extent by which earnings, as
defined, exceed certain fixed charges. Earnings are defined as earnings before
income taxes, interest on indebtedness, imputed interest on capital lease
obligations and the portion of rent expense deemed to represent interest. Fixed
charges consist of interest on indebtedness, imputed interest on capital lease
obligations, and the portion of rent expense deemed to represent interest.
Earnings were insufficient to cover fixed charges by $18.0 million and $10.0
million for the years ended December 31, 1999 and 1998, respectively.
BUSINESS SEASONALITY
The gaming operations of the Company in certain locations may be seasonal and,
depending on the location and other circumstances, the effects of such
seasonality could be significant. At Fitzgeralds Las Vegas, business levels are
generally weaker from Thanksgiving through the middle of January (except during
the week between Christmas and New Year's) and throughout the summer, and
generally stronger from mid-January through Easter and from mid-September
through Thanksgiving. At each of the three other Fitzgeralds-brand properties,
business levels are typically weaker from Thanksgiving through the end of the
winter and typically stronger from mid-June to mid-November.
The Company's results are also affected by inclement weather in relevant
markets. The Fitzgeralds Black Hawk site, located in the Rocky Mountains of
Colorado, and the Fitzgeralds Reno site, located in the foothills of the Sierra
Nevada mountains in Nevada, are subject to snow and icy road conditions during
the winter months. Any such severe weather conditions may discourage potential
customers from visiting the Company's facilities.
IMPACT OF THE YEAR 2000 ON COMPUTER SYSTEMS AND APPLICATIONS
Year 2000 ("Y2K") efforts began in 1997 and involved inventory, assessment,
remediation and testing of operational and business systems. As of the date
hereof, the Company has not experienced any significant
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<PAGE> 35
Y2K related problems. If any residual Y2K related problems are discovered, the
Company believes that they would not have a material effect on operations.
Starting in 1997 and continuing through December 31, 1999, the Company funded
approximately $0.8 million to test applications, replace non-compliant hardware
and software and train personnel to operate new or modified systems.
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<PAGE> 36
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily as a result of its
borrowing activities, which include borrowings under its Credit Facility and
third party financing. These sources of credit, along with cash flow from
operations, are used to maintain liquidity and fund business operations. Ten
million dollars of the Credit Facility was established for enhancing the
Company's liquidity and, to the extent the lender permits the Company to utilize
the Credit Facility while it is in default on its Senior Secured Notes, could
primarily be used for fluctuations in cash flow from operations and for general
corporate purposes. The Company typically replaces borrowings under its third
party vendor financing, as necessary, with shorter termed variable rate
financing generally secured by the assets being acquired. The nature and amount
of the Company's debt may vary as a result of future business requirements,
market conditions and other factors. The definitive extent of the Company's
interest rate risk is not quantifiable or predictable because of the variability
of future interest rates and business financing requirements, but the Company
does not believe such risk is material. The Company does not currently use
derivative instruments to adjust the Company's interest rate risk profile.
The table below presents principal amounts and related weighted-average interest
rates by year of maturity for the Company's debt obligations at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
EXPECTED EXPECTED MATURITY WEIGHTED AVERAGE
MATURITY DATE AMOUNTS INTEREST RATES FAIR VALUE
- -------------------- ------------------------ ---------------------- ------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
Fixed Rate 1999 1998 1999 1998 1999 1998
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1999 $ - $ 3,211 - 3.92%
2000 203,840 763 13.23% 8.67%
2001 246 286 9.76% 10.44%
2002 131 106 8.93% 11.22%
2003 129 117 9.07% 11.18%
2004 79 - 10.30% -
Thereafter 14 203,280 10.30% 12.25%
----------- ----------- ---------- ---------- ----------- -----------
Total Fixed Rate $ 204,439 $ 207,763 $ 113,014 $ 119,648
----------- ----------- ----------- -----------
Variable Rate
1999 $ - $ 1,424 - 11.35%
2000 - 564 - 11.10%
2001 - 88 - 11.29%
2002 - - - -
2003 - 3,000 - 7.68%
2004 - - - -
Thereafter - - - -
----------- ----------- ---------- ---------- ----------- -----------
Total Variable Rate $ - $ 5,076 $ - $ 5,076
----------- ----------- ----------- -----------
Total $ 204,439 $ 212,839 $ 113,014 $ 124,724
=========== =========== =========== ===========
</TABLE>
The Company does not utilize financial instruments for trading or other
speculative purposes, nor does it utilize leveraged financial instruments. On
the basis of the fair value of the Company's market sensitive instruments at
December 31, 1999, the Company does not consider the potential near-term losses
in
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<PAGE> 37
future earnings, fair values and cash flows from reasonably possible near-term
changes in interest rates to be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is listed under Item 14 of Part IV of this
Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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<PAGE> 38
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF REGISTRANT
The following tables set forth certain information with respect to directors,
executive officers and significant employees of the Company as of December 31,
1999:
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION(s) HELD
- ---- --- ----------------
<S> <C> <C>
Philip D. Griffith 54 Chairman, President and Chief Executive Officer
Philip P. Hannifin(1) 65 Director, Executive Vice President
Patricia W. Becker 48 Director
Max L. Page 50 Director; Executive Vice President and a director of
Fitzgeralds Reno, Inc., and General Manager of
Fitzgeralds Reno
Michael E. McPherson 48 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
</TABLE>
SIGNIFICANT EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION(s) HELD
---- --- ----------------
<S> <C> <C>
Paul H. Manske 59 Executive Vice President of Marketing
Cara L. Brown 37 Vice President and General Counsel
William J. Noonan, III 48 Vice President and a director of Fitzgeralds Las
Vegas, Inc., and General Manager of Fitzgeralds Las
Vegas
Domenic Mezzetta 64 Vice President and a director of Fitzgeralds
Mississippi, Inc., ("FMI") and General Manager of
Fitzgeralds Tunica
Joe C. Collins 60 Vice President and a director of Fitzgeralds Black
Hawk, Inc. and Fitzgeralds Black Hawk II, Inc., and
General Manager of Fitzgeralds Black Hawk
</TABLE>
- --------
(1) Mr. Hannifin was appointed to the Board of Directors effective April 29,
1999, to fill the vacancy created by the resignation of Michael A.
Ficaro effective April 27, 1999.
PHILIP D. GRIFFITH, one of the Company's founders, has been President, Chief
Executive Officer and a director of the Company and certain of its subsidiary
companies since its inception in 1984 and has been Chairman of the Board since
August 1997. Prior to his involvement with the Fitzgeralds group, Mr. Griffith
was active in the gaming industry holding a variety of positions, including
Chief Financial Officer and later President of Harolds Club in Reno from 1973 to
1984 and President of the Sands Hotel & Casino in Las Vegas with the Howard
Hughes organization from 1982 to 1984. From 1968 to 1973, Mr. Griffith was a
Certified Public Accountant with the St. Louis, Missouri and Las Vegas offices
of Deloitte Haskins & Sells.
PHILIP P. HANNIFIN has served as Executive Vice President since joining the
Company in 1991 and was a director of certain subsidiaries of the Company from
1986 to 1995. He has been active in the gaming industry holding a variety of
positions, including a director of Riviera Holdings Corp. from 1993 to 1998,
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<PAGE> 39
Executive Vice President and a director of MGM Grand, Inc. from 1987 to 1991,
President of Harrah's West from 1984 to 1986 and Executive Vice President and a
director of Summa Corporation from 1977 to 1984. He is a past Chairman of the
Nevada State Gaming Control Board. He holds a degree in psychology from the
University of Nevada at Reno. Mr. Hannifin has been a director of the Company
since April 1999. He is Chairman of the Audit Committee of the Board of
Directors and a member of the Compensation Committee of the Board of Directors.
He is also a director of American Wagering, Inc.
PATRICIA W. BECKER. Ms. Becker has been Senior Vice President of Corporate
Affairs & Legal of Aladdin Gaming LLC since May 1998. From October 1993 to
January 1995, she served as Chief of Staff to Nevada Governor Bob Miller. From
September 1984 to October 1993, Ms. Becker was Senior Vice President, General
Counsel and Secretary for Harrah's Casino Hotels, where she was responsible for
all legal affairs. She was also a member of the senior strategic management
group. From January 1983 to September 1984, Ms. Becker was a member of the
Nevada State Gaming Control Board and from July 1979 to January 1983, she was a
Deputy and Chief Deputy Attorney General assigned to the Nevada Gaming Division.
She is President of Patricia Becker & Associates which provides consulting
services to the gaming industry, a Vice Chair for the Gaming Law Section of the
American Bar Association, Vice President of the International Association of
Gaming Attorneys and a past president of the Nevada Trial Lawyers Association.
Ms. Becker has been a director of the Company since December 1995. She is
Chairperson of the Compensation Committee of the Board of Directors and a member
of the Audit Committee of the Board of Directors.
MAX L. PAGE, one of the Company's founders, has served as Executive Vice
President and a director of certain subsidiaries of the Company since September
1986 and as General Manager of Fitzgeralds Reno since November 1994. He has a
B.A. in political science and a Masters in public administration from Brigham
Young University. Mr. Page has been a director of the Company since January
1998. He was also a director of Nevstar Gaming & Entertainment Corporation
during 1999, but resigned in March 2000.
MICHAEL E. MCPHERSON has been Executive Vice President since July 1999,
Secretary since September 1997 and Chief Financial Officer and Treasurer since
August 1997. Prior thereto he was Senior Vice President. He has served in
various executive and financial positions since joining the Company in March
1985, including Senior Vice President of Operations from September 1995 to July
1997, Vice President of Finance from November 1994 to September 1995, Vice
President and Treasurer for certain subsidiaries of the Company and Director of
Finance for Fitzgeralds Reno. Mr. McPherson has a degree in business
administration from the University of Nevada at Reno and is an associate member
of the Nevada Society of Certified Public Accountants.
PAUL H. MANSKE, one of the Company's founders, has been Executive Vice President
of Marketing since September 1999. Prior thereto he was Senior Vice President of
Marketing and Executive Vice President of certain subsidiaries of the Company.
He was Vice President of Marketing for Harolds Club and the Sands Hotel & Casino
with the Howard Hughes organization in Las Vegas from 1978 to 1984 and a
marketing executive with the Ford Motor Company from 1964 to 1978. Mr. Manske
has a degree in business administration from Jacksonville University.
CARA L. BROWN has been Vice President and General Counsel since joining the
Company in May 1996. Prior thereto, she was an associate counsel at Harrah's Las
Vegas and a staff attorney at Jones, Jones, Close & Brown in Las Vegas. Ms.
Brown has a degree from the University of North Carolina at Chapel Hill and a
law degree from the Marshall-Wythe School of Law at the College of William and
Mary in Williamsburg, Virginia.
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<PAGE> 40
WILLIAM J. NOONAN, III has been Vice President and a director of Fitzgeralds
Las Vegas, Inc. and General Manager of Fitzgeralds Las Vegas since May 1994. He
was first employed as Vice President of FLVI in January 1994. Prior to joining
the Company, he served as city manager of Perry, Florida from January 1982 to
September 1987; Cape Coral, Florida from September 1987 to January 1991; and Las
Vegas, Nevada from February 1991 to July 1993. He was also engaged in business
and gaming consulting services from August 1993 to February 1994. Mr. Noonan has
a Master's degree in public administration from the University of Kansas and a
B.S. degree in public administration and economics from South Missouri State
University.
DOMENIC MEZZETTA has been Vice President and a director of Fitzgeralds
Mississippi, Inc. and General Manager of Fitzgeralds Tunica since joining the
Company in May 1998. Prior there to, he was Vice President & General Manager of
Hollywood Casino & Hotel in Tunica from January 1994 to May 1998; Vice President
& General Manager of Island Fantasy Casino in Tunica from August 1993 to January
1994; General Manager of El Capitan in Hawthorne, Nevada from May 1990 to August
1993; Assistant General Manager of the Stardust Hotel & Casino in Las Vegas from
May 1986 to May 1990; General Manager of Cactus Pete's Resort Hotel & Casino in
Elko, Nevada from October 1983 to May 1985. He also held various executive level
positions at Harvey's Resort Hotel and Inn Casino at Lake Tahoe, Nevada, from
July 1971 to October 1983.
JOE C. COLLINS has been Vice President and a director of Fitzgeralds Black Hawk
Inc, and General Manager of Fitzgeralds Black Hawk since January 1995. He has
also been Vice President and a director of Fitzgeralds Black Hawk II, Inc. since
July 1997. He was hotel director at Fitzgeralds Reno from April 1985 to December
1994. Mr. Collins currently serves on the executive Board of the Black Hawk
Casino Owners Association and on the Board of the Black Hawk Business
Improvement District.
BOARD OF DIRECTORS
Directors are elected at the annual meeting of stockholders and each director is
elected to serve until a successor is elected and qualified. The Company has not
held an annual meeting of stockholders since August 1998. The number of
directors may not be less than three or more than nine. In cases where all of
the common shares of the Company are owned beneficially or of record by either
one or two stockholders, the number may be less than three but not less than the
number of stockholders. The current Board of Directors consists of four
directors.
The Board of Directors has two standing committees: Audit and Compensation.
The Audit Committee reviews reports of the Company's independent certified
public accountants and makes recommendations to the full Board on matters
concerning the Company's audits and the selection of independent certified
public accountants. The Audit Committee does not have a formal written Audit
Committee charter. The members of the Audit Committee are Patricia W. Becker and
Philip P. Hannifin, as Chairman. Although the Company's Common Stock is not
listed on any stock exchange or quoted on NASDAQ, only Ms. Becker would be
deemed independent under current NASDAQ rules. The Company's unaudited financial
statements included in Forms 10-Q subsequent to the date of this Annual Report
on Form 10-K will be reviewed by the Company's independent certified public
accountants in accordance with the procedure set forth in Statement on
Accounting Standards No. 71.
The Compensation Committee reviews and makes recommendations to the Board of
Directors with respect to salaries, bonuses and other compensation of the
Company's executive officers. The members of the Compensation Committee are
Philip P. Hannifin and Patricia W. Becker, as Chairperson.
-38-
<PAGE> 41
Directors who are also employees of the Company do not receive any compensation
for their services as directors. Non-employee directors are paid fees of $40,000
per year and $1,000 per Board meeting attended in person or telephonically. Ms.
Becker has received five-year options to purchase 9,000 shares of the Company's
Common Stock, exercisable at a price equal to the fair market value of the
Common Stock on the date of grant. Ms. Becker is also chairperson of the Gaming
Compliance Committee (a non-Board committee) for which she is paid an additional
fee of $40,000 per year and $1,000 per Committee meeting attended in person or
telephonically. She also participates in all health insurance plans generally
available to the Company's employees. The Company reimburses each director for
reasonable out-of-pocket expenses incurred in his or her capacity as a member of
the Board of Directors. No payments are made for actions taken in writing. Each
director attended 100% of the total number of meetings of the Board and the
committees on which he or she served during the fiscal year ended December 31,
1999.
The Company has no nominating committee or other committee performing similar
functions.
NON-BOARD COMMITTEES
The Executive Committee, comprised of Michael E. McPherson, Max L. Page and
Philip D. Griffith, as Chairman, provides a forum for interaction and discussion
among its senior executives.
The Gaming Compliance Committee, comprised of Cara L. Brown, Kathleen Bryant,
Philip P. Hannifin, Michael E. McPherson and Patricia W. Becker, as Chairperson,
establishes procedures for and monitors compliance with gaming regulations.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires officers and
directors of the Company and persons who own more than ten percent of a
registered class of the Company's equity securities (collectively, "Insiders")
to file initial reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission") and to furnish the Company
with copies of all forms filed.
To the Company's knowledge, based solely on its review of the copies of such
forms furnished to the Company and written representation that no other reports
were required, during the past fiscal year all Section 16(a) filing requirements
applicable to the Company's Insiders were met.
-39-
<PAGE> 42
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by the Company
in the three fiscal years ended December 31, 1999, 1998 and 1997 to the
Company's Chief Executive Officer and each of its other most highly compensated
executive officers (collectively the "named executive officers"). The named
executive officers include: (i) each person who served as Chief Executive
Officer during 1999; (ii) each person who (a) served as an executive officer at
December 31, 1999, (b) was among the four most highly paid executive officers of
the Company, not including the Chief Executive Officer, during 1999; and (c)
received over $100,000 in compensation in 1999; (iii) up to two persons who
would be included under clause (ii) above had they served as an executive
officer at December 31, 1999; and (iv) certain persons who served as executive
officers of a subsidiary of the Company. Titles refer to the Company unless
otherwise indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
-----------------------------------------------------------------------
OTHER
ANNUAL SECURITIES ALL OTHER
FISCAL COMPENSATION UNDERLYING COMPENSATION
NAME & POSITION YEAR SALARY($) BONUS($)(2) ($)(3) OPTIONS (#) ($)(4)
--------------- ---- --------- ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Philip D. Griffith 1999 541,997 -- -- -- 273,715
Chairman, President & 1998 511,125 225,000 -- -- 126,877
Chief Executive Officer 1997 510,008 225,000 -- 100,000 114,448
Michael E. McPherson 1999 236,538 -- -- 11,854(5) 7,714
Executive Vice President 1998 222,115 75,000 -- 11,854 3,675
Chief Financial Officer, 1997 169,327 82,500 -- 19,000 3,207
Treasurer & Secretary
Paul H. Manske 1999 274,038 -- -- -- 19,174
Executive Vice President 1998 249,313 75,000 -- -- 11,448
Marketing 1997 224,192 75,000 -- 19,000 10,701
Max L Page 1999 240,500 -- -- -- 21,855
Director; Executive Vice 1998 224,423 20,000 -- -- 7,575
President of FRI & 1997 207,308 20,000 -- 9,000 9,976
General Manager of
Fitzgeralds Reno
Domenic Mezzetta(6) 1999 195,481 -- -- -- 18,535
Vice President of FMI 1998 109,616 -- -- -- 1,180
& General Manager of
Fitzgeralds Tunica
</TABLE>
- -----------
(1) Amounts shown include cash compensation earned for the periods reported
whether paid or accrued in such periods.
(2) Amounts shown in 1998 represent bonus compensation earned in 1998 and not
calculable at the time of filing the Form 10-K for the fiscal year ending
December 31, 1998. As of December 31, 1999, the Company has accrued
$481,989 for payment of bonuses earned in 1999; however, individual
amounts have not yet been determined and approved by the Compensation
Committee.
(3) Other Annual Compensation for perquisites for each individual named above
for 1999, 1998 and 1997 aggregated less than (a) 10% of the total annual
salary and bonus for each individual or (b) $50,000, whichever is lower;
therefore, no such amounts are included.
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<PAGE> 43
(4) Amounts represent premiums for life insurance and long-term disability
policies, medical benefits and the Company's Profit Sharing and 401(k)
contributions. In fiscal 1999, the Company's Profit Sharing and 401(k)
contributions were $2,400, $2,400, $2,400, $2,400 and $999 for Messrs.
Griffith, McPherson, Manske, Page and Mezzetta, respectively. During 1999,
the Company paid $10,415, $3,288, $5,652, $16,187; and $16,737 in medical
benefits for Messrs. Griffith, McPherson, Manske, Page and Mezzetta,
respectively. During 1999, the Company paid $260,900 in premiums for split
dollar, term life insurance and long-term disability policies for Mr.
Griffith and $2,025, $11,121, $3,268 and $798 in premiums for term life
insurance and long-term disability policies for Messrs. McPherson, Manske,
Page and Mezzetta, respectively. See Employment Agreements with Executive
Officers and Key Employees.
(5) Options that would have normally expired on June 30, 1998 were cancelled
and re-granted with an expiration date of June 30, 1999. The term of the
options was later extended to December 31, 1999, at which time they
expired unexercised.
(6) Mr. Mezzetta was appointed Vice President of FMI and General Manager of
Fitzgeralds Tunica on May 25, 1998.
OPTION GRANTS TABLE
The following table sets forth, with respect to the named executive officers,
information concerning the grant of stock options during the fiscal year ended
December 31, 1999. During 1999, a total of 53,261 stock options were canceled
and a total of 53,261 were re-granted, of which 11,854 stock options were
re-granted to one of the named executive officers. The Company has never granted
stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
---------------------------- REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS EXERCISE ANNUAL RATE OF STOCK
UNDERLYING GRANTED TO OR BASE PRICE APPRECIATION
OPTIONS EMPLOYEES IN PRICE EXPIRATION FOR OPTION TERM(1)
NAME GRANTED #(2) FISCAL YEAR ($/SH) DATE 5% 10%
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Philip D. Griffith 0 0 - - $- $-
Michael E. McPherson 11,854 22.3% 1.00 12/31/99 - -
Paul H. Manske 0 0 - - - -
Max L. Page 0 0 - - - -
Domenic Mezzetta 0 0 - - - -
</TABLE>
- --------
(1) The Company's Common Stock is not publicly traded.
(2) In June 1999, the Board of Directors canceled 53,261 options and
re-granted options to purchase 53,261 shares of the Company's Common Stock
with an expiration date of June 30, 1999. The term of the options was
later extended to December 31, 1999, at which time they expired
unexercised.
OPTION EXERCISES TABLE
The following table sets forth, with respect to the named executive officers,
information concerning the exercise of stock options during the fiscal year
ended December 31, 1999, and the number of unexercised stock options held as of
December 31, 1999.
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<PAGE> 44
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1999(#) AT DECEMBER 31, 1999(1)
ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Philip D. Griffith - - 100,000 0 $- $-
Michael E. McPherson - - 19,000 0 - -
Paul H. Manske - - 19,000 0 - -
Max L. Page - - 9,000 0 - -
Domenic Mezzetta - - 0 0 - -
</TABLE>
- --------
(1) The exercise price of the unexercised options exceeds the assigned value
of the Common Stock. The Company's Common Stock is not publicly traded.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Company has entered into employment agreements with Messrs. Griffith,
McPherson, Manske, Page and Ms. Brown to serve in their present offices for
terms expiring June 28, 2003, July 5, 2002, September 1, 2002, September 1, 2002
and April 30, 2001, respectively. As of February 24, 2000, Messrs. Griffith,
McPherson, Manske, Page and Ms. Brown have salaries of $546,000, $250,000,
$250,000, $250,000 and $115,763, respectively, and their respective employment
agreements generally provide for annual merit increases. The employment
agreements also provide that such persons will participate in the Company's
executive compensation plans, health plan and any other benefit plan established
for selected officers of the Company and that in the event of a termination of
employment without "good cause" (as defined in the agreements), such persons
will be entitled to any unpaid salary in a specified percentage through the
remainder of the term of their respective agreement.
FMI has entered into an employment agreement with Mr. Mezzetta under which he
was appointed Vice President of FMI and General Manager of Fitzgeralds Tunica
for a term expiring on May 24, 2001. As of February 24, 2000, Mr. Mezzetta
receives a salary of $199,500 and is eligible to participate in FMI's bonus
plan, health plan and in any other benefit plan established by Fitzgeralds
Tunica for its executives.
Consistent with industry practice, the Company has entered into employment
agreements with certain of its other vice presidents and departmental directors.
EXECUTIVE BONUS PLAN
The Company has established an Executive Bonus Plan to provide the senior
executive officers of the Company with a performance-based compensation program.
Effective January 1, 1999, the Company revised the threshold established for
bonus consideration to take into account the termination of management and
consulting services provided to Indian operations in Arizona and New York. The
new threshold is $25.0 million in EBITDA, prior to accruing bonus expense and
adjusted for extraordinary, non-recurring items that are deemed non-operational
in nature ("Adjusted EBITDA"). The bonus amount will start at 1.4% of Adjusted
EBITDA at the $25.0 million level and increase by one-tenth of one percent for
each $1.0 million of Adjusted EBITDA above $25.0 million up to a maximum of 3%.
Each percentage increase achieved would be on a first dollar basis and computed
on the entire adjusted EBITDA. The Compensation Committee will have full
discretion concerning the payment of executive bonuses.
-42-
<PAGE> 45
STOCK OPTION INCENTIVE PLAN
The Company has adopted the Stock Option Incentive Plan (the "Stock Option
Plan") which was approved by stockholders in August 1997. The following is a
description of the Stock Option Plan.
The Stock Option Plan provides for the grant of options to purchase Common Stock
of the Company that are intended either to qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or not intended to qualify ("non-qualified stock
options"). All officers, directors, employees, consultants, advisers,
independent contractors and agents are eligible to receive options under the
Stock Option Plan, except that only employees may receive incentive stock
options. The maximum number of shares available for issuance under the Stock
Option Plan is 1,000,000. At December 31, 1999, there were 271,000 stock options
outstanding under the Stock Option Plan.
The Stock Option Plan is administered by the Board of Directors or, in its
discretion by a committee of the Board appointed for that purpose (the "Stock
Option Plan Committee"), which, subject to the terms of the Stock Option Plan,
has the authority in its sole discretion to determine: (i) the individuals to
whom options shall be granted; (ii) the time or times at which options may be
exercised; (iii) the number of shares subject to each option; (iv) the option
price and the duration of each option granted; and (v) all of the other terms
and conditions of options granted under the Stock Option Plan.
The exercise price of incentive options granted under the Stock Option Plan must
be at least equal to the fair market value of the shares on the date of grant
(110% of the fair market value in the case of participants who own shares
possessing more than 10% of the total combined voting power of all classes of
stock of the Company) and may not have a term in excess of 10 years from the
date of grant (five years in the case of participants who own shares possessing
more than 10% of the combined voting power all classes of stock of the Company).
In no event, may the aggregate fair market value (determined at the time the
option is granted) of the shares with respect to which incentive stock options
(granted under the Stock Option Plan and all other plans of the Company or any
of its subsidiaries) are exercisable for the first time by an optionee in any
calendar year exceed $100,000.
Options granted under the Stock Option Plan are not transferable other than by
will or the laws of descent and distribution. Unless otherwise determined by the
Board of Directors or the Stock Option Plan Committee, all stock options granted
under the Stock Option Plan terminate (i) immediately upon the optionee's
termination of employment (or other relationship) with the Company for cause,
(ii) one year after the optionee's termination of employment (or other
relationship) by reason of death or permanent disability, and (iii) 90 days
after the optionee's termination of employment (or other relationship) for any
other reason (unless the optionee has resumed a continuing relationship with the
Company), but in no case later than the scheduled expiration date of the option.
Unless otherwise determined by the Board of Directors or Stock Option Plan
Committee, the number of shares with respect to which an option may be exercised
following the optionee's termination of employment or other relationship is
limited to that number of shares which could have been purchased pursuant to the
option had the option been exercised by the optionee on the date of such
termination.
Payment of the exercise price upon exercise of an option must be made in cash
or, in the discretion of the Board of Directors or the Stock Option Plan
Committee, in shares of Common Stock. Where payment is made in Common Stock,
such Common Stock shall be valued for such purpose at the fair market value of
such shares (determined as specified in the Stock Option Plan) on the date of
exercise.
-43-
<PAGE> 46
If the number of outstanding shares of Common Stock is increased or decreased,
or if such shares are exchanged for a different number or kind of shares through
reorganization, merger, recapitalization, stock dividend, stock split, or other
transaction where the Board determines that an adjustment is appropriate, the
aggregate number of shares available for issuance under the Stock Option Plan,
the number of shares subject to outstanding options, the per share exercise
price of outstanding options and the aggregate number of shares with respect to
which options may be granted to a single participant will be appropriately
adjusted by the Board of Directors.
No grant of options may be made under the Stock Option Plan after June 25, 2007,
which is 10 years after its date of adoption. The Board of Directors has
authority to terminate or to amend the Stock Option Plan. Amendments may be made
without the approval of the Company's stockholders unless such approval is
required by law or stock exchange requirement. No amendment or termination may
impair the rights of any holder of outstanding options without the consent of
such holder. The terms and conditions of outstanding options may be amended by
written agreement between the optionee and the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company is comprised
of Philip P. Hannifin and Patricia W. Becker, as Chairperson. Ms. Becker was not
an officer or employee of the Company during or prior to 1999.
-44-
<PAGE> 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth to the best of the Company's knowledge certain
information regarding the beneficial ownership of the Common Stock as of
February 24, 2000 by (i) each person who beneficially owned more that 5% of the
outstanding Common Stock; (ii) each director of the Company; (iii) each other
person named in the Summary Compensation Table (See Item 11 - Executive
Compensation); and (iv) all executive officers and directors of the Company as a
group.
NAME AND ADDRESS OF BENEFICIAL OWNER
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
BENEFICIALLY OWNED(a) OF CLASS
------------------ --------
<S> <C> <C>
Philip D. Griffith 3,519,105(b) 62.8%
301 Fremont Street
Las Vegas, NV 89101
Putnam Investments, Inc.
One Post Office Square 384,560(c) 7.0%
Boston, MA 02109
Paul H. Manske 142,565(d) 3.3%
Max L. Page 132,565(e) 2.4%
Philip P. Hannifin 25,488 *
Patricia W. Becker 36,475(f) *
Michael E. McPherson 19,000 *
Domenic Mezzetta 0 *
All directors and executive officers as a group
(five persons) 3,732,633 67.8%
</TABLE>
- -------------
* Indicates less than 1%
(a) The amounts shown include rights to shares available for exercise
pursuant to the Stock Option Plan: Mr. Griffith, 100,000 shares; Mr.
Manske, 19,000 shares; Mr. Page, 9,000 shares; Mr. Hannifin, 1,500
shares; Ms. Becker, 9,000 shares; Mr. McPherson, 19,000 shares. All
options are exercisable within 60 days.
(b) Held by the Philip D. Griffith Gaming Trust of which Mr. Griffith is a
trustee.
(c) Putnam Investments, Inc. ("PI") is a holding company organized under
Massachusetts law. Filing on behalf of itself and its wholly-owned
subsidiary, Putnam Investment Management, Inc. ("PIM"), an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940, PI and PIM have reported beneficial ownership with shared
dispositive power over the shares listed. As part of the Putnam family
of mutual funds, Putnam Diversified Income Trust has reported beneficial
ownership with shared dispositive power over 216,863 shares of the
384,560 shares held by PIM. The source of this information is a Schedule
13G filed by PI with the Securities and Exchange Commission dated
February 17, 1999. Ownership is reported as of December 31, 1998.
(d) Held by the Paul H. Manske Family Trust of which Mr. Manske is a
trustee.
(e) Held by the Max Lynn Page 1987 Trust of which Mr. Page is a trustee.
(f) Held by the Patricia W. Becker Family Trust of which Ms. Becker is a
trustee.
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<PAGE> 48
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A fee is payable to executive officers of the Company who agree to provide any
requested guarantee of Company borrowings and letters of credit. Such fee, which
is set by the Board of Directors on a case-by-case basis, is generally equal to
2% to 4% of the amount guaranteed not to exceed $250,000 per year as to any such
individual. During 1999, Mr. Griffith personally guaranteed letters of credit
aggregating at any one time a maximum of $305,000 for which he received fees of
$4,910. As of December 31, 1999, Mr. Griffith had no personal guarantees.
The Company provided executive and administrative services to each of its
significant subsidiaries and allocated a portion of its corporate overhead to
each such significant subsidiary. This allocation does not necessarily reflect
the costs incurred by the Company in connection with such support and
accordingly, such allocation does not necessarily reflect that which could be
obtained from an unaffiliated party.
All future transactions between the Company and its affiliates in excess of $1.0
million, other than transactions entered into in the ordinary course of business
on terms generally made available to third parties, will be reviewed and passed
upon by a majority of disinterested directors.
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<PAGE> 49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. The following financial statements are
attached:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Stockholders' Deficiency for the Years
Ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
Schedule II -- Consolidated Valuation and Qualifying Accounts.
3. Exhibits. Refer to (c) below
(b) Reports on Form 8-K. For the last quarter of the fiscal year ended
December 31, 1999, the Company filed the following reports on Form 8-K:
Report on Form 8-K, Item 5, filed on October 14, 1999
(c) Exhibits. Reference is made to the Index to Exhibits immediately
preceding the exhibits thereto.
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<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 21,
2000.
Fitzgeralds Gaming Corporation
By: /s/ Michael E. McPherson
---------------------------------
Michael E. McPherson
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
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<PAGE> 51
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Philip D. Griffith and Michael E. McPherson, and
each of them, his or her own attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of 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 date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Philip P. Griffith Chairman, President, Chief March 10, 2000
------------------------ Executive Officer and Director
Philip P. Griffith (Principal Executive Officer)
/s/ Michael E. McPherson Executive Vice President, Chief March 10, 2000
-------------------------- Financial Officer, Treasurer and
Michael E. McPherson Secretary (Principal Financial
and Accounting Officer)
/s/ Philip P. Hannifin Director March 10, 2000
------------------------
Philip P. Hannifin
/s/ Patricia W. Becker Director March 10, 2000
------------------------
Patricia W. Becker
/s/ Max L. Page Director March 10, 2000
-----------------
Max L. Page
</TABLE>
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<PAGE> 52
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT PAGE
- ------------ ------------------------------------------------------------------------------ -------------
<S> <C> <C>
2(a) (i) Recapitalization Agreement, dated March 14, 1994, among Fitzgeralds
South, Inc. (formerly Fitzgeralds Gaming Corporation), Fitzgeralds Las
Vegas, Inc. and certain stockholders thereof; (ii) Plan of Reorganization
and Stockholders Agreement, dated December 5, 1994, among Fitzgeralds Gaming
Corporation and stockholders of Fitzgeralds Reno, Inc., Fitzgeralds South,
Inc., Fitzgeralds Inc., Nevada Club, Inc.; and (iii) Supplement to Plan of
Reorganization and Stockholders Agreement, dated December 30, 1994, between
Fitzgeralds Gaming Corporation and the stockholders of Fitzgeralds Reno,
Inc. and Nevada Club, Inc.(1)
3(a) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds
Gaming Corporation, as amended.(1)(8)
3(b) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds
South, Inc.(1)
3(c) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds
Reno, Inc., as amended.(1)
3(d) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds
Incorporated.(1)
3(e) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Nevada Club,
Inc.(1)
3(f) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds
Las Vegas, Inc.(1)
3(g) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds
Fremont Experience Corporation.(1)
3(h) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds
Mississippi, Inc.(1)
3(i) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds
Black Hawk, Inc.(1)
3(j) (i) Articles of Incorporation, as amended, and (ii) By-Laws of Fitzgeralds
Black Hawk II, Inc.(3)
3(k) (i) Certificate of Organization, as amended and (ii) Second Amended and
Restated Operating Agreement of 101 Main Street Limited Liability Company.(3)
4(a) Form of Indenture dated as of December 30, 1997, by and among Fitzgeralds
Gaming Corporation, Fitzgeralds South, Inc., Fitzgeralds Reno, Inc.,
Fitzgeralds Incorporated, Fitzgeralds Las Vegas, Inc., Fitzgeralds Fremont
Experience Corporation, Fitzgeralds Mississippi, Inc., Fitzgeralds Black
Hawk, Inc., Fitzgeralds Black Hawk II, Inc. and 101 Main Street Limited
Liability Company, and The Bank of New York, as trustee.(2)
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT PAGE
- ------------ ------------------------------------------------------------------------------ -------------
<S> <C> <C>
4(b) Form of Registration Rights Agreement dated as of December 30, 1997, by and
among Fitzgeralds Gaming Corporation, Fitzgeralds South, Inc., Fitzgeralds
Reno, Inc., Fitzgeralds Incorporated, Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Fremont Experience Corporation, Fitzgeralds Mississippi, Inc.,
Fitzgeralds Black Hawk, Inc., Fitzgeralds Black Hawk II, Inc. and 101 Main
Street Limited Liability Company, and Jefferies & Company, Inc. and Merrill
Lynch, Merrill, Lynch, Pierce, Fenner and Smith Incorporated, as initial
purchasers.(2)
4(c) Form of Security and Pledge Agreement dated as of December 30, 1997, by and
among Fitzgeralds Gaming Corporation, Fitzgeralds South, Inc., Fitzgeralds
Reno, Inc., Fitzgeralds Incorporated, Fitzgeralds Las Vegas, Inc.,
Fitzgeralds Fremont Experience Corporation, Fitzgeralds Mississippi, Inc.,
Fitzgeralds Black Hawk, Inc., Fitzgeralds Black Hawk II, Inc., and 101 Main
Street Limited Liability Company, as grantors, and The Bank of New York, as
collateral agent.(2)
4(d) Forms of Deed of Trust, Security Agreement and Fixture Filing with
Assignment of Rents, dated as of December 30, 1997, by each of Fitzgeralds
Las Vegas, Inc., Fitzgeralds Mississippi, Inc., and Fitzgeralds Reno, Inc.,
as trustor, the trustee named therein, as trustee, and The Bank of New York,
as beneficiary.(2)
4(e) Form of First Preferred Vessel Mortgage on the Whole of the Fitzgeralds
Tunica dated as of December 30, 1997, by and between Fitzgeralds
Mississippi, Inc., as owner and mortgagor and The Bank of New York, as
trustee.(2)
4(f) Form of Assignment of Rents, Leases and Property dated as of December 30,
1997, by each of Fitzgeralds Mississippi, Inc. and 101 Main Street Limited
Liability Company, each as an assignor, and The Bank of New York, as
assignee.(2)
4(g) Form of Certificate of Designation of Preferences and Rights for the
Preferred Stock.(1)
4(h) Form of Warrant Agreement between the Company and The Bank of New York, as
successor in interest to First Interstate Bank of Nevada, N.A., as warrant
agent.(1)
4(i) Form of First Amendment to Warrant Agreement by and between Fitzgeralds
Gaming Corporation and The Bank of New York, as warrant agent.(2)
10(a) (i) Agreement for Wastewater Service and (ii) Agreement for Water Service,
each dated March 15, 1994, and (iii) Amendment to Agreements for Water and
Wastewater Services, dated June 27, 1994, each between Fitzgeralds
Mississippi, Inc. and River Bend Environmental Energy, Inc.(1)
10(b) (i) Lease, dated December 31, 1974, between Santino Oppio, as Lessor, and
Center Street Properties Corp., as Lessee, and (ii) Sublease and Agreement,
dated December 31, 1986, by Meta K. Fitzgerald, as Sublessor, and Lincoln
Investments, Inc. (now known as Fitzgeralds Reno, Inc.), as Sublessee.(1)
</TABLE>
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<PAGE> 54
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT PAGE
- ------------ ------------------------------------------------------------------------------ -------------
<S> <C> <C>
10(c) (i) Lease Agreement and Interim Agreement Regarding Lease Agreement and (ii)
Lease Agreement, dated September 5, 1995, both between John A. Kramer, Sr.,
Trustee, Helen M. Kramer, Elizabeth Thatcher Brooks and Betty Bennett,
Executrix of the estate of John David Kramer, as Lessor, and Fitzgeralds Las
Vegas, Inc., as Lessee.(1)
10(d) Lease Agreement, dated September 1, 1978, between Jewel F. Nolan and Julie
L. Nolan, David Kramer and Betty Bennett and Richard J. Tinkler, as Lessor,
and M.B. Dalitz, as Lessee. Amendment, dated December 20, 1982, between
Julie L. Nolan, David Kramer, Betty Bennett and Richard J. Tinkler, as
Lessor, and M.B. Dalitz, as Lessee. Lease Amendment, Estoppel Certificate
and Consent to Assignment, dated October 18, 1987, to the named recipients
and between Julie L. Nolan, David Kramer, Betty Bennett and Richard J.
Tinkler, as Lessor, and M.B. Dalitz, as Lessee.(1)
10(e) Lease Agreement, dated July 21, 1954, between Las Vegas Lodge No. 32, Free &
Accepted Masons, as Lessor, and H. John Gluskin, as Lessee. Amendment to
Lease Agreement, dated July 26, 1954, between Las Vegas Lodge No. 32, Free &
Accepted Masons, as Lessor, and H. John Gluskin, as Lessee. Assignments,
dated July 27, 1954, February 2, 1955, August 7, 1972 and September 1, 1973.
Supplemental Agreement of October 14, 1994, between Las Vegas Lodge No. 32,
Free & Accepted Masons and H. John Gluskin. Articles of Amendment, dated
June 7, 1973, between Las Vegas Lodge No. 32, Free & Accepted Masons, as
Lessor, and Frederic N. Richman and The Pullman Company, d/b/a Nevada
Building Company. Amendment to Masonic Lodge Ground Lease, dated December
20, 1982. Lease Amendment, Estoppel Certificate and Consent to Assignment,
dated October 23, 1987, to the named recipients and between Las Vegas Lodge
No. 32, Free & Accepted Masons, as Lessor, and H. John Gluskin, as Lessee.(1)
10(f) Lease, dated March 4, 1976, between A.W. Ham, Jr., Trustee, under wills of
A.W. Ham and Alta M. Ham, as Lessor, and Nevada Building Company, as Lessee,
Amendments to Lease, dated December 20, 1982 and December 30, 1982, between
A.W. Ham, Jr., Trustee, as Lessor, and M.B. Dalitz, as Lessee. Lease
Amendment, Estoppel Certificate and Consent to Assignment, dated October 18,
1987, to the named recipients and between A.W. Ham, Jr., Trustee, and M.B.
Dalitz.(1)
10(g) Amended and Restated Operating Agreement of The Fremont Street Experience
Limited Liability Company, a Nevada Limited Liability Company, dated June 6,
1995.(1)
10(h) Fitzgeralds Gaming Corporation Stock Option Incentive Plan, amended and
restated as of May 1, 1998.(4)
10(i) Employment Agreements between Fitzgeralds Gaming Corporation and (i) Philip
D. Griffith dated June 28, 1999; (ii) Michael E. McPherson dated July 5,
1999; and (iii) each of Paul H. Manske and Max L. Page dated September 1,
1999.(7)(8)
10(j) Fitzgeralds Gaming Corporation Executive Bonus Plan, amended and restated as
of January 1, 1999.(6)
</TABLE>
-52-
<PAGE> 55
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT PAGE
- ------------ ------------------------------------------------------------------------------ -------------
<S> <C> <C>
10(k) License Agreement, dated September 11, 1995, between Holiday Inns
Franchising, Inc. and Fitzgeralds Las Vegas, Inc.(1)
10(l) Indemnification Agreements, each dated July 14, 1995, between Fitzgeralds
Gaming Corporation and each of Philip D. Griffith, Jerome H. Turk, Terrance
W. Oliver, Fernando Bensuaski, Michael E. McPherson and Gerald C.
Heetland.(1)
10(m) Shareholders' Agreement, dated December 19, 1995, among the
Shareholders listed therein, Fitzgeralds Gaming Corporation and
First Interstate Bank of Nevada, N.A.(6)
10(n) (i) Loan and Security Agreement dated as of October 29, 1998 and
(ii) First Amendment to Loan and Security Agreement dated as of
December 9, 1999, each between Fitzgeralds Gaming Corporation and
Foothill Capital Corporation.(5)(9)
10(o) Intercreditor Agreement dated as of October 29, 1998, by and between The
Bank of New York and Foothill Capital Corporation.(5)
10(p) Stock Pledge Agreement dated as of October 29, 1998, by and between
Fitzgeralds Gaming Corporation and Foothill Capital Corporation.(5)
10(q) General Continuing Guaranty dated as of October 29, 1998, by and
among certain Subsidiaries of Fitzgeralds Gaming Corporation in
favor of Foothill Capital Corporation.(5)
10(r) Pledge Agreement dated as of October 29, 1998, by and among the
Subsidiaries of Fitzgeralds Gaming Corporation party to the General
Guaranty and Foothill Capital Corporation.(5)
10(s) Security Agreement dated as of October 29, 1998, by and among the
Subsidiaries of Fitzgeralds Gaming Corporation party to the General
Continuing Guaranty and Foothill Capital Corporation.(5)
10(t) Trademark Security Agreement dated as of October 29, 1998, by and
among Fitzgeralds Gaming Corporation, its Subsidiaries party to the
General Continuing Guaranty and Foothill Capital Corporation.(5)
10(u) Copyright Security Agreement dated as of October 29, 1998, by and
among Fitzgeralds Gaming Corporation, its Subsidiaries party to the
General Continuing Guaranty and Foothill Capital Corporation.(5)
10(v) Environmental Indemnity as of October 29, 1998, by Fitzgeralds
Gaming Corporation, its Subsidiaries party to the General
Continuing Guaranty in favor of Foothill Capital Corporation.(5)
10(w) Deed of Trust, Security Agreement and Fixture Filing with Assignment of
Rents, dated as of October 29, 1998 (Fitzgeralds Las Vegas).(5)
10(x) Deed of Trust, Security Agreement and Fixture Filing with Assignment of
Rents, dated as of October 29, 1998 (Fitzgeralds Reno).(5)
10(y) Deed of Trust, Security Agreement and Fixture Filing with Financing
Statement and Assignment of Rents, dated as of October 29, 1998 (101 Main
Street).(5)
</TABLE>
-53-
<PAGE> 56
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT PAGE
- ------------ ------------------------------------------------------------------------------ -------------
<S> <C> <C>
10(z) Deed of Trust, Security Agreement and Fixture Filling with Assignment of
Rents, dated as of October 29, 1998 (Fitzgeralds Mississippi).(5)
10(aa) First Preferred Vessel Mortgage on the Whole of the Fitzgeralds Tunica,
dated as of October 29, 1998 (Fitzgeralds Mississippi).(5)
10(bb) Subordination Agreement dated as of October 29, 1998, by and among
Fitzgeralds Gaming Corporation, its Subsidiaries party to the
General Continuing Guaranty and Foothill Capital Corporation.(5)
10(cc) Self Insurer's Surety Bond, dated as of September 10, 1998,
executed by Frontier Insurance Company for $2.5 million, for
Fitzgeralds Gaming Corporation to act as a self-insured employer in
the State of Nevada.(6)
10(dd) Form of Management Agreement, dated March 17, 1999, between Fitzgeralds
Gaming Corporation and each of Fitzgeralds Las Vegas, Inc., Fitzgeralds
Mississippi, Inc., Fitzgeralds Reno, Inc. and 101 Main Street Limited
Liability Company.(6)
10(ee) Agreement, dated February 25, 1999, between Fitzgeralds Las Vegas, Inc. and
Culinary Workers Union Local No. 226 and Bartenders Union Local No. 165.(6)
10(ff) Labor Agreement, dated February March 1, 1999, between Fitzgeralds Las
Vegas, Inc. and the United Brotherhood of Carpenters and Joiners of America,
Southern California-Nevada Regional Council of Carpenters and its Affiliated
Local Union No. 1780, for the period August 1, 1998 through July 31, 2001.(6)
10(gg) Non-Disburbance and Attornment Agreement dated as of December 10, 1999, by
and between e.three Custom Energy Solutions, LLC, Fitzgeralds Las Vegas,
Inc. and Foothill Capital Corporation.(9)
10(hh) (i) Lease Agreement and (ii) Chilled Water Service Agreement, each
dated as of December 10, 1999, between e.three Custom Energy
Solutions, LLC and Fitzgeralds Las Vegas, Inc.(9)
10(ii) Construction Agreement dated as of February 8, 2000, by and between the Las
Vegas Valley Water District, Fitzgeralds Las Vegas, Inc. and e.three Custom
Energy Solutions, LLC.(9)
21 List of subsidiaries of the Company.(3)
27(c) Financial data schedule.(9)
</TABLE>
- --------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, File No. 33-94624, which became effective on December 13,
1995.
(2) Incorporated by reference to the Company's Report on Form 8-K, SEC File
No. 0-26518, filed January 12, 1998.
(3) Incorporated by reference to the Company's Report on Form 10-K, SEC File
No. 0-26518, filed March 31, 1998.
(4) Incorporated by reference to the Company's Report on Form 10-Q, SEC.
File No. 0-26518, filed June 28, 1998.
(5) Incorporated by reference to the Company's Report on Form 8-K, SEC. File
No. 0-26518, filed December 4, 1998.
-54-
<PAGE> 57
(6) Incorporated by reference to the Company's Report on Form 10-K, SEC File
No. 0-26518, filed March 30, 1999.
(7) Incorporated by reference to the Company's Report on Form 10-Q, SEC File
No. 0-26518, filed August 17, 1999.
(8) Incorporated by reference to the Company's Report on Form 10-Q, SEC File
No. 0-26518, filed November 10, 1999.
(9) Filed herewith.
-55-
<PAGE> 58
FITZGERALDS GAMING CORPORATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 8. FINANCIAL STATEMENTS
Independent Auditor's Report F - 2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F - 3
Consolidated Statements of Operations for the Years Ended December 31, 1999,
1998 and 1997 F - 5
Consolidated Statements of Stockholders' Deficiency for the Years Ended
December 31, 1999, 1998 and 1997 F - 6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, F - 7
1998 and 1997
Notes to Consolidated Financial Statements F - 9
</TABLE>
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
Fitzgeralds Gaming Corporation:
We have audited the accompanying consolidated balance sheets of Fitzgeralds
Gaming Corporation and subsidiaries (the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
deficiency, and cash flows for each of the three years in the period ended
December 31, 1999. Our audits also included the financial statement schedule
listed in the Index at Item 14(a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and subsidiaries as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's event of default on its Senior Secured
Notes, along with its recurring losses from operations, negative working capital
and stockholder's capital deficiency, raise substantial doubt about its ability
to continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 24, 2000
F-2
<PAGE> 60
FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22,115,594 $ 13,038,589
Restricted cash -- 537,179
Accounts receivable, net of allowance for doubtful
accounts of $405,003 and $345,540 1,416,795 1,440,249
Inventories 1,771,327 1,375,443
Prepaid expenses:
Gaming taxes 1,379,589 1,209,825
Other 2,858,118 2,487,170
------------ ------------
Total current assets 29,541,423 20,088,455
------------ ------------
PROPERTY AND EQUIPMENT, net 152,017,061 159,714,663
------------ ------------
OTHER ASSETS:
Estimated realizable value of Nevada Club assets
held for sale -- 4,122,842
Restricted cash 2,203,978 1,659,000
Debt offering costs 7,394,649 8,727,796
Goodwill, net of accumulated amortization
of $843,796 and $497,865 13,335,365 13,681,296
Other assets 2,304,014 1,203,412
------------ ------------
Total other assets 25,238,006 29,394,346
------------ ------------
TOTAL $206,796,490 $209,197,464
============ ============
</TABLE>
See notes to consolidated financial statements (Continued)
F-3
<PAGE> 61
FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Debt accelerated due to default $203,166,582 $ --
Current portion of long-term debt 673,619 4,634,747
Notes payable - related parties -- 304,638
Accounts payable 4,552,807 8,139,478
Accrued and other:
Payroll and related 4,619,366 5,010,169
Progressive jackpots 1,230,036 1,311,074
Outstanding chips and tokens 864,263 728,254
Interest 28,456,467 1,131,466
Other 7,168,493 6,632,472
------------ ------------
Total current liabilities 250,731,633 27,892,298
LONG-TERM DEBT, net of current portion and debt accelerated due to default 598,478 208,204,024
------------ ------------
Total liabilities 251,330,111 236,096,322
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 11)
CUMULATIVE REDEEMABLE PREFERRED STOCK
$.01 par value; $25 stated value; 800,000 shares authorized, issued and
outstanding; liquidation preference $20,000,000 stated value plus accrued
dividends of $16,224,779 and $11,264,632 recorded at liquidation
preference, net of unamortized offering costs and discount of $6,262,268
and $6,863,461, respectively 29,962,511 24,401,171
------------ ------------
STOCKHOLDERS' DEFICIENCY
Common stock, $.01 par value; 29,200,000 shares authorized;
5,508,082 and 4,012,846 shares issued and outstanding 55,080 40,128
Additional paid-in-capital 23,954,220 23,649,582
Accumulated deficit (98,505,432) (74,989,739)
------------ ------------
Total stockholders' deficiency (74,496,132) (51,300,029)
------------ ------------
TOTAL $206,796,490 $209,197,464
============ ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 62
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING REVENUES:
Casino $171,739,693 $162,506,030 $141,215,071
Food and beverage 24,603,925 24,936,289 22,499,113
Rooms 21,551,208 21,213,266 21,318,538
Other 3,627,150 15,745,882 9,965,508
------------ ------------ ------------
Total 221,521,976 224,401,467 194,998,230
Less promotional allowances 19,123,882 17,276,879 15,296,497
------------ ------------ ------------
Net 202,398,094 207,124,588 179,701,733
------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Casino 83,895,369 81,538,490 69,674,986
Food and beverage 15,504,787 18,295,526 17,214,885
Rooms 12,563,589 12,579,464 12,512,496
Other operating expense 2,046,933 2,162,019 1,681,063
Selling, general and administrative 62,687,856 56,856,342 48,933,178
Depreciation and amortization 14,202,957 13,670,796 12,053,777
Write-down of assets and lease settlement 97,759 341,728 4,009,832
------------ ------------ ------------
Total 190,999,250 185,444,365 166,080,217
------------ ------------ ------------
INCOME FROM OPERATIONS 11,398,844 21,680,223 13,621,516
OTHER INCOME (EXPENSE):
Interest income 535,730 527,378 383,469
Interest income - stockholders -- -- 78,708
Interest expense (29,703,969) (27,154,145) (25,368,844)
Interest expense - stockholders -- (19,009) (126,259)
Impairment loss -- (798,607) --
Other expense (184,959) (2,902,667) (882,182)
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (17,954,354) (8,666,827) (12,293,592)
EXTRAORDINARY ITEM - Loss on early retirement of debt -- -- (19,247,928)
------------ ------------ ------------
NET LOSS (17,954,354) (8,666,827) (31,541,520)
PREFERRED STOCK DIVIDENDS (5,561,339) (4,769,775) (4,142,615)
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $(23,515,693) $(13,436,602) $(35,684,135)
============ ============ ============
NET LOSS PER COMMON SHARE:
Before extraordinary item $ (5.35) $ (3.35) $ (4.09)
Extraordinary item -- -- (4.80)
------------ ------------ ------------
NET LOSS PER COMMON SHARE $ (5.35) $ (3.35) $ (8.89)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,393,824 4,012,846 4,012,846
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 63
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS DEFICIENCY
---------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 4,012,846 $40,128 $23,785,603 $(25,869,002) $ (2,043,271)
Net loss -- -- -- (31,541,520) (31,541,520)
Preferred stock dividends -- -- -- (4,142,615) (4,142,615)
Adjustment to purchase price of
treasury stock -- -- (136,021) -- (136,021)
---------- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1997 4,012,846 40,128 23,649,582 (61,553,137) (37,863,427)
Net loss -- -- -- (8,666,827) (8,666,827)
Preferred stock dividends -- -- -- (4,769,775) (4,769,775)
---------- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1998 4,012,846 40,128 23,649,582 (74,989,739) (51,300,029)
Net loss -- -- -- (17,954,354) (17,954,354)
Preferred stock dividends -- -- -- (5,561,339) (5,561,339)
Issuance of stock 1,495,236 14,952 -- -- 14,952
Additional paid-in-capital -- -- 304,638 -- 304,638
---------- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1999 5,508,082 $55,080 $23,954,220 $(98,505,432) $(74,496,132)
========== ======= =========== ============ ============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 64
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(17,954,354) $ (8,666,827) $(31,541,520)
Adjustments to reconcile net loss to net
cash provided by operating activities, net
of effects of acquisition:
Depreciation and amortization 14,202,957 13,670,796 12,053,777
Amortization of note discount and offering costs 1,753,845 1,154,276 3,062,020
Write down of assets and lease settlement 97,759 281,250 3,982,000
Impairment loss -- 798,607 --
Recovery of bad debt from related party -- -- (510,439)
Loss on early retirement of debt -- -- 17,537,928
Equity in net loss of unconsolidated affiliates -- 1,352,693 680,023
Minority interest in (income) loss of subsidiaries 92,803 1,760,932 (44,393)
Other 27,674 (489,709) (637)
(Increase) decrease in restricted cash 537,179 (1,196,179) --
Decrease in accounts receivable, net 20,300 622,950 92,655
(Increase) decrease in advances to
affiliated companies (797,791) 133,019 (74,173)
(Increase) decrease in inventories (395,884) (61,832) 345,880
(Increase) decrease in prepaid expenses (555,473) (799,467) 283,887
(Increase) decrease in other assets (1,263,781) 160,201 204,922
Increase (decrease) in accounts payable (3,452,879) 902,623 (4,369,705)
Increase (decrease) in accrued and other liabilities 28,776,343 2,565,616 (414,968)
------------ ------------ ------------
Net cash provided by operating activities 21,088,698 12,188,949 1,287,257
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 4,223,144 485,208 129,948
Repayments from related parties -- -- 2,518,805
Acquisition of property and equipment (5,639,294) (5,151,859) (3,642,878)
Acquisition of assets - held for sale -- (374,865) --
(Increase) decrease in restricted cash (544,978) 393,987 1,860,336
Purchase of business, net of cash acquired -- -- (25,747,169)
Other -- (803,488) 224,406
------------ ------------ ------------
Net cash used in investing activities (1,961,128) (5,451,017) (24,656,552)
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements (Continued)
F-7
<PAGE> 65
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from line of credit $ -- $ 3,000,000 $ --
Proceeds from 1997 Offering -- -- 202,634,300
Payment of debt offering costs (305,424) (1,537,826) (11,308,428)
Proceeds from issuance of stock 14,952 -- 38,221,811
Repayment of long-term debt (6,623,763) (8,128,144) (202,573,620)
Repayment of line of credit (3,000,000) -- --
Dividends to minority stockholders (136,330) (1,842,990) (337,393)
Repayments to related parties -- -- (1,807,255)
------------ ------------ -------------
Net cash provided by (used in)
financing activities (10,050,565) (8,508,960) 24,829,415
------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 9,077,005 (1,771,028) 1,460,120
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 13,038,589 14,809,617 13,349,497
------------ ------------ -------------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 22,115,594 $ 13,038,589 $ 14,809,617
============ ============ =============
</TABLE>
See notes to consolidated financial statements
F-8
<PAGE> 66
FITZGERALDS GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION
Fitzgeralds Gaming Corporation (the "Company") is a diversified
multi-jurisdictional gaming holding company that owns and operates four
Fitzgeralds-brand casino-hotels, in downtown Las Vegas, Nevada
("Fitzgeralds Las Vegas"), Reno, Nevada ("Fitzgeralds Reno"), Tunica,
Mississippi ("Fitzgeralds Tunica"), and Black Hawk, Colorado ("Fitzgeralds
Black Hawk"), collectively referred to as (the "Operating Properties").
The Company currently conducts substantially all of its business through
wholly-owned subsidiaries: Fitzgeralds Reno, Inc. ("FRI"); Fitzgeralds
South, Inc. ("FSI"); and Fitzgeralds Incorporated ("FI"). FRI directly owns
and operates Fitzgeralds Reno; FSI owns and operates Fitzgeralds Las Vegas
and Fitzgeralds Tunica through wholly owned subsidiaries; and FI owns and
operates Fitzgeralds Black Hawk through wholly owned subsidiaries,
including 101 Main Street Limited Liability Company ("101 Main").
Fitzgeralds Arizona Management, Inc. ("FAMI"), a subsidiary 85% owned by
FI, had an exclusive agreement (the "Cliff Castle Management Agreement") to
manage the Cliff Castle Casino ("Cliff Castle") a gaming facility in Camp
Verde, Arizona, owned and operated by the Yavapai-Apache Indian Nation (the
"Nation"). In June 1998, FAMI entered into a termination agreement with the
Nation wherein the parties mutually agreed to terminate the Cliff Castle
Management Agreement, in consideration for which FAMI received $8.0
million. In addition, through its 85%-owned subsidiary, Fitzgeralds New
York, Inc ("FNYI"), FI had received monthly payments through September 1998
in consideration of work performed prior and subsequent to the opening of
the Turning Stone Casino ("Turning Stone") in Verona, New York, owned by
the Oneida Indian Nation.
Nevada Club, Inc. ("NCI"), a wholly owned subsidiary of the Company, owned
and operated the Nevada Club in Reno, Nevada. The Nevada Club was closed in
December 1997, pending completion of its sale, which occurred in June 1999.
The Company incurred net losses of $18.0 million, $8.7 million and $31.5
million in 1999, 1998 and 1997 respectively. The Company is also highly
leveraged as total indebtedness was $204.4 million and $212.8 million at
December 31, 1999 and 1998, respectively. The Company's stockholders'
deficiency was $74.5 million and $51.3 million at December 31, 1999 and
1998, respectively. Earnings before interest, taxes on income, depreciation
and amortization ("EBITDA") decreased from $35.4 million for the year ended
December 31, 1998 to $25.6 million for the year ended December 31, 1999.
The decrease in EBITDA is primarily as a result of the termination of the
Cliff Castle Management Agreement and completion of the settlement
agreement with the Turning Stone, which provided revenues of $9.8 million
and $1.1 million, respectively, in 1998. In addition, the Company incurred
$2.2 million and $0.2 million of professional fees and expenses in
conjunction with the ongoing development and negotiation of the Company's
restructuring during 1999 and 1998, respectively. Adjusted EBITDA decreased
from $30.0 million for the year ended December 31, 1998 to $27.9 million
for the year ended December 31, 1999 for the reasons stated above, except
for the exclusion of $2.2 million in restructuring costs. Moreover, to
maintain market share in each of its four existing markets, the Company has
found it necessary to increase promotional and complimentary expenses to
meet the challenges of intense competition. Substantial expansion and new
development activity is occurring in each of the Company's markets which
may be expected to intensify competitive pressures.
On May 13, 1999, the Company's Board of Directors determined that, pending
a restructuring of its indebtedness, it would not be in the best interest
of the Company to make the regularly scheduled interest payments on its
$205.0 million aggregate principal amount of 12.25% Senior Secured Notes
due December 15, 2004 (the "Senior Secured Notes"). Accordingly, the
Company has not paid the regularly scheduled interest payments of $12.5
million that were due and payable June 15, 1999 and December 15, 1999.
Under the indenture pursuant to which the Senior Secured Notes were issued
(the "Note Indenture"), an Event of Default occurred on July 15, 1999, and
is continuing as of the date hereof. No action has been taken by either the
Note Indenture Trustee or holders of at least 25% of the Senior Secured
Notes to accelerate the Senior Secured Notes and declare the unpaid
principal and interest to be due and payable. Failure to make the scheduled
interest payment on June 15, 1999 resulted in a 1.0% increase in the
interest rate to 13.25%, effective June 16, 1999. In accordance with the
Note Indenture, the Company began accruing interest on the unpaid interest
at 13.25% effective June 16, 1999. An additional $2.2 million of interest
incurred from the default on the Senior Secured Notes has also not been
paid.
F-9
<PAGE> 67
In the event the Senior Secured Notes are accelerated, the Company would
not have the resources available to repay such indebtedness. The Company
has initiated and is continuing discussions with an informal committee
representing holders of a majority interest in the Senior Secured Notes
concerning a restructuring of the Company's indebtedness and reorganization
of the Company that may include the sale of some or all of the Company's
properties. Costs associated with restructuring were $2.2 million in 1999
and $0.2 million in 1998. Such costs are reported in the selling, general
and administrative expenses in the Consolidated Statements of Operations.
Costs incurred and to be incurred in connection with restructuring have
been and will continue to be substantial and, in any event, there can be no
assurance that the Company will be able to successfully restructure its
indebtedness.
The Company has expended substantial amounts in recent years to expand and
improve its properties and to enhance its competitive position, but it is
anticipated that it will be necessary to continue to do so to remain
competitive and there can be no assurance that the Company will have
adequate resources for such purposes without restructuring the Company's
indebtedness. The central strategic component of the Company's proposed
restructuring plan involves making substantial capital expenditures at
both its Fitzgerald Tunica and Fitzgeralds Black Hawk properties.
A default on the Senior Secured Notes also constitutes a default under the
$15.0 million loan and security agreement (the "Credit Facility") and,
although the Company believes the lending institution will continue to have
adequate security for the Company's obligations thereunder, there can be no
assurance that the lending institution will continue to make additional
advances. The Company has repaid all amounts borrowed under the Credit
Facility.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements of the Company
include the accounts of its wholly owned and majority owned subsidiaries.
All inter-company balances and transactions have been eliminated in the
consolidation.
CASH AND CASH EQUIVALENTS - Cash includes cash required for gaming
operations. The Company considers cash equivalents to include short-term
investments with original maturities of ninety days or less.
INVENTORIES - consisting principally of food and beverage and operating
supplies are stated at the lower of first-in, first-out cost or market.
The estimated cost of normal operating quantities (base stock) of china,
silverware, glassware, linen, uniforms and utensils has been recorded as an
asset and is not being depreciated. Costs of base stock replacements are
expensed as incurred.
PROPERTY AND EQUIPMENT - are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated service
lives of the assets. Costs of major improvements are capitalized; costs of
normal repairs and maintenance are charged to expenses as incurred. Gains
or losses on disposals are recognized.
DEBT OFFERING COSTS - Costs associated with the issuance of the Senior
Secured Notes and securing the Credit Facility are deferred and amortized
over the life of the related indebtedness using the effective interest
method.
RESTRICTED CASH - At December 31, 1999 and 1998, restricted cash represents
certificates of deposit with a bank securing letters of credit for various
workers' compensation and insurance plans (see Note 11) and U.S. Treasury
Notes of $1,000,000 held in an escrow account for the benefit of certain
land lessors related to Fitzgeralds Las Vegas. At December 31, 1998, the
current portion of restricted cash represented funds held by the United
States Bankruptcy Court for a litigation settlement in Tunica, Mississippi.
F-10
<PAGE> 68
GOODWILL - represents the cost in excess of fair value of the net assets
acquired in purchase transactions. Goodwill is being amortized using the
straight-line method over 40 years and is recorded net of accumulated
amortization.
CASINO REVENUE - is the net win from gaming activities, which is the
difference between gaming wins and losses.
PROMOTIONAL ALLOWANCES - Operating revenues include the retail value of
rooms, food and beverage provided to customers without charge;
corresponding charges have been deducted from revenue in the accompanying
consolidated statements of operations as promotional allowances in the
determination of net operating revenues. The estimated costs of providing
the complimentary services are charged to the casino department and are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Hotel $ 2,987,383 $ 2,498,405 $ 2,104,907
Food and beverage 12,595,908 11,383,379 10,684,329
Other 280,998 283,482 223,949
----------- ----------- -----------
Total $15,864,289 $14,165,266 $13,013,185
=========== =========== ===========
</TABLE>
FEDERAL INCOME TAXES - The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes, which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss and tax credit carry forwards.
FINANCIAL REPORTING PERIOD - The Company has adopted a "4-4-5" (weeks)
financial reporting period which maintains a December 31 year-end. This
method of reporting results in 13 weeks in each quarterly accounting
period. The first and fourth accounting periods will have a fluctuating
number of days resulting from the maintenance of a December 31 year-end,
whereas the second and third periods will have the same number of days each
year.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company believes, based on
current information, that the carrying value of the Company's cash and cash
equivalents, restricted cash, accounts receivable, advances, and accounts
payable approximates fair value because of the short maturity of those
instruments. The Senior Secured Notes were trading at approximately 55% and
56% of the face value at December 31, 1999 and December 31, 1998,
respectively. The Company is unable to estimate the fair value of its
Preferred Stock since no market quotes for such securities are readily
available. The Company estimates that the fair value of all other long-term
debt and notes payable - related parties approximates their carrying value
because interest rates on the debt approximate market rates.
IMPAIRMENT OF LONG LIVED ASSETS - The Company reviews long-lived assets and
certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
STOCK-BASED COMPENSATION - The Company utilizes SFAS No. 123, Accounting
for Awards of Stock-Based Compensation to account for stock-based employee
compensation plans and for transactions where equity securities are issued
for goods and services. This statement defines a fair
F-11
<PAGE> 69
value based method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it
also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees. In accounting for stock based employee compensation
plans, the Company applies APB Opinion No. 25, and adopted only the
disclosure requirement of SFAS No. 123.
RECENTLY ISSUED ACCOUNTING STANDARDS - On June 30, 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities and is effective for the Company's fiscal year ending December
31, 2001. Management believes that adoption of this statement will not have
a material impact on its financial condition or results of operation.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of certain
assets and liabilities at the date of the financial statements. These
estimates also affect the disclosure of contingent liabilities at the date
of the financial statement and the reported amounts of certain revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
RECLASSIFICATIONS - Certain amounts in the 1998 and 1997 consolidated
financial statements have been reclassified to conform to the 1999 method
of presentation.
3. STATEMENTS OF CASH FLOWS INFORMATION
The following supplemental disclosures are provided as part of the
consolidated statements of cash flows for the years ended December 31,
1999, 1998 and 1997:
Cash paid for interest, net of amounts capitalized, during the years ended
December 31, 1999, 1998 and 1997 was $682,217, $25,043,835 and $22,590,718,
respectively.
Long-term contracts payable of $545,079 in 1999, $4,159,447 in 1998 and
$300,863 in 1997, were incurred with the acquisition of new equipment.
During 1999, 1998 and 1997, accumulated deficit was increased by
$5,561,339, $4,769,775 and $4,142,615 for preferred stock dividends
consisting of $4,960,147, $4,280,969 and $3,694,790 accrued dividends and
$601,193, $488,806 and $447,825 accretion of discount on preferred stock.
During 1999, additional paid-in-capital increased and an amount due to
stockholders decreased by $304,638 (see Note 9). In 1997 additional
paid-in-capital decreased and the note payable to a former stockholder
increased by $136,021, pursuant to an adjustment to the purchase price of
treasury stock.
In 1999 and 1998, additional offering costs of $169,590 and $455,966 were
incurred in connection with the 1997 Offering of the Senior Secured Notes
and the Credit Facility.
F-12
<PAGE> 70
During 1997, the Company acquired the remaining 78% membership interest in
101 Main (see Note 6) with the allocation of the purchase price as follows:
<TABLE>
<S> <C>
Working capital other than cash $(3,218,233)
Property and equipment 19,591,964
Goodwill 14,179,918
Long-term debt (4,806,480)
-----------
Total $25,747,169
===========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,
<TABLE>
<CAPTION>
ESTIMATED
SERVICE
1999 1998 LIFE
------------ ------------ -----------
<S> <C> <C> <C>
Land used in casino operations $ 17,736,900 $ 17,736,900 --
Buildings and improvements 119,134,393 118,379,468 7-40 years
Site improvements 15,299,870 15,445,901 20 years
Barge and improvements 12,896,235 12,896,235 15 years
Furniture, fixtures and equipment 65,379,739 61,997,703 3-12 years
------------ ------------
230,447,137 226,456,207
Less accumulated depreciation and
amortizaton (79,476,431) (67,241,809)
------------ ------------
150,970,706 159,214,398
Construction in progress 1,046,355 500,265
------------ ------------
Total $152,017,061 $159,714,663
============ ============
</TABLE>
Substantially all property and equipment are pledged as collateral on
long-term debt. On February 1, 2000, Fitzgeralds Reno acquired ownership of
a parking garage for $3.0 million.
5. IMPAIRMENT LOSS
In 1998, the Company recorded an impairment loss related to its 17.65%
ownership interest in the Fremont Street Experience, Limited Liability
Company ("FSE"). This impairment loss was principally due to significant
levels of operating losses reported by FSE. Management expected this trend
to continue and, therefore, did not expect to recover its investment in
this entity.
6. ACQUISITION OF 101 MAIN
Effective February 16, 1996, the Company, through Fitzgeralds Black Hawk,
Inc., ("FBHI"), a wholly owned subsidiary of FI, purchased a 22% membership
interest in 101 Main, a limited liability company formed to construct,
develop and operate a casino in Gilpin County, Colorado. In addition, FBHI
entered into a Management Agreement with 101 Main to manage the casino
operations for a period of 10 years and retained an option to purchase the
remaining 78% interest in 101 Main. The first floor of the casino opened on
May 23, 1995.
F-13
<PAGE> 71
On August 15, 1997, the Company acquired the 78% membership interest in 101
Main not previously owned by FBHI, at a purchase price of approximately
$27.3 million. Because of certain restrictions on the Company, as issuer,
and FBHI, as a subsidiary guarantor, contained in existing loan documents,
FBHI formed Fitzgeralds Black Hawk II, Inc. ("FBHI-II") as a wholly-owned
subsidiary of FBHI. FBHI then contributed substantially all of its assets
including its 22% membership interest in 101 Main, its option to acquire
the remaining 78% membership interest in 101 Main and the Management
Agreement between FBHI and 101 Main, to FBHI-II. At the same time, 101 Main
loaned approximately $27.3 million of the proceeds of its $38.0 million 13%
First Mortgage Notes due 2000 (the "101 Main Notes") to FBHI-II for use in
acquiring the additional 78% membership interest in 101 Main. FBHI-II, as
the owner of all of the membership interests in 101 Main, and the
Management Agreement, guaranteed the obligations of 101 Main under the 101
Main Notes. The remainder of the proceeds from the 101 Main Notes was used
to retire certain existing indebtedness secured by assets of 101 Main and
for general corporate purposes.
The acquisition of the 78% membership interest in 101 Main has been
recorded as a purchase. Prior to the acquisition, the Company's 22%
membership interest in 101 Main was accounted for using the equity method.
From August 15, 1997, the financial statements of 101 Main have been
consolidated with those of the Company.
Condensed statement of operations information for 101 Main for the period
from January 1, 1997 through August 15, is summarized below:
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 15,
1997
------------
<S> <C>
Summarized Statement of Operations Information
Revenues $21,295,752
Operating income 5,398,745
Income before extraordinary item 4,378,932
Net income 4,130,769
</TABLE>
The table below reflects pro forma condensed financial information for the
Company as if the 78% membership interest in 101 Main was acquired on
January 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Net revenues $200,454,134
Loss before extraordinary item (8,735,241)
Net loss (28,231,332)
Net loss applicable to common stock (32,373,947)
Net loss per common share (8.07)
</TABLE>
F-14
<PAGE> 72
7. LONG-TERM DEBT
The Senior Secured Notes bear interest at a fixed annual rate of 12.25%
payable on June 15 and December 15 of each year, commencing June 15, 1998.
The Notes will mature on December 15, 2004. The Senior Secured Notes are
secured by a lien on substantially all of the assets of the Company,
including a pledge of the stock of the Company's subsidiaries and a lien on
substantially all of the assets of the Company's subsidiaries (other than
FAMI, FNYI and NCI), except for certain excluded assets, as defined in the
Note Indenture.
Upon a Change of Control as defined in the Note Indenture, the Company will
be required to offer to repurchase all of the outstanding Senior Secured
Notes at a cash price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of repurchase.
The Note Indenture contains covenants which, among other things, restrict
the Company's ability to (i) make certain payments to, or investments in,
third parties; (ii) incur additional indebtedness or liens on any assets;
(iii) enter into transactions with affiliates; and (iv) sell assets or
subsidiary stock. At December 31, 1999, the Company was not in compliance
with certain covenants (see Note 1).
In October 1998, the Company established the Credit Facility with a lending
institution, subject to certain exceptions, secured by a first priority
lien on substantially all of the assets of the Company, including a pledge
of the stock of the Company's subsidiaries, a lien on substantially all of
the assets of the Company's subsidiaries excluding FAMI, FNYI and NCI, and
except certain excluded assets. The obligations under the Credit Facility
bear interest at an annual rate equal to the designated bank's prime rate
(8.50% and 7.75% at December 31, 1999 and 1998, respectively) minus seven
basis points. The Company is charged a nominal fee for amounts available
under the Credit Facility. Full payment of any outstanding balance under
the Credit Facility is due upon termination of the loan agreement in
October 2003. At December 31, 1999 and 1998, $5.0 million was available for
capital expenditures at Fitzgeralds Black Hawk and $10.0 million and $7.0
million, respectively, were available for general corporate purposes. At
December 31, 1999, the Company was not in compliance with certain covenants
as stated in the Credit Facility (See Note 1).
F-15
<PAGE> 73
Long-term debt outstanding at December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
The Senior Secured Notes; (net of unamortized
discount of $1,833,418 and $2,084,611) $ 203,166,582 $202,915,389
Credit Facility -- 3,000,000
Contracts payable secured by certain equipment due
in maximum aggregate monthly installments of
$83,158, with varying maturity dates through 2005 1,272,097 3,877,434
Note payable to a trust to acquire land used in casino
operations; collateralized by deed of trust on the land;
due in monthly installments of $32,681, including
interest at 7.5% remaining principal and interest due
December 6, 2000; retired in June 1999 -- 782,004
Other -- 2,263,944
------------- ------------
Total debt 204,438,679 212,838,771
Less debt accelerated due to default (203,166,582) --
Less current portion (673,619) (4,634,747)
------------- ------------
Long term debt $ 598,478 $208,204,024
============= ============
</TABLE>
The scheduled maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year Ending December 31,
2000 $203,840,201
2001 248,003
2002 128,524
2003 128,622
2004 79,298
Thereafter 14,031
------------
Total $204,438,679
============
</TABLE>
EXTRAORDINARY ITEM - In December 1997, the Company recorded an
extraordinary loss on early retirement of debt of $19,247,928 consisting of
the net write-off of unamortized discount and debt offering costs and early
payment premium on debt retired with the proceeds of the Senior Secured
Notes.
F-16
<PAGE> 74
8. COMMITMENTS
Future minimum rental payments under operating leases with non-cancelable
lease terms in excess of one year are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
2000 $ 2,362,337
2001 1,705,724
2002 1,617,978
2003 1,510,014
2004 1,235,004
Thereafter 9,058,381
------------
Total $17,489,438
============
</TABLE>
Such operating lease commitments primarily relate to equipment, signs,
warehouses and ground leases on which the Company's buildings and equipment
reside. Rent expense for the years ended December 31, 1999, 1998 and 1997
was $2,845,668, $1,719,876 and $2,211,745, respectively.
During 1997, the Company recorded an expense of $1,852,832 for the
anticipated net lease settlement obligation for Harolds Club, including
related legal fees. In anticipation of the Nevada Club transaction, the
Company recorded an allowance of $2,157,000 against the book value of the
assets held for sale to write such assets down to the estimated net
realizable value for the year ended December 31, 1997. An additional
write-down of $231,250 was taken during 1998 upon a reduction of the sales
price of the Nevada Club. The Company recorded an additional write-down of
$33,448 at the close of the transaction in June 1999.
EMPLOYMENT AGREEMENTS - The Company has entered into employment agreements
with certain senior executives of the Company. In addition to their
respective salaries, the employment agreements also provide that such
senior executives will participate in the Company's executive compensation
plans, health plan and any other benefit plan established for selected
officers of the Company and that in the event of a termination of
employment without "good cause" (as defined in the agreements), such
persons will be entitled to any unpaid salary in a specified percentage
through the remainder of the term of their respective agreement.
Consistent with industry practice, the Company has entered into employment
agreements with certain of its other vice presidents and departmental
directors.
9. RELATED PARTY TRANSACTIONS
Notes payable-related parties consists of unsecured demand notes from
shareholders that bear interest at 6.24%. Such notes were retired and
treated as additional paid-in-capital in 1999.
F-17
<PAGE> 75
10. PROFIT SHARING PLAN
The Company has contributory profit-sharing plans for eligible employees.
The Company's contribution to the plans for any year, as determined by the
Board of Directors, is discretionary. Contributions to the plan are
allocated among eligible participants in the proportion of their salaries
to the total salaries of all participants.
Effective January 1, 1989, the Company amended the plans to include a
401(k) savings plan whereby eligible employees may contribute up to 20% of
their salary, which is matched by the Company at 25 cents per employee
dollar contributed, up to a maximum of 6% of their salary. The Company's
matching contributions were $332,155, $329,217 and $277,941 for the years
ended December 31, 1999, 1998 and 1997.
Each employee age 21 or older completing 1,000 or more hours of service
during the twelve-month period preceding the entry dates, January 1, April
1, July 1 or October 1, is eligible to participate in the plans.
In addition, the Company contributes to multi-employer defined contribution
pension plans under various union agreements. Contributions, based on wages
paid to covered employees, were $537,998, $430,071 and $386,975 for the
years ended December 31, 1999, 1998 and 1997.
11. CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK - In the normal course of
business, the Company is a party to financial instruments with off-balance
sheet risk which are not reflected in the accompanying consolidated balance
sheets.
The Company has an irrevocable letter of credit with a bank in the amount
of $155,000 that expires on November 1, 2000 and may be drawn upon by the
State of Nevada Insurance Division in the event that Fitzgeralds Reno,
Nevada Club or Fitzgeralds Las Vegas fails to pay workers' compensation
benefits to its employees under a self-insurance program. The letter of
credit is secured with a certificate of deposit for $155,000.
The Company has an investment with an insurance company in the amount of
$200,000. Such investment, which expires on September 30, 2000, serves as
collateral for a $2.5 million surety bond that was posted in September
1998, enabling the Company to remain a participant in the State of Nevada
self-insured workers' compensation program.
The Company has irrevocable letters of credit with a bank in the amount of
$480,000 and $250,000. Such letters, which expire on March 31, 2000 and
September 30, 2000, respectively, may be drawn by an insurance company in
the event that Fitzgeralds Tunica or Fitzgeralds Black Hawk fails to pay
workers' compensation benefits to its employees. The letters of credit are
secured with certificates of deposit for $480,000 and $250,000.
The Company has an irrevocable letter of credit with a bank in the amount
of $105,000 that expires on December 31, 2000 and may be drawn upon by
certain individuals in the event that Fitzgeralds Reno is unable to make
certain rental payments on leased property. The letter of credit is secured
with a certificate of deposit for $105,000.
At December 31, 1999, no amounts were drawn on the above investment or
letters of credit, and management does not expect any adverse effects on
the Company's operating results.
F-18
<PAGE> 76
LEGAL MATTERS
RENO TRANSPORTATION RAIL ACCESS CORRIDOR (RETRAC) PROJECT - In October
1998, the Reno City Council approved a special assessment district to
finance a portion of the costs to lower the railroad tracks that run
through downtown Reno, Nevada (the "ReTRAC Project"). Preliminary plans for
the ReTRAC Project provide for the construction of a temporary rail bypass
that will be used to divert rail traffic around the main railroad during
construction. The City of Reno (the "City") estimates that a period of
approximately two and one half years will be required to complete the
ReTRAC Project. The southern boundary of the bypass will extend out into
the middle of Commercial Row, the street where the Fitzgeralds Reno hotel
entrance, valet parking area and hotel loading zone are situated.
On November 30, 1998, the Company filed a lawsuit against the City to
challenge the method by which the special assessment to be levied against
the Company was determined. Based on preliminary plans prepared by the
City, Fitzgeralds Reno would expect to lose several parking spaces, the
current valet parking area, an outdoor billboard structure advertising
available rooms and a building used to house administrative offices, and be
required to relocate the hotel entrance currently on Commercial Row. The
City has also subsequently indicated that the ReTRAC Project might require
the demolition of the Fitzgeralds Reno Rainbow Skyway. Implementation of
the ReTRAC Project as currently proposed would cause the Company to suffer
significant and permanent loss in business revenue and income; certain
operating efficiencies from demolished or impaired physical structures; and
a portion of its existing customer base as a result of the construction and
operation of the proposed rail bypass.
The City filed an answer to the Company's lawsuit on January 19, 1999.
Subsequent thereto, George Karadanis and Robert Maloff d/b/a Sundowner
Hotel and Casino (the "Sundowner") were permitted by court order to file a
Complaint in Intervention. Notwithstanding said intervention, on December
22, 1999, the court granted the City's Motion for Summary Judgment against
the Sundowner which motion was joined in by the Company. The City and the
Company are currently engaged in negotiations to resolve the pending
litigation. However, barring such a resolution, the parties have stipulated
to a briefing schedule that requires all briefs to be filed by April 3,
2000. It is anticipated that a decision on the merits of the Company's
claims will be made subsequent to the filing of briefs, however, oral
arguments may be requested.
The Company has received no assurance as to whether or when the City will
negotiate mitigation measures and whether such measures could or would
fully compensate the Company for the fair market value of its property and
anticipated operating losses.
Other Matters - The Company is a party to various lawsuits relating to
routine matters incidental to its business. The Company does not believe
that the outcome of such litigation, individually or in the aggregate, will
have any material adverse effect on its financial condition.
12. STOCKHOLDERS' DEFICIENCY
PREFERRED STOCK
As part of a public offering of $123.0 million senior secured notes (the
"1995 Notes"), the Company issued 800,000 shares of Preferred Stock with a
liquidation preference of $20 million dollars ($25 per share), plus accrued
and unpaid dividends. Cash dividends on the Preferred Stock will be payable
out of funds legally available therefor (when and if declared by the
Company's Board of Directors) in an amount equal to 15% of the liquidation
preference. Dividends if not paid (whether or not declared) will be
cumulative from December 19, 1995 and will be compounded quarterly. The
Note Indenture
F-19
<PAGE> 77
restricts the Company's ability to pay dividends on the Preferred Stock,
and the Company has no current intention to pay any dividends on the
Preferred Stock. The Preferred Stock may be redeemed by the Company at any
time at a redemption price equal to 100% of the liquidation preference plus
accrued and unpaid dividends on the date of redemption subject to
restrictions in the Note Indenture and Credit Facility. The Company is
obligated to redeem all of the Preferred Stock on December 31, 2005 at a
redemption price equal to 100% of the liquidation preference plus accrued
and unpaid dividends on the date of redemption. In the event that the
Company consummates a Qualified Public Offering (Qualified Public Offering
means a firm commitment underwritten public offering of Common Stock of the
Company for which the Company receives net proceeds of at least $25
million, and after which the Common Stock is traded on a national
securities exchange or quoted on the Nasdaq National Market), it will be
required to offer to repurchase 35% of the Preferred Stock at a price equal
to 100% of the liquidation preference on the date of repurchase.
WARRANTS AND COMMON STOCK
As part of the offering of the 1995 Notes, the Company issued 2,675,237
warrants, each exercisable for one share of the Company's Common Stock at
an exercise price of $.01 per share (the "Warrants"). In connection with
the offering of the Senior Secured Notes and the repayment of the 1995
Notes, the Company canceled 703,402 of the Warrants. The remaining Warrants
had an expiration date of December 19, 1998. The Warrant Agent timely
received notice of exercise for 1,495,236 Warrants and 476,599 Warrants
expired. In September 1999, the Company issued 1,495,236 shares of Common
Stock to exercising Warrant holders in reliance on the exemption from
registration requirements contained in Section 4(2) of the Securities Act
of 1933 and on the basis that there was no public offering of the Common
Stock underlying the Warrants. The Company received $14,952, representing
the exercise price of the Warrants. The Warrants are not included in the
computation of diluted earnings per share for years ended December 31, 1998
and 1997.
The Company has not paid any cash dividends on its Common Stock to date.
The Company intends to retain all future earnings for use in the
development of its business and does not anticipate paying cash dividends
(including with respect to its Preferred Stock) in the foreseeable future.
The payment of all dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future
earnings, operations, capital requirements, the general financial condition
of the Company and general business conditions. The ability of the Company
or its subsidiaries to pay dividends is restricted by the terms of the Note
Indenture and the Credit Facility with respect to which the Company is in
default, and, with respect to the Common Stock, the certificate of
designation for the Preferred Stock. If a holder of securities is
disqualified by any gaming authorities from owning such securities, such
holder will not be permitted to receive any dividends if, and when,
declared by the Company's Board of Directors with respect to such
securities.
In March 1994, as part of the issuance of $36 million of 13% senior secured
notes due 1996, FSI issued warrants (the "FSI Warrants") to purchase
100,559 shares of its common stock. No value was ascribed to the FSI
Warrants. The FSI Warrants were exercisable at $.01 per share, expired five
years from the closing of the offering for these notes and were subject to
certain anti-dilution adjustments. FSI Warrants to purchase 54,384 shares
of common stock of FSI were also issued to the sales agent. These FSI
Warrants were exercisable at $32.18 per share and expired five years from
the closing of the offering. All FSI Warrants issued in connection with
this note offering were exercisable only for shares of common stock of FSI.
The notes issued in 1994 by FSI were repaid from a portion of the proceeds
from the offering of the 1995 Notes, at which time the Company repurchased
approximately 59% of the $.01 FSI Warrants, leaving 73,250 FSI Warrants
outstanding. The warrant agent timely received notice of exercise for 8,500
shares of common stock of FSI and 64,750 FSI Warrants expired. No
additional shares of common stock of FSI were issued as of December 31,
1999.
F-20
<PAGE> 78
STOCK OPTIONS
In February 1995, the Company granted options to purchase 87,140 shares of
common stock of the Company at $1.00 per share to certain employees of the
Company. All options granted vested as of June 30, 1996.
In December 1995, the Company granted options to purchase 75,000 shares to
each of two officers and 50,000 shares to each of two additional officers.
In addition, approximately 193,000 options were granted to Company
employees concurrently with the closing of the 1995 Offering. In connection
with the election of two non-employee directors concurrently with the 1995
Offering, the Company granted options to purchase 5,000 shares to each of
such non-employee directors. These options were exercisable at $4.50 per
share, with the options vesting ratably over three years. In March 1997,
the exercise price of all options then outstanding was reduced, to reflect
the then current fair market value, from $4.50 per share to $1.00 per
share, except for options granted to two controlling stockholders, the
exercise price of which was reduced to $1.10 per share.
On August 1, 1997, the Company adopted and the stockholders approved a new
Stock Option Incentive Plan (the "Stock Option Plan"), to replace the prior
plans. The Stock Option Plan, as amended, provides for the grant of options
to purchase shares of Common Stock that are either intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or that are not intended to so qualify
("non-qualified options"). All officers, directors, employees, consultants,
advisors, independent contractors and agents of the Company and its
subsidiaries are eligible to receive options under the Stock Option Plan,
except that only employees may receive incentive stock options. The Stock
Option Plan also permits a one-time grant of options to certain former
employees in substitution for options previously granted to them and having
substantially the same terms and conditions. The maximum number of shares
available for issuance under the Stock Option Plan is 1,000,000.
In October 1997 the Board of Directors granted options to purchase 660,974
shares under the Stock Option Plan in full replacement of previously
granted options. All of such options were granted subject to the optionee's
agreement to the cancellation of all previously granted options. The
replacement options were for the same number of shares with substantially
the same terms and conditions as the previously issued options.
In February 1998 the Board of Directors authorized an amendment to the
Stock Option Plan to eliminate the 100,000-share cap on the number of
options which may be granted to a single option holder during any calendar
year. In May 1998, the Board of Directors authorized a one-year extension
for 55,524 stock options that were to expire on June 30, 1998. In 1999, the
Board of Directors authorized a six-month extension of 53,261 stock options
that were to expire on June 30, 1999. The extension is reflected as a
cancellation and re-grant of new options in like amount. No options had
been exercised as of December 31, 1999.
The Stock Option Plan is administered by the Board of Directors or, at its
discretion, by a committee of the Board of Directors appointed for that
purpose (the "Stock Option Plan Committee"), which, subject to the terms of
the Stock Option Plan, has the authority in its sole discretion to
interpret the Plan and to determine: (a) the individuals to whom options
shall be granted; (b) the time or times at which options may be exercised;
(c) the number of shares subject to each option; (d) the option price and
the duration of each option granted; and (e) all of the other terms and
conditions of options granted under the Stock Option Plan.
F-21
<PAGE> 79
The exercise price of incentive stock options granted under the Stock
Option Plan must be at least equal to the fair market value of the shares
on the date of grant (110% of fair market value in the case of participants
possessing more than 10% of the combined voting power of the Company or any
of its subsidiaries) and may not have a term in excess of 10 years from the
date of grant (five years in the case of participants possessing more than
10% of the combined voting power of the Company). In no event may the
aggregate fair market value (determined as of the time the option is
granted) of the shares with respect to which incentive stock options
(granted under the Stock Option Plan and all other plans of the Company or
any of its subsidiaries) are exercisable for the first time by an optionee
in any calendar year exceed $100,000.
A summary of the status of the Company's stock option grants as of December
31, 1999, 1998 and 1997 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
-------- --------
<S> <C> <C>
Outstanding at January 1, 1997 450,051 $ 3.98
Granted 981,974 1.03
Canceled (660,974) 1.03
Forfeited (94,077) 1.67
-------- --------
Outstanding at December 31, 1997 676,974 1.03
Canceled (55,524) 1.00
Re-granted 55,524 1.00
Forfeited (112,450) 1.00
-------- --------
Outstanding at December 31, 1998 564,524 1.04
Canceled (321,138) 1.02
Re-granted 53,261 1.00
Forfeited (25,647) 1.00
-------- --------
Outstanding and excercisable at December 31, 1999 271,000 $ 1.04
======== ========
</TABLE>
Such options are not included in the computation of diluted earnings per
share for the years ended December 31, 1999, 1998 and 1997. As of December
31, 1999, the 271,000 options outstanding under the Stock Option Plan have
exercise prices of $1.00 and $1.10 and a weighted-average remaining
contractual life of one year.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. The Company did not have any compensation cost
that has been charged against income for its plans in 1999, 1998 and 1997.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS No. 123, the Company's pro
forma net loss and loss per common share-basic would have been the amounts
indicated below:
F-22
<PAGE> 80
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Net loss As reported $(17,954,354) $(8,666,827) $(31,541,520)
Proforma (17,954,354) (8,669,735) (31,598,880)
Loss per common share As reported $ (5.35) $ (3.35) $ (8.89)
Proforma (5.35) (3.35) (8.91)
</TABLE>
The fair value of each option grant for the pro forma disclosure was
estimated on the date of grant using the minimum value method with the
following weighted-average assumptions used for grants in 1999, 1998 and
1997; risk-free interest rates of 5.84%, 5.38% and 6.2%, respectively. It
is uncertain at this time what the impact of the Company's attempted
restructuring of its Senior Secured Notes will have on the weighted-average
fair value or expected lives of the options previously granted and the
Company considers the options to have no fair market value as of December
31, 1999. The weighted average fair value of options granted during 1998
and 1997 was $1.00.
13. INCOME TAXES
A reconciliation of the income tax benefit with amounts determined by
applying the statutory U.S. Federal income tax rate to consolidated loss
before taxes is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Tax benefit at U.S. statutory rate $ 6,284,023 $ 3,033,390 $ 11,073,695
Increase in valuation allowance (5,481,709) (2,696,503) (10,981,971)
Other (802,314) (336,887) (91,724)
----------- ----------- ------------
Total $ -- $ -- $ --
=========== =========== ============
</TABLE>
The following summarizes the effect of deferred income tax items and the
impact of "temporary differences" between amounts of assets and liabilities
for financial reporting purposes and such amounts as measured by tax laws.
The tax items comprising the Company's net deferred tax liability as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
----------- ----------- -----------
Deferred tax assets:
<S> <C> <C> <C>
Accrued and other liabilities $ 932,984 $ -- $ 932,984
Bad debt reserve 141,750 -- 141,750
FICA credits not utilized -- 623,755 623,755
NOL carryforward -- 31,741,121 31,741,121
Differences from flow through entity -- 126,503 126,503
Other -- 61,788 61,788
----------- ----------- -----------
$ 1,074,734 $32,553,167 $33,627,901
----------- ----------- -----------
</TABLE>
F-23
<PAGE> 81
<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
-------- ------------ ------------
<S> <C> <C> <C>
Deferred tax liabilities:
Difference between book and
tax basis of property $ -- $ 8,524,349 $ 8,524,349
Intangibles -- 272,246 272,246
Prepaid expenses 976,571 -- 976,571
-------- ------------ ------------
976,571 8,796,595 9,773,166
-------- ------------ ------------
98,163 23,756,572 23,854,735
Less: valuation allowance (98,163) (23,756,572) (23,854,735)
-------- ------------ ------------
Net deferred tax liability $ -- $ -- $ --
======== ============ ============
</TABLE>
The tax items comprising the Company's net deferred tax liability as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Intangibles $ -- $ 577,696 $ 577,696
Accrued and other liabilities 1,088,867 -- 1,088,867
Bad debt reserve 120,939 -- 120,939
FICA credits not utilized -- 507,427 507,427
NOL carryforward -- 25,569,101 25,569,101
Differences from flow through entity -- 406,016 406,016
Other -- 32,548 32,548
------------ ------------ ------------
$ 1,209,806 $ 27,092,788 $ 28,302,594
============ ============ ============
Deferred tax liabilities:
Difference between book and
tax basis of property $ -- $ 9,090,253 $ 9,090,253
Prepaid expenses 839,315 -- 839,315
------------ ------------ ------------
839,315 9,090,253 9,929,568
------------ ------------ ------------
370,491 18,002,535 18,373,026
Less: valuation allowance (370,491) (18,002,535) (18,373,026)
------------ ------------ ------------
Net deferred tax liability $ -- $ -- $ --
============ ============ ============
</TABLE>
Due to the uncertainty of the realization of certain tax carry forward
items, a valuation allowance has been established in the amount of $23.9
million at December 31, 1999. Realization of a significant portion of the
assets offset by the valuation allowance is dependent on the Company
generating sufficient taxable income prior to expiration of the loss and
credit carry forwards.
As of December 31, 1999, the Company had a consolidated net operating loss
carry forward of approximately $90.7 million and a tax credit carry forward
of $0.6 million, which are available to offset future tax through 2019. Of
the loss carry forwards, $3.7 million is available only to offset
F-24
<PAGE> 82
future taxable income of FMI. The availability of the loss and
credit carry forwards may be subject to limitations under sections 382 and
383 of the Internal Revenue Code in the event of a significant change of
ownership.
14. SEGMENT INFORMATION
The Company is a diversified multi-jurisdictional gaming holding company
that owns and operates four Fitzgeralds casino-hotels in downtown Las
Vegas, Nevada; Reno, Nevada; Tunica, Mississippi; and Black Hawk, Colorado.
The Company identifies its business in four segments based on geographic
location. The Company markets in each of its segments primarily to
middle-market customers, emphasizing its Fitzgeralds brand and its
"Fitzgeralds Irish Luck" theme. The major products offered in each segment
are: casino and hotel (except for Fitzgeralds Black Hawk) and food and
beverage.
The accounting policies of each business segment are the same as those
described in the summary of significant accounting policies. There are
minimal inter-segment sales. The Company evaluates business segment
performance based on EBITDA. Corporate costs are allocated to the business
segments through management fees.
Assets are principally cash and cash equivalents, property and equipment,
goodwill related to the acquisition of the remaining 78% membership
interest in 101 Main and debt offering cost related to the issuance of
debt. No single customer accounts for more than 10% of revenue.
A summary of the Company's operations by business segment for 1999, 1998
and 1997 is presented below:
F-25
<PAGE> 83
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating revenues:
Fitzgeralds Las Vegas $ 51,845 $ 50,987 $ 46,540
Fitzgeralds Tunica 74,332 68,349 68,734
Fitzgeralds Reno 40,019 39,729 39,803
Fitzgeralds Black Hawk(1) 36,202 36,256 12,692
Other(2) -- 11,742 5,695
--------- --------- ---------
Total Properties 202,398 207,063 173,464
Nevada Club -- 62 6,238
--------- --------- ---------
Total $ 202,398 $ 207,125 $ 179,702
========= ========= =========
Income (loss) from operations:
Fitzgeralds Las Vegas $ (1,115) $ (594) $ (498)
Fitzgeralds Tunica 5,322 2,063 6,013
Fitzgeralds Reno(3) 2,151 2,400 3,211
Fitzgeralds Black Hawk(1) 7,517 9,074 4,215
Other(2) (2,322) 9,414 4,011
--------- --------- ---------
Total Properties 11,553 22,357 16,952
Nevada Club (90) (566) (1,477)
Harolds Club (64) (111) (1,853)
--------- --------- ---------
Total(2) $ 11,399 $ 21,680 $ 13,622
========= ========= =========
</TABLE>
F-26
<PAGE> 84
Reconciliation of total business segment operating income to consolidated
net loss before income tax and extraordinary item:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Total segment operating income $ 13,875 $ 12,943 $ 12,941
Nevada Club (90) (566) (1,477)
Harolds Club (64) (111) (1,853)
Other(2) (6,320) 9,414 4,011
Eliminations 17,240 9,112 9,407
Interest Income 536 527 383
Interest income - shareholder and inter-company 31,879 32,110 17,636
Interest expense (29,704) (27,154) (25,368)
Interest expense - shareholder and inter-company (31,808) (32,057) (17,614)
Other expense (13,498) (12,885) (10,360)
-------- -------- --------
Net loss before income tax and extraordinary item $(17,954) $ (8,667) $(12,294)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
EBITDA(4):
Fitzgeralds Las Vegas(5) $ 2,594 $ 2,682 $ 2,651
Fitzgeralds Tunica 11,553 8,051 11,744
Fitzgeralds Reno 4,588 4,805 5,462
Fitzgeralds Black Hawk(1) 9,303 10,863 4,842
Other(2) (2,281) 9,622 4,111
-------- -------- --------
Total Properties 25,757 36,023 28,810
Nevada Club (90) (561) (1,282)
Harolds Club (64) (111) (1,853)
-------- -------- --------
Total EBITDA 25,603 35,351 25,675
Adjustments to EBITDA(6) 2,325 (5,328) 4,924
-------- -------- --------
Adjusted EBITDA $ 27,928 $ 30,023 $ 30,599
======== ======== ========
Segment depreciation and amortization:
Fitzgeralds Las Vegas $ 3,709 $ 3,276 $ 3,149
Fitzgeralds Tunica 6,231 5,987 5,731
Fitzgeralds Reno 2,437 2,405 2,251
Fitzgeralds Black Hawk(1) 1,786 1,789 627
Other 40 214 296
-------- -------- --------
Total $ 14,203 $ 13,671 $ 12,054
======== ======== ========
Segment assets:
Fitzgeralds Las Vegas $ 46,788 $ 48,535 $ 50,486
Fitzgeralds Tunica 69,869 72,470 75,375
Fitzgeralds Reno 32,030 37,302 35,038
Fitzgeralds Black Hawk(1) 40,371 41,019 42,480
Other 17,749 9,871 12,316
-------- -------- --------
Total $206,797 $209,197 $215,695
======== ======== ========
</TABLE>
F-27
<PAGE> 85
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Expenditures for additions to long-lived assets:
Fitzgeralds Las Vegas $ 1,635 $ 1,832 $ 1,920
Fitzgeralds Tunica 2,393 2,903 928
Fitzgeralds Reno 1,387 3,260 833
Fitzgeralds Black Hawk (1) 687 1,312 187
Other 82 8 76
-------- -------- --------
Total $ 6,184 $ 9,315 $ 3,944
======== ======== ========
</TABLE>
---------
(1) Includes Fitzgeralds Black Hawk operating results commencing August
15, 1997.
(2) Other includes (i) management fees from Fitzgeralds Black Hawk for
1997; (ii) management fees from Cliff Castle for 1998 and 1997; (iii)
payments from the Turning Stone settlement agreement for 1998 and
1997; (iv) non-recurring revenue of $8.0 million for termination of
the Cliff Castle Management Agreement in 1998; (v) corporate expenses
not allocated to the Operating Properties for all periods presented,
which includes $2.2 million and $0.2 million of restructuring
expenses for 1999 and 1998, respectively.
F-28
<PAGE> 86
(3) Excludes inter-company debt write-off of $3.2 million from Nevada
Club in 1999.
(4) EBITDA, or "earnings before interest, taxes on income, depreciation
and amortization," is a supplemental financial measurement used by
the Company in the evaluation of its gaming business and by many
gaming industry analysts. EBITDA is calculated by adding depreciation
and amortization expense to income from operations. At any property,
EBITDA is calculated after the allocation of corporate costs.
However, EBITDA should only be read in conjunction with all of the
Company's financial data summarized above and its financial
statements prepared in accordance with generally accepted accounting
principles ("GAAP") appearing elsewhere herein, and should not be
construed as an alternative either to income from operations (as
determined in accordance with GAAP) as an indication of the Company's
operating performance or to cash flows from operating activities (as
determined in accordance with GAAP) as a measure of liquidity. This
presentation of EBITDA may not be comparable to similarly titled
measures reported by other companies.
(5) Fitzgeralds Las Vegas invested $0.9 million, $0.8 million and $0.8
million for 1999, 1998 and 1997, respectively, in FSE. Prior to 1999,
such investments were reported under the equity method with no impact
on earnings. The 1999 investment was charged against earnings. See
Note 5 "Impairment Loss" of Notes to Consolidated Financial
Statements.
(6) Adjustments to EBITDA include (i) exclusion of EBITDA for Harolds
Club and Nevada Club for all periods presented; (ii) exclusion of
write down of Nevada Club assets of $0.03 million, $0.2 million and
$2.2 million for 1999, 1998 and 1997, respectively; (iii) exclusion
of Harolds Club lease settlements of $0.06 million, $0.1 million and
$1.9 million for 1999, 1998 and 1997, respectively; (iv) inclusion of
$1.0 million for 1997 in cash received by the Company as a result of
its 22% membership in 101 Main; (v) exclusion of $6.0 million of the
$8.0 million received in connection with the termination of the Cliff
Castle Management Agreement in 1998; and (vii) exclusion of $2.2
million of restructuring expenses for 1999.
15. GUARANTEE OF THE SENIOR SECURED NOTES AND CREDIT FACILITY
The Company's obligations under the Senior Secured Notes and Credit
Facility are fully and unconditionally guaranteed, jointly and severally,
by all subsidiaries of the Company (other than FAMI, FNYI, and NCI).
Subject to certain exceptions, the guarantee of the Senior Secured Notes is
secured by a lien, subject to the lien securing the guarantee of the Credit
Facility, on substantially all assets of the Guarantor Subsidiaries other
than certain excluded assets, as defined. Such excluded assets include,
among other thing, (i) cash, deposit accounts and other cash equivalents of
$22,010,057 and $12,792,707 at December 31, 1999 and 1998, respectively;
(ii) furniture, fixtures and equipment with a net book value of $1,343,984
and $8,181,527 at December 31, 1999 and 1998, respectively, securing
certain non-recourse indebtedness; and (iii) any agreements, permits,
licenses or the like that cannot be subjected to a lien without the consent
of third parties, which consent is not obtainable by the Company (including
all gaming licenses of the Company and its restricted subsidiaries as
defined), provided that excluded assets does not include the proceeds of
the assets under clauses (ii) or (iii) or any other collateral to the
extent such proceeds do not constitute excluded assets under clause (i)
above. The Company is currently in default on its Senior Secured Notes and
its Credit Facility (see Note 1).
F-29
<PAGE> 87
Condensed consolidating financial statement information for Fitzgeralds Gaming
Corporation, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and
Eliminating Entries (which consist principally of the elimination of
inter-company loan and investment accounts) follows:
Condensed consolidating balance sheet information as of December 31, 1999:
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,204,431 $ 12,805,626 $ 105,537 $ -- $ 22,115,594
Accounts and notes receivable, net 3,261 1,413,534 -- -- 1,416,795
Inventories -- 1,771,327 -- -- 1,771,327
Prepaid and other current assets 396,037 3,841,670 -- -- 4,237,707
------------ ------------ --------- ------------- ------------
Total current assets 9,603,729 19,832,157 105,537 -- 29,541,423
PROPERTY AND EQUIPMENT, NET 110,789 151,906,272 -- -- 152,017,061
OTHER ASSETS 196,521,739 26,022,397 -- (197,306,130)(b) 25,238,006
------------ ------------ --------- ------------- ------------
TOTAL $206,236,257 $197,760,826 $ 105,537 $(197,306,130) $206,796,490
============ ============ ========= ============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Debt accelerated due to default $203,166,582 $ -- $ -- $ -- $203,166,582
Current portion of long-term debt 178,470 495,149 -- -- 673,619
Accounts payable, accrued and other 31,236,099 17,199,789 31,854 (1,576,310)(c) 46,891,432
------------ ------------ --------- ------------- ------------
Total current liabilities 234,581,151 17,694,938 31,854 (1,576,310) 250,731,633
------------ ------------ --------- ------------- ------------
LONG TERM DEBT, Net of current portion 16,977,829 247,677,421 22 (264,056,794)(a) 598,478
------------ ------------ --------- ------------- ------------
Total liabilities 251,558,980 265,372,359 31,876 (265,633,104) 251,330,111
CUMULATIVE REDEEMABLE
PREFERRED STOCK 29,962,511 -- -- -- 29,962,511
STOCKHOLDERS' EQUITY (DEFICIENCY) (75,285,234) (67,611,533) 73,661 68,326,974 (d) (74,496,132)
------------ ------------ --------- ------------- ------------
TOTAL $206,236,257 $197,760,826 $ 105,537 $(197,306,130) $206,796,490
============ ============ ========= ============= ============
</TABLE>
- --------
(a) To eliminate inter-company accounts and notes payable.
(b) To eliminate inter-company accounts and notes receivable, investment in
subsidiaries and other capitalized costs.
(c) To eliminate inter-company deferred interest income.
(d) To eliminate investment in subsidiaries, other capitalized costs and
inter-company deferred interest income.
F-30
<PAGE> 88
Condensed consolidating balance sheet information as of December 31, 1998:
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,832,514 $ 10,960,193 $ 245,882 $ -- $ 13,038,589
Accounts and notes receivable, net 34,243 1,406,006 -- -- 1,440,249
Inventories -- 1,375,443 -- -- 1,375,443
Prepaid and other current assets 973,686 3,175,892 84,596 -- 4,234,174
------------ ------------ ---------- ------------- ------------
Total current assets 2,840,443 16,917,534 330,478 -- 20,088,455
PROPERTY AND EQUIPMENT, NET 66,827 159,647,836 -- -- 159,714,663
OTHER ASSETS 194,914,141 36,178,996 3,313,449 (205,012,240)(b) 29,394,346
------------ ------------ ---------- ------------- ------------
TOTAL $197,821,411 $212,744,366 $3,643,927 $(205,012,240) $209,197,464
============ ============ ========== ============= ===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt $ -- $ 4,939,384 $ -- $ -- $ 4,939,384
Accounts payable, accrued and other 4,287,831 20,254,990 58,574 (1,648,481)(c) 22,952,914
------------ ------------ ---------- ------------- ------------
Total current liabilities 4,287,831 25,194,374 58,574 (1,648,481) 27,892,298
------------ ------------ ---------- ------------- ------------
LONG TERM DEBT, Net of current portion 220,836,221 224,282,483 6,279,298 (243,193,978)(a) 208,204,024
------------ ------------ ---------- ------------- ------------
Total liabilities 225,124,052 249,476,857 6,337,872 (244,842,459) 236,096,322
CUMULATIVE REDEEMABLE
PREFERRED STOCK 24,401,171 -- -- -- 24,401,171
STOCKHOLDERS' DEFICIENCY (51,703,812) (36,732,491) (2,693,945) 39,830,219 (d) (51,300,029)
------------ ------------ ---------- ------------- ------------
TOTAL $197,821,411 $212,744,366 $3,643,927 $(205,012,240) $209,197,464
============ ============ ========== ============= ============
</TABLE>
- --------
(a) To eliminate inter-company accounts and notes payable.
(b) To eliminate inter-company accounts and notes receivable, investment in
subsidiaries and other capitalized costs.
(c) To eliminate inter-company deferred interest income.
(d) To eliminate investment in subsidiaries, other capitalized costs and
inter-company deferred interest income.
F-31
<PAGE> 89
Condensed consolidating statement of operations information for the year ended
December 31, 1999:
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ -- $171,739,693 $ -- $ -- $171,739,693
Food and beverage -- 24,603,925 -- -- 24,603,925
Rooms -- 21,551,208 -- -- 21,551,208
Other -- 3,627,105 45 -- 3,627,150
------------ ------------ ---------- ------------- ------------
Total -- 221,521,931 45 -- 221,521,976
Less promotional allowances -- 19,123,882 -- -- 19,123,882
------------ ------------ ---------- ------------- ------------
Net revenue -- 202,398,049 45 -- 202,398,094
------------ ------------ ---------- ------------- ------------
OPERATING COSTS AND
EXPENSES:
Casino -- 83,895,369 -- -- 83,895,369
Food and beverage -- 15,505,671 (884) -- 15,504,787
Rooms -- 12,563,589 -- -- 12,563,589
Other operating expense -- 2,046,933 -- -- 2,046,933
Selling, general and administrative 6,259,315 60,368,306 60,235 (4,000,000)(g) 62,687,856
Depreciation and amortization 38,624 14,164,333 -- -- 14,202,957
Write-down of assets and lease
settlement -- 97,759 -- -- 97,759
------------ ------------ ---------- ------------- ------------
Total 6,297,939 188,641,960 59,351 (4,000,000) 190,999,250
------------ ------------ ---------- ------------- ------------
INCOME (LOSS) FROM OPERATIONS (6,297,939) 13,756,089 (59,306) 4,000,000 11,398,844
OTHER INCOME (EXPENSE):
Interest income 32,278,886 129,862 5,807 (31,878,825)(h) 535,730
Interest expense (29,391,019) (32,119,599) -- 31,806,649 (e) (29,703,969)
Other income (expense) (13,341,248) (3,195,441) 3,022,714 13,329,016 (f) (184,959)
------------ ------------ ---------- ------------- ------------
NET INCOME (LOSS) $(16,751,320) $(21,429,089) $2,969,215 $ 17,256,840 $(17,954,354)
============ ============ ========== ============= ============
</TABLE>
- ------------
(e) To eliminate inter-company interest expense.
(f) To eliminate interest in loss of subsidiaries and inter-company management
fee expense.
(g) To eliminate inter-company management fee expense.
(h) To eliminate inter-company interest income, inter-company management fee
income, inter-company deferred interest income, and other inter-company
income.
F-32
<PAGE> 90
Condensed consolidating statement of operations information for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ -- $162,506,030 $ -- $ -- $162,506,030
Food and beverage -- 24,936,289 -- -- 24,936,289
Rooms -- 21,213,266 -- -- 21,213,266
Other -- 4,639,429 11,106,453 -- 15,745,882
------------ ------------ ----------- ------------- ------------
Total -- 213,295,014 11,106,453 -- 224,401,467
Less promotional allowances -- 17,276,879 -- -- 17,276,879
------------ ------------ ----------- ------------- ------------
Net revenue -- 196,018,135 11,106,453 -- 207,124,588
------------ ------------ ----------- ------------- ------------
OPERATING COSTS AND
EXPENSES:
Casino -- 81,439,540 98,950 -- 81,538,490
Food and beverage -- 18,290,363 5,163 -- 18,295,526
Rooms -- 12,579,464 -- -- 12,579,464
Other operating expense -- 2,162,019 -- -- 2,162,019
Selling, general and administrative 5,470,096 55,150,699 308,729 (4,073,182)(g) 56,856,342
Depreciation and amortization 23,502 13,456,510 190,784 -- 13,670,796
Write-down of assets and lease
settlement (260) 110,738 231,250 -- 341,728
------------ ------------ ----------- ------------- ------------
Total 5,493,338 183,189,333 834,876 (4,073,182) 185,444,365
------------ ------------ ----------- ------------- ------------
INCOME (LOSS) FROM OPERATIONS (5,493,338) 12,828,802 10,271,577 4,073,182 21,680,223
OTHER INCOME (EXPENSE):
Interest income 32,352,261 194,057 80,266 (32,099,206)(h) 527,378
Interest expense (26,250,515) (32,675,237) (274,438) 32,027,036 (e) (27,173,154)
Other income (expense) (7,772,650) 16,415,898 (866,903) (11,477,619)(f) (3,701,274)
------------ ------------ ----------- ------------- ------------
Income (loss) (7,164,242) (3,236,480) 9,210,502 (7,476,607) (8,666,827)
Income tax (provision) benefit (185,715) -- 185,715 -- --
------------ ------------ ----------- ------------- ------------
NET INCOME (LOSS) $ (7,349,957) $ (3,236,480) $ 9,396,217 $ (7,476,607) $ (8,666,827)
============ ============ =========== ============= ============
</TABLE>
- -----------
(e) To eliminate inter-company interest expense.
(f) To eliminate interest in loss of subsidiaries and inter-company management
fee expense.
(g) To eliminate inter-company management fee expense.
(h) To eliminate inter-company interest income, inter-company management fee
income, deferred interest income, and other inter-company income.
F-33
<PAGE> 91
Condensed consolidating statement of operations information for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ -- $135,895,642 $ 5,319,429 $ -- $141,215,071
Food and beverage -- 21,094,261 1,404,852 -- 22,499,113
Rooms -- 21,318,538 -- -- 21,318,538
Other -- 4,774,324 5,191,184 -- 9,965,508
------------ ------------ ----------- ------------ ------------
Total -- 183,082,765 11,915,465 -- 194,998,230
Less promotional allowances -- 14,770,306 526,191 -- 15,296,497
------------ ------------ ----------- ------------ ------------
Net revenue -- 168,312,459 11,389,274 -- 179,701,733
------------ ------------ ----------- ------------ ------------
OPERATING COSTS AND
EXPENSES:
Casino -- 66,046,542 3,628,444 -- 69,674,986
Food and beverage -- 16,178,476 1,036,409 -- 17,214,885
Rooms -- 12,512,496 -- -- 12,512,496
Other operating expense -- 1,681,063 -- -- 1,681,063
Selling, general and administrative 4,354,305 46,909,116 1,804,025 (4,134,268)(g) 48,933,178
Depreciation and amortization 20,794 11,757,606 275,377 -- 12,053,777
Write-down of assets and lease
settlement 27,832 2,580,000 1,402,000 -- 4,009,832
------------ ------------ ----------- ------------ ------------
Total 4,402,931 157,665,299 8,146,255 (4,134,268) 166,080,217
------------ ------------ ----------- ------------ ------------
INCOME (LOSS) FROM OPERATIONS (4,402,931) 10,647,160 3,243,019 4,134,268 13,621,516
OTHER INCOME (EXPENSE):
Interest income 17,438,078 349,823 11,163 (17,336,887)(h) 462,177
Interest expense (19,712,305) (22,729,426) (319,105) 17,265,733 (e) (25,495,103)
Other income (expense) (9,184,622) 2,693,840 (207,980) 5,816,580 (f) (882,182)
------------ ------------ ----------- ------------ ------------
Income (loss) before income taxes and
extraordinary item (15,861,780) (9,038,603) 2,727,097 9,879,694 (12,293,592)
Income tax (provision) benefit 3,075,065 (1,413,031) (1,662,034) -- --
------------ ------------ ----------- ------------ ------------
Income (loss) before extraordinary item (12,786,715) (10,451,634) 1,065,063 9,879,694 (12,293,592)
Extraordinary item-
Loss on early retirement of debt (18,683,651) (564,277) -- -- (19,247,928)
------------ ------------ ----------- ------------ ------------
NET INCOME (LOSS) $(31,470,366) $(11,015,911) $ 1,065,063 $ 9,879,694 $(31,541,520)
============ ============ =========== ============ ============
</TABLE>
- ------------
(e) To eliminate inter-company interest expense.
(f) To eliminate interest in loss of subsidiaries and inter-company management
fee expense.
(g) To eliminate inter-company management fee expense.
(h) To eliminate Inter-company interest income, inter-company management fee
income, deferred interest income, and other inter-company income.
F-34
<PAGE> 92
Condensed consolidating statement of cash flows information for the year ended
December 31, 1999:
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $11,220,021 $ 11,943,668 $(2,379,626) $ 304,635 (b) $ 21,088,698
----------- ------------ ----------- --------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets -- 1,847,530 2,375,614 -- 4,223,144
Acquisition of property and equipment (14,301) (5,624,993) -- -- (5,639,294)
Decrease in restricted cash (544,978) -- -- -- (544,978)
----------- ------------ ----------- --------- ------------
Net cash provided by (used in)
investing activities (559,279) (3,777,463) 2,375,614 -- (1,961,128)
----------- ------------ ----------- --------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of debt offering costs (305,424) -- -- -- (305,424)
Proceeds from issuance of stock 319,587 -- -- (304,635)(b) 14,952
Repayment of long-term debt (302,991) (6,320,772) -- -- (6,623,763)
Repayment of line of credit (3,000,000) -- -- -- (3,000,000)
Dividends to minority stockholders -- -- (136,330) -- (136,330)
----------- ------------ ----------- --------- ------------
Net cash used in financing activities (3,288,828) (6,320,772) (136,330) (304,635) (10,050,565)
----------- ------------ ----------- --------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 7,371,914 1,845,433 (140,342) -- 9,077,005
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 1,832,514 10,960,191 245,884 -- 13,038,589
----------- ------------ ----------- --------- ------------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 9,204,428 $ 12,805,624 $ 105,542 $ -- $ 22,115,594
=========== ============ =========== ========= ============
</TABLE>
- ------------
(b) To eliminate inter-company advances.
F-35
<PAGE> 93
Condensed consolidating statement of cash flows information for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $(3,363,058) $ 2,186,708 $13,365,299 $ -- $ 12,188,949
----------- ----------- ----------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets -- 81,910 403,298 -- 485,208
Acquisition of property and equipment (7,920) (5,143,939) -- -- (5,151,859)
Acquisition of assets to be held for sale -- (374,865) -- -- (374,865)
Decrease in restricted cash 355,572 38,415 -- -- 393,987
Dividends received 1,000,000 10,443,616 -- (11,443,616)(a) --
Other -- (803,488) -- -- (803,488)
----------- ----------- ----------- ------------ ------------
Net cash provided by (used in)
investing activities 1,347,652 4,241,649 403,298 (11,443,616) (5,451,017)
----------- ----------- ----------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from line of credit 3,000,000 -- -- -- 3,000,000
Payment of debt offering costs (1,537,826) -- -- -- (1,537,826)
Repayment of long-term debt -- (5,419,788) (2,708,356) -- (8,128,144)
Repayment of dividends -- (1,000,000) (12,286,606) 11,443,616 (a) (1,842,990)
----------- ----------- ----------- ------------ ------------
Net cash provided by (used in)
financing activities 1,462,174 (6,419,788) (14,994,962) 11,443,616 (8,508,960)
----------- ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (553,232) 8,569 (1,226,365) -- (1,771,028)
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 2,385,746 10,951,622 1,472,249 -- 14,809,617
----------- ----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 1,832,514 $10,960,191 $ 245,884 $ -- $ 13,038,589
=========== =========== =========== ============ ============
</TABLE>
- ------------
(a) To eliminate inter-company dividends.
F-36
<PAGE> 94
Condensed consolidating statement of cash flows information for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (6,529,107) $ 4,074,467 $ 3,741,897 $ -- $ 1,287,257
------------- ------------ ----------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets -- 109,012 20,936 -- 129,948
Repayments from related parties -- 2,518,805 -- -- 2,518,805
Acquisition of property and equipment (22,025) (3,566,861) (53,992) -- (3,642,878)
Advances to related parties (61,500,446) -- -- 61,500,446 (b) --
(Increase) decrease in restricted cash (355,572) 2,215,908 -- -- 1,860,336
Purchase of business, net of cash acquired -- (25,747,169) -- -- (25,747,169)
Dividends received 2,896,714 1,911,893 -- (4,808,607)(a) --
Other -- 224,406 -- -- 224,406
------------- ------------ ----------- ------------ ------------
Net cash provided by (used in)
investing activities (58,981,329) (22,334,006) (33,056) 56,691,839 (24,656,552)
------------- ------------ ----------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from 1997 Offering 202,634,300 -- -- -- 202,634,300
Payment of debt offering costs (9,225,656) (2,082,772) -- -- (11,308,428)
Advance from related parties -- 61,500,446 -- (61,500,446)(b) --
Proceeds from issuance of debt -- 38,221,811 -- 38,221,811
Repayment of long-term debt (128,399,735) (73,757,422) (416,463) -- (202,573,620)
Dividends -- (2,896,714) (2,249,286) 4,808,607 (a) (337,393)
Repayments to related parties -- (1,807,255) -- -- (1,807,255)
------------- ------------ ----------- ------------ ------------
Net cash provided by (used in)
financing activities 65,008,909 19,178,094 (2,665,749) (56,691,839) 24,829,415
------------- ------------ ----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (501,527) 918,555 1,043,092 -- 1,460,120
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 2,887,273 10,033,067 429,157 -- 13,349,497
------------- ------------ ----------- ------------ ------------
CASH AND CASH EQUIVALENTS
END OF YEAR $ 2,385,746 $ 10,951,622 $ 1,472,249 $ -- $ 14,809,617
============= ============ =========== ============ ============
</TABLE>
- ------------
(a) To eliminate inter-company dividends.
(b) To eliminate inter-company advances.
F-37
<PAGE> 95
FITZGERALDS GAMING CORPORATION SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BEGINNING COSTS AND ENDING
FYE BALANCE EXPENSES DEDUCTIONS(1) BALANCE
--- --------- --------- ------------- -------
<S> <C> <C> <C> <C>
12/31/97 $ 253,942 $ 560,462 $ (402,523) $ 411,881
12/31/98 411,881 388,573 (454,914) 345,540
12/31/99 345,540 493,568 (434,105) 405,003
</TABLE>
ALLOWANCE FOR DOUBTFUL RELATED PARTY NOTES RECEIVABLE
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BEGINNING COSTS AND ENDING
FYE BALANCE EXPENSES RECOVERIES BALANCE
--- --------- --------- ---------- -------
<S> <C> <C> <C> <C>
12/31/97 $ 510,439 $ -- $ (510,439) $ --
12/31/98 -- -- -- --
12/31/99 -- -- -- --
</TABLE>
ALLOWANCE TO WRITE ASSETS HELD FOR SALE TO ESTIMATED REALIZABLE VALUE
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BEGINNING COSTS AND ENDING
FYE BALANCE EXPENSES DISPOSAL BALANCE
--- --------- ---------- -------- ----------
<S> <C> <C> <C> <C>
12/31/97 $ -- $2,157,000 $ -- $2,157,000
12/31/98 2,157,000 231,250 -- 2,388,250
12/31/99 2,388,250 97,759 (2,486,009)(2) --
</TABLE>
- ------------
(1) Write-offs of uncollectible accounts receivable, net of recoveries.
(2) Represents assets disposed of during the year.
<PAGE> 1
EXHIBIT 10(n)(ii)
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (this "FIRST
AMENDMENT") is entered into as of December 9, 1999, by and between FOOTHILL
CAPITAL CORPORATION, a California corporation ("Foothill"), with a place of
business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles,
California 90025-3333, and FITZGERALDS GAMING CORPORATION, a Nevada corporation
("Borrower"), with its chief executive office located at 301 Fremont Street, Las
Vegas, Nevada, 89101 and constitutes an amendment to that certain Loan and
Security Agreement, dated as of October 29, 1998 (as amended, restated,
supplemented, or otherwise modified from time to time, the "LOAN AGREEMENT"), by
and among Foothill and Borrower (hereinafter, collectively, the "PARTIES").
Capitalized terns used herein and not defined herein shall have the meanings
ascribed to them in the Loan Agreement, as amended hereby.
WITNESSETH
WHEREAS, the Parties desire to amend the Loan Agreement, in accordance with
the amendment provisions of Section 15.6 thereof, as set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree to amend the
Loan Agreement, effective immediately, as follows:
A. AMENDMENTS TO LOAN AGREEMENT.
1. Section 1.1 of the Loan Agreement hereby is amended by inserting each
of the following definitions in their entirety:
"Chilled Water Service Agreement" means that certain Chilled
Water Service Agreement dated as of December 10, 1999, by and between FLVI and
E.three.
"E-three" means e.three Custom Energy Solutions, LLC, a Nevada
limited liability company.
"First Amendment" means that certain Amendment Number One to
Loan and Security Agreement dated as of December 9, 1999, by and among, Foothill
and Borrower.
2. Section 1.1 of the Loan Agreement hereby is amended by amending and
restating in its entirety, the following definition:
"Loan Documents" means this Agreement, the First Amendment, the
Letters of Credit, the Mortgages, the Environmental Indemnity, the Guaranty,
the Guarantor Security Agreement, the Guarantor Stock Pledge Agreement, the
Stock Pledge Agreement, the Copyright Security Agreement, the Trademark Security
Agreement, the Tunica Ship Mortgage, the
-1-
<PAGE> 2
Intercreditor Agreement, the Obligor Subordination Agreement, any note or notes
executed by any Obligor and payable to Foothill, and any other agreement entered
into, now or in the future, in connection with this Agreement.
3. Section 2.1(b) of the Loan Agreement hereby is amended and restated
in its entirety as follows:
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may, in its reasonable (from the perspective
of a secured lender) credit judgment, create and maintain reserves
against the Maximum Revolving Amount if any Obligor fails to pay any
monies (whether taxes, assessments, insurance premiums, or, in the case
of leased or licensed properties or assets, rents, license payments, or
other amounts under such leases or licenses, or otherwise) due to third
Persons (including, without limitation, any and all monies due by FLVI
to E.Three or any other Person under the Chilled Water Service
Agreement) or if Foothill determines that there has occurred a Material
Adverse Change.
4. Section 6.2 of the Loan Agreement hereby is amended and restated in
its entirety to read as follows:
6.2 REPORTING. Provide Foothill with the following documents at
the following times in form satisfactory to Foothill: (a) copies of each
report in respect of any Obligor's business issued by a Gaming Authority
or made by an Obligor to a Gaming Authority within 15 days of their
respective issuance or filing date; (b) copies of all operating and
capital budgets, and all other budgets, summaries of sources and uses of
funds, projections, and financial information prepared by or on behalf
of any Obligor (including in respect of any Casino or Facility) promptly
upon the preparation and delivery to or by the chief financial officer
of any Obligor; and (c) written evidence, in form and substance
satisfactory to Foothill in its sole and absolute discretion, that FLVI
shall have paid any and all amounts owed by FLVI to E.three or any other
Person under the Chilled Water Service Agreement within 5 Business Days
after any such payment is due.
5. Section 6.6 of the Loan Agreement hereby is amended and restated in
its entirety to read as follows:
6.6 CHILLED WATER. Borrower shall cause FLVI to pay, as and when
such payments are due, all amounts owed to E.three or any other Person
under the Chilled Water Services Agreement.
B. CONDITIONS PRECEDENT TO FIRST AMENDMENT.
The satisfaction of each of the following, unless waived or
deferred by Foothill in its sole discretion, shall constitute conditions
precedent to the effectiveness of this First Amendment and each and every
provision hereof:
1. Borrower shall have executed and delivered to Foothill the First
Amendment.
-2-
<PAGE> 3
2. Each of the Guarantors shall have executed and delivered to Foothill
a Reaffirmation and Consent, in the form attached hereto as Exhibit A.
3. The representations and warranties in this First Amendment, the Loan
Agreement as amended by this First Amendment, and the other Loan Documents shall
be true and correct in all respects on and as of the date hereof, as though made
on such date (except to the extent that such representations and warranties
relate solely to an earlier date).
4. No injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the consummation of the transactions
contemplated herein shall have been issued and remain in force by any
governmental authority against the Borrower or Foothill.
5. After giving effect hereto, other than as previously disclosed to
Foothill in writing, no Event of Default or event which with the giving of
notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date hereof, nor shall result from the
consummation of the transactions contemplated herein.
6. All other documents and legal matters in connection with the
transactions contemplated by this First Amendment shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to Foothill
and its counsel.
C. ACKNOWLEDGEMENT OF BORROWER.
Borrower acknowledges and agrees that any and all costs,
expenses and fees (including without limitation, attorneys fees) incurred by
Foothill in connection with this First Amendment shall constitute Foothill
Expenses.
D. REPRESENTATIONS AND WARRANTIES.
Borrower hereby represents and warrants to Foothill that (a) the
execution, delivery, and performance of this First Amendment, are within its
corporate powers, have been duly authorized by all necessary corporate action,
and are not in contravention of any law, rule, or regulation, or any order,
judgment, decree, writ, injunction, or award of any arbitrator, court, or
governmental authority, or of the terms of its charter or bylaws, or of any
contract or undertaking to which it is a party or by which any of its properties
may be bound or affected, and (b) the Loan Agreement, as amended by this First
Amendment, constitutes Borrower's legal, valid, and binding obligation,
enforceable against Borrower in accordance with its terms.
E. FURTHER ASSURANCES.
Borrower agrees to execute and deliver all financing statements,
agreements, documents, and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill may reasonably request from time to
time, to perfect and maintain the perfection and priority of Foothill's security
interests in the Collateral, and to fully consummate the transactions
contemplated under the Loan Agreement and this First Amendment.
-3-
<PAGE> 4
F. EFFECT ON LOAN DOCUMENTS.
The Loan Agreement, as amended hereby, and the other Loan
Documents shall be and remain in full force and effect in accordance with their
respective terms and each hereby is ratified and confirmed in all respects.
Except as expressly set forth herein, the execution, delivery, and performance
of this First Amendment shall not operate as a waiver of or as an amendment of
any right, power, or remedy of Foothill under the Loan Agreement, as in effect
prior to the date hereof. This First Amendment shall be deemed a part of and
hereby is incorporated into the Loan Agreement.
G. MISCELLANEOUS.
1. This First Amendment shall be governed by and construed in accordance
with the laws of the State of California without giving effect to its
conflicts-of-laws principles (other than any provisions thereof validating the
choice of the laws of the State of California as the governing law).
2. This First Amendment, and the terms and provisions hereof, constitute
the entire agreement among the Parties pertaining to the subject matter hereof
and supersedes any and all prior or contemporaneous amendments relating to the
subject matter hereof. Except as expressly amended hereby, the Loan Agreement
and other Loan Documents shall remain unchanged and in full force and effect. To
the extent any terms or provisions of this First Amendment conflict with those
of the Loan Agreement or other Loan Documents, the terms and provisions of this
First Amendment shall control. This First Amendment shall be deemed part of and
is hereby incorporated into the Loan Agreement.
3. This First Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument and any
of the parties hereto may execute this First Amendment by signing any such
counterpart. Delivery of an executed counterpart of this First Amendment by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this First Amendment. Any party delivering an executed
counterpart of this First Amendment by telefacsimile also shall deliver an
original executed counterpart of this First Amendment, but the failure to
deliver an original executed counterpart shall not affect the validity,
enforceability, and binding effect of this First Amendment.
4. This First Amendment cannot be altered, amended, changed or modified
in any respect or particular unless each such alteration, amendment, change or
modification shall have been agreed to by each of the Parties and reduced to
writing in its entirety and signed and delivered by each Party.
5. Upon the effectiveness of this First Amendment, each reference in the
Loan Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of
like import referring to the Loan Agreement shall mean and refer to the Loan
Agreement as amended by this First Amendment.
-4-
<PAGE> 5
6. Upon the effectiveness of this First Amendment, each reference in the
Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof" or
words of like import referring to the Loan Agreement shall mean and refer to the
Loan Agreement as amended by this First Amendment.
[Remainder of page left intentionally blank.]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the Parties have caused this First Amendment to be
executed and delivered as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ THERESA W. BOLICK
--------------------------------------
Title: Vice President/Account Executive
FITZGERALDS GAMING CORPORATION,
a Nevada corporation
By /s/ Michael E. McPherson
--------------------------------------
Name: Michael E. McPherson
Title: Executive Vice President
and Chief Financial Officer
-1-
<PAGE> 7
EXHIBIT A
REAFFIRMATION AND CONSENT
All capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed to them in that certain Amendment Number
One Loan and Security Agreement, dated as of December 9, 1999 (the "FIRST
AMENDMENT"). The undersigned hereby (a) represents and warrants to Foothill that
the execution, delivery, and performance of this Reaffirmation and Consent are
within its corporate or organizational powers, have been duly authorized by all
necessary corporate or other organizational action, and are not in contravention
of any law, rule, or regulation, or any order, judgment, decree, writ,
injunction, or award of any arbitrator, court, or governmental authority, or of
the terms of its charter or bylaws, or of any contract or undertaking to which
it is a party or by which any of its properties may be bound or affected; (b)
consents to the amendment of the Loan Agreement by the First Amendment; (c)
acknowledges and reaffirms its obligations owing to Foothill under the Guaranty
and each of the other Loan Documents to which it is party; and (d) agrees that
its Guaranty and the other Loan Documents to which it is a party are and shall
remain in full force and effect. Although the undersigned has been informed of
the matters set forth herein and has acknowledged and agreed to same, it
understands that Agent has no obligation to inform the undersigned of such
matters in the future or to seek its acknowledgement or agreement to future
amendments, and nothing herein shall create such a duty.
[remainder of page intentionally left blank]
-2-
<PAGE> 8
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Reaffirmation and Consent as of the date first written above.
FITZGERALDS SOUTH, INC., a Nevada corporation
FITZGERALDS MISSISSIPPI, INC., a Mississippi
corporation
FITZGERALDS LAS VEGAS, INC., a Nevada
corporation
FITZGERALDS FREMONT EXPERIENCE
CORPORATION, a Nevada corporation
FITZGERALDS RENO, INC., a Nevada corporation
FITZGERALDS INCORPORATED, a Nevada
corporation
FITZGERALDS BLACK HAWK, INC., a Nevada
corporation
FITZGERALDS BLACK HAWK II, INC., a Colorado
corporation
101 MAIN STREET LIMITED LIABILITY
COMPANY, a Colorado limited liability company
By: /s/ MICHAEL E. MCPHERSON
-----------------------------------------
Name: Michael E. McPherson
Title: Executive Vice President, Chief Financial
Officer, Treasurer, and Secretary of each of
the above-listed companies
-3-
<PAGE> 1
Exhibit 10(gg)
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the 10th day
of December, 1999 by and between E.THREE CUSTOM ENERGY SOLUTIONS, LLC, A NEVADA
LIMITED LIABILITY COMPANY, ("Tenant"), FITZGERALDS LAS VEGAS, INC., A NEVADA
CORPORATION (either "Landlord" or "Customer"), and FOOTHILL CAPITAL
CORPORATION, A CALIFORNIA CORPORATION ("Lender").
RECITALS
A. Lender is the Beneficiary under that certain Deed of Trust, Security
Agreement and Fixture Filing with Assignment of Rents dated as of October 29,
1998 (as supplemented and otherwise amended from time to time) (hereinafter
"Mortgage") by and among Landlord, as Trustor, in favor of Lawyers Title
Insurance Corporation, as Trustee, for the benefit of Lender, as Beneficiary.
The Mortgage encumbers the Real Estate (hereinafter defined) and secures future
advances up to a principal indebtedness equal to $15,000,000.
B. Tenant will be entering into a lease agreement (such lease agreement,
together with all amendments and modifications thereof, is hereinafter referred
to as the "Lease") with Landlord, pursuant to which Tenant leased a certain
parcel of land in Las Vegas, Nevada (the "Real Estate") legally described in
Exhibit A attached hereto.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby covenant
and agree as follows:
1. Prior to pursuing any remedy available to Tenant under the Lease
and/or the Chilled Water Agreement, at law or in equity as a result of any
failure of Landlord to perform or observe any covenant, condition, provision or
obligation to be performed or observed by Landlord under the Lease and/or that
certain chilled water service agreement, of even date herewith, executed by
Tenant, as "Supplier", and Landlord, as "Customer" (the "Chilled Water
Agreement") (any such failure hereinafter referred to as a "Fitzgerald's
Default"), Tenant shall: (a) provide Lender with a notice of Fitzgerald's
Default specifying the nature thereof and the section of the Lease or the
Chilled Water Agreement under which same arose, and (b) allow Lender thirty
(30) days following receipt of such notice of Fitzgerald's Default to cure the
same, provided, however, that, if such Fitzgerald's Default is not readily
curable within such thirty (30) day period, Tenant shall give Lender such
additional time as Lender may reasonably need to cure such Fitzgerald's Default
so long as Lender is diligently pursuing a cure, Tenant shall not pursue any
remedy available to it as a result of any Fitzgerald's Default unless Lender
fails to cure same within the time period specified above.
2. Tenant covenants with Lender that the Lease and the Chilled Water
Agreement shall be subject and subordinate to the lien and all other provisions
of the Mortgage and the other documents evidencing or securing the loan secured
by the Mortgage (the "Other Loan Documents") and to all modifications and
extensions thereof, to the full extent of all principal, interest and all other
amounts secured thereby. Without limiting the generality of the foregoing
subordination provision, Tenant hereby agrees that any of its right, title and
interest in and to
1
<PAGE> 2
condemnation awards (or other similar awards arising from eminent domain
proceedings) with respect to condemnation (or similar taking) of any of the Real
Estate, shall be subject and subordinate to Lender's right, title and interest
in and to such awards, except to the extent of any such award specifically
allocated to the value of Tenant's personal property, trade fixtures installed
by Tenant, at Tenant's cost, and/or other improvements installed by Tenant, at
Tenant's cost, located thereon.
3. Tenant acknowledges that Landlord has collaterally assigned to Lender
all leases affecting the Real Estate, including the Lease, and the rents due
and payable under such leases, in connection therewith, Tenant and Landlord
agree that, upon receipt of a demand by Lender for direct payment to Lender of
the rents due under the Lease, Tenant shall honor such demand and make all
subsequent rent payments directly to Lender, and Landlord waives all rights to
such rent payments in such event.
4. Lender agrees that so long as Tenant is not in default under the
Lease and/or the Chilled Water Agreement:
(a) Tenant shall not be named or joined as a party in any suit,
action or proceeding for the foreclosure of the Mortgage or the enforcement
of any rights under the Mortgage; and
(b) The possession by Tenant of the Real Estate and Tenant's rights
thereto shall not be disturbed, affected or impaired by, nor will the Lease
or the term thereof be terminated or otherwise materially adversely
affected by (i) any Suit, action or proceeding for the foreclosure of the
Mortgage or the enforcement of any rights under the Mortgage, or by any
judicial sale or execution or other sale of the Real Estate, or any deed
given in lieu of foreclosure, or (ii) any default under the Mortgage.
5. If Lender or any future holder of the Mortgage shall become the owner
of the Real Estate by reason of foreclosure of the Mortgage or otherwise, or if
the Real Estate shall be sold as a result of any action or proceeding to
foreclose the Mortgage or transfer of ownership by deed given in lieu of
foreclosure, the Lease and the Chilled Water Agreement shall continue in full
force and effect, without necessity for executing any new lease, as a direct
lease between Tenant and the new owner of the Real Estate as "landlord" upon all
the same terms, covenants and provisions contained in the Lease (subject to the
exclusions set forth in subparagraph (b) below), or executing a new chilled
water agreement and in such event,
(a) Tenant shall be bound to such new owner under all of the terms,
covenants and provisions of the Lease and the Chilled Water Agreement for
the remainder of the term thereof (including the extension periods, it
Tenant elects of has elected to exercise its options to extend the term),
and, upon Tenant's receipt of written notice from the former and new owner
as to a change in ownership of the Real Estate, Tenant hereby agrees to
attorn to such new owner and to recognize such new owner as "landlord"
under the Lease and to recognize such new owner as "customer" as long as
there exists no Customer Default under the Chilled Water Agreement at the
time of the receipt of said written notice;
2
<PAGE> 3
(b) Such new owner shall be bound to Tenant under all of the terms,
covenants and provisions of the Lease and the Chilled Water Agreement for
the remainder of the term thereof (including the extension periods, if
Tenant or Customer, as applicable, elects or has elected to exercise its
options to extend the term); provided, however, that such new owner shall
not be:
(i) liable for any act or omission of any prior landlord
(including Landlord) or any prior customer (including Customer) that
is not then continuing under the Lease and the Chilled Water
Agreement; provided, however, that Tenant's sole remedy against Lender
with respect to any act or omission of any prior landlord (including
Landlord) that is then continuing under the Lease and the Chilled
Water Agreement shall be to assert against Lender any offsets of rent,
if any, or other defenses which Tenant has against any landlord under
the Lease and/or against any customer under the Chilled Water
Agreement (including Landlord) (subject to the limitations set forth
in clause (ii) below);
(ii) subject to any offsets or defenses which Tenant has
against any prior landlord (including Landlord) or any prior customer
(including Customer) unless Tenant shall have provided Lender with (A)
notice of the Fitzgerald's Default that gave rise to such offset or
defense and (B) the opportunity to cure the same, all in accordance
with the terms of Section 1 above;
(iii) bound by any base rent, additional rent or any other
amounts payable under the Lease which Tenant might have paid in
advance for more than the current month to any prior landlord
(including Landlord), excluding, however, any offsets or rent credits
pursuant to the terms of the Chilled Water Agreement;
(iv) liable to refund or otherwise account to Tenant for any
security deposit not actually paid over to such new owner by Landlord;
(v) bound by any amendment or modification of the Lease and
the Chilled Water Agreement made without Lender's consent;
(vi) bound by, or liable for any breach of, any representation
or warranty or indemnity agreement contained in the Lease and/or the
Chilled Water Agreement or otherwise made by any prior landlord
(including Landlord) or by any prior customer (including Customer);
(vii) liable for the payment of any allowance or other amount
payable to the Tenant under the Lease and/or the Chilled Water
Agreement or the performance of any work required to be performed by
the Landlord under the Lease and/or the Customer under the Chilled
Water Agreement; or
(viii) liable for any breach of the Lease by any successor
landlord or for any breach of the Chilled Water Agreement by any
successor customer except during any period that Lender is the
landlord under the Lease or a customer under the Chilled Water
Agreement.
3
<PAGE> 4
6. Any notices, communications and waivers under this Agreement shall be
in writing and shall be (i) delivered in person, (ii) mailed, postage prepaid,
either by registered or certified mail, return receipt requested or (iii) by
overnight express carrier, addressed in each case as follows:
To Lender: Foothill Capital Corporation
11111 Santa Monica Boulevard
Suite 1500 Los Angeles, California 90025
Attn: Business Finance Division Manager
Facsimile: (310) 478-9788
With a copy to: Brobeck, Phleger & Harrison, LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Ililson, Esq.
Facsimile: (213) 745-3345
To Landlord: Fitzgeralds Las Vegas, Inc.
301 Fremont Street
Las Vegas, Nevada 89101
Attn: Kara Brown, General Counsel
Facsimile: (702) 382-5562
With a copy to: Fitzgeralds Gaming Corporation
301 Fremont Street
Las Vegas, Nevada 89101
Attn: Mike McPherson, Chief Financial Officer
Facsimile: (702) 382-5562
To Tenant: e.three Custom Energy Solutions, LLC
5450 West Sahara Avenue
Suite 200
Las Vegas, Nevada 89146
Facsimile: (702) 368-5768
With a copy to: Sierra Pacific Energy Corporation
5450 West Sahara Avenue
Suite 200
Las Vegas, Nevada 89146
Attn: General Counsel
Facsimile: (702) 368-5767
or to any other address as to any of the parties hereto, as; such party shall
designate in a written notice to the other party hereto. All notices sent
pursuant to the terms of this Paragraph shall be deemed received (i) if
personally delivered, then on the date of delivery, (ii) if sent by overnight,
express carrier, then on the next federal banking day immediately following the
day sent, or
4
<PAGE> 5
(iii) if sent by registered or certified mail, then on the earlier of the third
federal banking day following the day sent or when actually received.
7. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto, their respective successors and assigns and any nominees
of Lender, all of whom are entitled to rely upon the provisions hereof. This
Agreement shall be governed by the laws of the State of Nevada. This Agreement
may be executed in multiple counterparts and all of such counterparts together
shall constitute one and the same Agreement. Upon the effectiveness of this
Agreement by the parties, Landlord, at Landlord's expense, shall cause the
Agreement to be recorded in the Official Records of Clark County, Nevada.
8. If the terms of this Agreement conflict with any of the terms of the
Lease and/or the Chilled Water Agreement, the terms of this Agreement shall
control any issue related to Lender.
9. As a condition precedent to the effectiveness of this Amendment,
Lender shall have received Amendment Number One to that certain Loan and
Security Agreement by and between Foothill Capital Corporation and Fitzgeralds
Gaming Corporation, dated as of December 9, 1999, duly executed by Fitzgeralds
Gaming Corporation, a Nevada corporation, which shall be in form and substance
satisfactory to Lender and be in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed these presents the
day and year first above written.
Tenant: Lender:
E.THREE CUSTOM ENERGY FOOTHILL CAPITAL CORPORATION,
SOLUTIONS, LLC a California corporation
a Nevada limited liability company
By: /s/ JEFFREY C. KLEIN By: /s/ TERESA W. BOLICK
------------------------------- ------------------------------------
Title: Member Board of Managers Title: Vice President/Account Executive
---------------------------- ---------------------------------
JEFFREY C. KLEIN TERESA W. BOLICK
Landlord:
FITZGERALDS LAS VEGAS, INC.,
a Nevada corporation
By: /s/ WILLIAM J. NOONAN
-------------------------------
Title: Vice President/G.M.
----------------------------
WILLIAM J. NOONAN
5
<PAGE> 6
STATE OF NEVADA )
) SS.
)
On this 10th day of December, 1999, personally appeared before me, a notary
public in and for the county and late aforesaid, Jeffrey Klein the Member Board
of Managers of E.THREE, CUSTOM ENERGY SOLUTIONS, LLC, a Nevada limited
liability company, being the Person authorized to sign such documents for and on
behalf of the aforesaid corporation, and known (or proven) to me to be the
person described in and who executed the foregoing instrument, and acknowledged
to me that he/she executed the same freely and voluntarily and for the uses and
purposes set forth therein.
----------------------------------------
Notary Public
/s/ Judith A. Koehn Notary Public-State Of Nevada
________________________________ [SEAL] COUNTY OF CLARK
JUDITH A. KOEHN
My Commission Expires: 3/18/2000 My Appointment Expires
March 18, 2000
No. 92-2565-1
----------------------------------------
STATE OF NEVADA )
) SS.
)
On this 10th day of December, 1999, personally appeared before me, a notary
public in and for the county and late aforesaid, William J. Noonan the Vice
President of Fitzgeralds Las Vegas Inc., a Nevada Corp., being the Person
authorized to sign such documents for and on behalf of the aforesaid
____________________, and known (or proven) to me to be the person described in
and who executed the foregoing instrument, and acknowledged to me that he/she
executed the same freely and voluntarily and for the uses and purposes set forth
therein.
----------------------------------------
Notary Public
/s/ Judith A. Koehn Notary Public-State Of Nevada
________________________________ [SEAL] COUNTY OF CLARK
JUDITH A. KOEHN
My Commission Expires: 3/18/2000 My Appointment Expires
March 18, 2000
No. 92-2565-1
----------------------------------------
6
<PAGE> 7
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
- -------------------------------------------------------------------------------
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES)
On December 10, 1999, before me, Margie Vargo-Navas, Notary Public
----------------- ----------------------------------------------
DATE NAME, TITLE OF OFFICER, E.G. JANE COE. NOTARY PUBLIC
personally appeared Teresa M. Bolick
-----------------------------------------------------------
NAMES OF SIGNER(S)
[X] personally known to me to be the person whose name is subscribed to the
within instrument and acknowledged to me that she executed the same in her
authorized capacity, and that by her signature on the instrument the person, or
the entity upon behalf of which the person acted, executed the instrument.
MARGIE VARGO-NAVAS Witness my hand and official seal.
Commission # 1130617
Notary Public - California /s/ Margie Vargo-Navas
Los Angeles County -------------------------------------
My Comm. Expires Mar. 23, 2001 Signature of Notary
- --------------------------------------------------------------------------------
OPTIONAL SECTION
CAPACITY CLAIMED BY SIGNER
Though statute does not require the Notary to fill in the data below, doing so
may prove invaluable to person's relying on the document.
[] INDIVIDUAL
[X] CORPORATE, Vice President
OFFICERS__________________
Title(c)
[] PARTNERS ([]) LIMITED ([]) GENERAL
[] ATTORNEY-IN-FACT
[] TRUSTEE(S)
[] GUARDIAN/CONSERVATOR
[] OTHER______________________
___________________________
___________________________
SIGNER IS REPRESENTING:
NAME OF PERSON(s) OR ENTITY(IES)
- --------------------------------
Foothill Capital Corporation
- --------------------------------
- --------------------------------------------------------------------------------
THIS TITLE OR TYPE OF DOCUMENT ----------------------------
CERTIFICATE ------------------------------------------------------
MUST BE Non-Disturbance And Attornment Agreement
ATTACHED TO ------------------------------------------------------
THE ------------------------------------------------------
DOCUMENT ------------------------------------------------------
DESCRIBED AT NUMBER OF PAGES 9
RIGHT: ----------------------------------------
- ------------------------- DATE OF DOCUMENT December, 1999
Though the data --------------------------------------
requested here is not SIGNER(S) OTHER THAN NAMED ABOVE:
required by law, it Parties on behalf of:
could prevent fraudulent ------------------------------------------------------
reattachment of this E. Three Custom Energy Solutions LLC
form ------------------------------------------------------
Fitzgeralds Las Vegas, Inc.
------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 8
EXHIBIT A
LEGAL DESCRIPTION OF LAND
ALL OF LOTS 23, 24, 25, 26 AND 27 OF BLOCK 30 OF CLARK'S LAS VEGAS TOWNSITE AS
SHOWN BY MAP THEREOF ON FILE IN BOOK 1 OF PLANTS, PAGE 37, IN THE OFFICE OF THE
COUNTY RECORDER OF CLARK COUNTY, NEVADA.
TAX PARCEL NO.: 139-34-610-039
8
<PAGE> 1
EXHIBIT 10(hh)(ii)
CHILLED WATER SERVICE AGREEMENT
Dated as of December 10, 1999
Between
e.three Custom Energy Solutions, LLC
and
Fitzgeralds Las Vegas, Inc.
301 Fremont Street
Las Vegas, NV 89101
<PAGE> 2
E.THREE CUSTOM ENERGY SOLUTIONS, LLC
CHILLED WATER SERVICE AGREEMENT COVER PAGE
This Cover Page is attached to and made a part of that certain Chilled Water
Service Agreement dated December 10, 1999 by and between the customer identified
below and e.three Custom Energy Solutions, LLC, a Nevada limited-liability
company.
CUSTOMER: Fitzgeralds Las Vegas, Inc., a Nevada
Corporation
CUSTOMER'S INTEREST
IN PREMISES: Fee Owner
ADDRESS OF PREMISES: 301 Fremont Street, Las Vegas, NV 89101
PROJECTED COMMENCEMENT DATE: August 1, 2000
DURATION OF INITIAL TERM: 20 Years
CONTRACT CAPACITY: 500 Tons of chilled water Capacity
ESTIMATED TOTAL USAGE: 1,284,000 Ton-Hours
INITIAL CONTRACT CAPACITY
CHARGE: $[10,583.33] per month. This charge
shall be adjusted from time to time in
accordance with the terms of the Chilled
Water Service Agreement.
INITIAL CONSUMPTION CHARGE: S[0.131] per Ton-Hour of chilled
water service. This charge shall be
adjusted from time to time in accordance
with the terms of the Chilled Water Service
Agreement.
CONTRACT FACILITY CHARGE: $[1,808.58] per month. This charge
shall be fixed over the first ten (10) year
period of the initial twenty (20) year term
of the Chilled Water Service Agreement and
terminate at the conclusion of the first
ten (10) years.
<PAGE> 3
NOTICES: All notices and other communications shall
be addressed as follows:
If to Supplier to:
e.three Custom Energy Solutions, LLC
5450 W. Sahara Avenue, Suite 200,
Las Vegas, NV 89146
Attn: Executive Director - Sales
If to Customer to:
Fitzgeralds Las Vegas, Inc.
301 Fremont Street
Las Vegas, NV 89101
Attn: Director of Finance
This Cover Page is an integral part of the Chilled Water Service Agreement and
its terms are incorporated into such Agreement by reference.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Chilled Water Service Agreement ........................................................2
2. Term ...................................................................................3
2.1 Commencement Date ..............,...................................................3
2.2 Initial Term .......................................................................3
3. Charges and Adjustments ................................................................3
3.1 Monthly Contract Capacity Charge ...................................................3
3.2 Consumption Charge, ................................................................3
3.3 Facility Charge ....................................................................3
3.4 Adjustments ........................................................................4
3.4.1 Contract Capacity Charge ....................................................4
3.4.2 Consumption Charge ..........................................................5
3.4.3 Facility Charge .............................................................5
3.5 Effects of Changes of Law ..........................................................5
3.6 Post-Filing Payment Obligations ....................................................6
4. Payment Terms ..........................................................................6
4.1 Invoices ...........................................................................6
4.2 Default Rate Interest .............................................................6
5. Installation Maintenance and Ownership of Energy Transfer Station, Connection Equipment
and Customer Cooling Equipment .........................................................7
5.1 Installation of Equipment .........................................................7
5.2 Location of Equipment ..............................................................7
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
5.3 Maintenance of Energy Transfer Station..............................................7
5.4 Connection Equipment; Customer Cooling Equipment ...................................7
6. Removal of Refrigerants and Existing Chiller Equipment .................................7
6.1 Refrigerants .......................................................................7
6.2 Existing Chiller Equipment..........................................................8
6.3 Removal of Refrigerants and Existing Chiller Equipment .............................8
6.4 Title ..............................................................................8
6.5 New Equipment ......................................................................8
7. Rights of Access .......................................................................8
7.1 Generally ..........................................................................8
7.2 Protection of Energy Transfer Station ..............................................8
8. Insurance Requirements .................................................................9
9. Events of Default ......................................................................9
9.1 Supplier Default ...................................................................9
9.1.1 Performance Failures and Service Default.....................................9
9.1.2 Supplier Default ............................................................10
9.2 Customer Default ...................................................................10
9.2.1 Failure to Pay ..............................................................10
9.2.2 Failure to Perform Other Obligation..........................................10
10. Planned Maintenance; Other Service Interruptions........................................11
10.1 Planned Maintenance................................................................11
10.2 Other Interruptions................................................................11
11. Force Majeure Events....................................................................11
</TABLE>
(ii)
<PAGE> 6
<TABLE>
<S> <C>
12. Remedies Following Default..............................................................12
12.1 Customer's Remedies upon Occurrence of a Performance Failure Default ..............12
12.2 Customer's Remedies upon Occurrence of a Supplier Default..........................12
12.2.1 Abatement ..................................................................12
12.2.2 Termination ................................................................12
12.2.3 Other Rights and Remedies...................................................13
12.3 Supplier's Remedies upon Customer Default .........................................13
12.3.1 Discontinue of Performance..................................................13
12.3.2 Termination ................................................................13
12.3.3 Other Rights and Remedies...................................................13
12.4 No Consequential Damages...........................................................13
13. Effect of Termination of Agreement......................................................14
13.1 Payment; No Further Obligations....................................................14
13.2 Disconnection .....................................................................14
14. Indemnification ........................................................................14
14.1 Indemnification by Supplier .......................................................14
14.2 Indemnification by Customer .......................................................14
14.3 Notice of Claims ..................................................................15
14.4 Amount of Claims ..................................................................15
14.5 Defense of Action .................................................................15
14.6 Survival of Provisions ............................................................15
15. Miscellaneous Provisions ...............................................................16
15.1 Notices ...........................................................................16
15.2 Assumption of Obligations Change in Ownership .....................................16
15.3 Memorandum of Agreement Informational Financing Statement .........................17
15.4 Landlord Consent Agreement.........................................................17
</TABLE>
(iii)
<PAGE> 7
<TABLE>
<S> <C>
15.5 Confidential Information...........................................................17
15.6 Successors and Assigns.............................................................18
15.7 Entire Agreement ..................................................................18
15.8 Amendments to Agreement ...........................................................18
15.9 Waivers; Approvals ................................................................18
15.10 Partial Invalidity ...............................................................18
15.11 Executions in Counterparts .......................................................19
15.12 Governing Law ....................................................................19
15.13 No Third Party Rights ............................................................19
15.14 Dispute Resolutions ..............................................................19
</TABLE>
(iv)
<PAGE> 8
LIST OF EXHIBITS
Exhibit A - Legal Description of Premises
Exhibit B - Insurance Requirements
Exhibit C - Description of Existing Chiller Equipment
Exhibit D - Installation, Operation and Maintenance Specifications
Exhibit E - Form of Memorandum of Agreement
Rider Regarding Renewal Term
Rider Regarding Miscellaneous Issues
(v)
<PAGE> 9
CHILLED WATER SERVICE AGREEMENT
THIS CHILLED WATER SERVICE AGREEMENT is dated as of December 10, 1999,
by and between e.three CUSTOM ENERGY SOLUTIONS, LLC, a Nevada limited-liability
company (the "Supplier"), and the customer (the "Customer") identified on the
Cover Page (this and all other capitalized terms used in this Agreement shall
have the meanings ascribed to those terms in Appendix A attached to this
Agreement).
RECITALS:
A. Customer possesses an interest in the Premises, which interest
is described more fully on the Cover Page.
B. Customer desires to purchase from Supplier, and Supplier desires
to provide to Customer, chilled water service, at the delivery
point, chilled water to meet the customers chilled water needs
in the Premises, on the terms and subject to the conditions set
forth in this Agreement.
C. Customer has acknowledged the possibility that it will file a
Chapter 11 Petition during the Initial Term.
D. Customer has fully evaluated the benefits it would continue to
derive under this Agreement after filing a Chapter 11 Petition,
and has determined that it would be in the best interest of
Customer to assume this Agreement under Section 365(a) during
the administration of its Reorganization case.
E. Customer and Supplier consider this Agreement and Lease
Agreement to be integral components of the overall contractual
relationship between them, and neither Customer nor Supplier
would be willing to enter into this Agreement without also
entering into the Lease Agreements and having both agreements
assumed by Customer under Section 365(a) during the
administration of its Reorganization Case.
F. Customer and Supplier are entering into the Agreement based on
Customer's agreement to assume the Lease Agreement, as well as
this Agreement, in a timely manner under Section 365(a) during
the administration of its reorganization Case.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Supplier and Customer
agree as follows:
1A. The Customer agrees that it will purchase all of its future chilled
water requirements for the Premises from the Supplier and shall provide
the Supplier with not less than thirty (30) days prior written notice of
any expansion of the Premises or the construction of new Premises,
structures or other facilities owned, leased or operated by the Customer
that will require additional chilled water services. In the event that
any additional Customer requirement for
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<PAGE> 10
chilled water requires modification, expansion or improvements to the
Facility, taking into account all obligations of Supplier to provided
chilled water, Supplier, in Supplier's sole and absolute discretion, may
reject Customer's request for additional chilled water service and this
Agreement, as amended from time to time, shall continue in full force.
1B. Chilled Water Service. Supplier agrees to supply Customer with
chilled water service up to the Contract Capacity. The specifications
for such service, including the temperature are set forth in the
Installation, Operation and Maintenance ("IOM") Specifications on
Exhibit D. The chilled water provided to Customer pursuant to this
Agreement shall be used by Customer exclusively to reduce the ambient
temperature within the Premises. Customer shall be responsible for and
control the temperature levels of all space within the Premises as set
forth on Exhibit D.
2. Term.
2.1 Commencement Date. The Commencement Date shall be the date
on which Supplier is ready and able to begin supplying Customer with the
chilled water service in accordance with the terms of this Agreement,
provided that such date shall not be later than the Projected
Commencement Date unless otherwise agreed by Supplier and Customer. If
the Commencement Date fails to occur by September 1, 2000 for any reason
other than the occurrence of a Force Majeure Event or a delay caused by
Customer, then Customer may terminate this Agreement upon not less than
five days prior written notice to Supplier given at any time thereafter
and prior to the earlier of the Commencement Date or the 60th day
following the Projected Commencement Date; however, such failure shall
not constitute a Supplier Default and Customer's sole remedy as a result
of such failure shall be the termination of this Agreement as aforesaid.
2.2 Initial Term. The Initial Term of this Agreement commences
on Commencement Date and continues for the period specified on the Cover
Page, unless terminated earlier pursuant to the terms of this Agreement.
3. Charges and Adjustments.
3.1 Monthly Contract Capacity Charge. Customer shall pay to
Supplier monthly during the term of this Agreement the Contract Capacity
Charge for Supplier's undertaking to supply chilled water service up to
the Contract Capacity.
3.2 Consumption Charge. Customer shall pay to Supplier the
monthly Consumption Charge for chilled water service actually consumed
by Customer during such month.
3.3 Facility Charge. Customer shall pay to Supplier the monthly
Facility Charge for connection to the Facility used by the Supplier to
provide chilled water service to the Customer for the first ten (10)
years of the Initial Term, after which time the Facility Charge is
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<PAGE> 11
no longer due.
3.4 Adjustments.
3.4.1 Contract Capacity Charge. On each annual anniversary of
the Commencement Date, the Contract Capacity Charge shall be increased
to the sum of the following:
(i) the initial Contract Capacity Charge, plus
(ii) the product of (A) the initial Contract Capacity Charge,
multiplied by (B) the percentage increase, if any, in
the Consumer Price Index from the calendar month
immediately preceding the month in which the
Commencement Date occurs to the calendar month
immediately preceding the month in which the adjustment
to the Contract Capacity Charge is to occur, but in no
event to exceed three percent (3%) per annum.
(iii) If during any one-hour period during the term of this
Agreement, the Customer's requirement for chilled water
exceeds the Contract Capacity then in effect, then for
the next 3 (three) months the Contract Capacity and
Contract Capacity Charge shall be adjusted to an amount
equal to the Customer's peak use ("Temporary Demand
Adjustment"). At the expiration of such three (3) month
period, and provided that Customer's peak use has not
exceeded the Contract Capacity at any time during such
three (3) month period, the Temporary Demand Adjustment
shall expire and the Customer's Contract Capacity and
Contract Capacity Charge shall revert to the amounts in
effect immediately prior to the Temporary Demand
Adjustment, subject, however, to continuing adjustments
pursuant to this Agreement. In the event that the
Customer's actual capacity requirement exceed Contract
Capacity more than three (3) times within twelve
consecutive calendar month, the Contract Capacity and
Contract Capacity Charge shall be adjusted to the
highest actual capacity requirement within the preceding
twelve calendar months.
The foregoing adjustment shall in no event result in a decrease in the
Contract Capacity Charge in any year. The Contract Capacity Charge, if
adjusted as aforesaid, shall remain unchanged until it is adjusted again
pursuant to the terms of this Section or Section 3.4 below.
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<PAGE> 12
3.6 Post-Filing-Payment Obligations. Any payment obligations
which Customer incurs under this Agreement during the pendency of a
Reorganization Case shall be deemed administrative expenses under
Section 503(b)(1) in such Reorganization Case.
4. Payment Terms.
4.1 Invoices. Beginning on the Commencement Date, Supplier shall
deliver to Customer monthly invoices reflecting all amounts then owing
by Customer. The Contract Capacity Charge and the Facility Charge shall
be prorated for partial first and last months within the term of this
Agreement and shall be due and payable each month in advance. The
Consumption Charge shall be due and payable each month in arrears.
Payment shall be due in full, on or before the 30th day following the
date of each invoice. Customer shall not be permitted to setoff any
amounts owing by Customer to Supplier against any amounts owing by or
claimed to be owing by Supplier to Customer or otherwise reduce any
amounts owing by Customer to Supplier; provided, however, that if
Customer provides Supplier with written notice of its good faith belief
that a Consumption Charge set forth on an invoice from Supplier is
incorrect within fifteen (15) days after receipt of such invoice, then
Customer may withhold the payment of the disputed portion of such
Consumption Charge; provided, however, that at no time may Customer
withhold payment of Consumption Charges exceeding $5,000 in the
aggregate, nor may Customer withhold payment of any amounts that are not
in dispute. Notwithstanding the foregoing, as long as Customer is the
landlord under that certain Lease dated as of December 10, 1999 between
Customer, as landlord, and Supplier, as tenant and its permitted
assignees (as amended, restated, modified or supplemented and in effect
from time to time, the "Lease"), Customer may offset any amounts due
hereunder in satisfaction of any "Rent" (as defined in the Lease) which
is due under the Lease. If Customer fails to pay any portion of the
Consumption Charges pursuant to the terms of the penultimate preceding
sentence, the parties shall proceed to resolve such dispute pursuant to
Section 15.14, and no Customer Default shall be deemed to exist because
of such failure of payment during such period. Upon resolution of such
dispute pursuant to Section 15.14, Customer shall promptly (and in any
event within fifteen (15) days following the resolution of such
dispute), pay any amount determined to be owing to Supplier in respect
of such dispute. In the event that resolution of such dispute
establishes that Supplier owes any additional amount to Customer beyond
the amount which has been withheld pending resolution of such dispute,
Supplier shall promptly (and in any event within fifteen (15) days
following the resolution of such dispute) pay such amount to Customer.
4.2 Default Rate Interest. (i) Any amounts owing by Customer to
Supplier pursuant to the terms of this Agreement and not paid when due
(or, if applicable pursuant to resolution of a dispute as provided in
Section 4.1 and 15.14, within five Business (5) days after resolution of
such dispute) shall thereafter bear interest until paid at a rate equal
to the lesser of one and one-half percent (1.5%) per month or the
highest rate permitted by law, whichever is less, and such interest
shall be due and payable upon receipt of Supplier's invoice. Payment of
such interest is not Supplier's sole remedy for the failure of Customer
to make timely payments
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<PAGE> 13
under this Agreement. All such interest shall be calculated using a year
of 365 or 366 days (as applicable) and actual days elapsed.
(ii) Any amounts owing by Supplier to Customer pursuant to the
terms of the final sentence of Section 4.1 and not paid within five
Business (5) days after resolution of the applicable dispute shall
thereafter bear interest until paid at a rate equal to the lesser of one
and one-half percent (1.5%) per month or the highest rate permitted by
law, whichever is less, and such interest shall be due and payable upon
receipt of Customer's invoice. All such interest shall be calculated
using a year of 365 or 366 days (as applicable) and actual days elapsed.
5. Installation, Maintenance and Ownership of Energy Transfer Station,
Connection Equipment and Customer Cooling Equipment.
5.1 Installation of Equipment. Supplier shall install the
Equipment in accordance with the IOM Specifications. Customer shall
cooperate with Supplier to the extent necessary to facilitate the
installation of the Equipment in a timely, safe and efficient manner.
The Energy Transfer Station shall remain the personal property of
Supplier and shall not be deemed a fixture of the Premises.
5.2 Location of Equipment. Customer shall provide a safe and
secure space within the Premises that is reasonable and appropriate for
the installation, inspection, testing, servicing, maintenance,
operation, replacement and removal of the Equipment, which space shall
include the location(s) described in the IOM Specifications and be
satisfactory to Supplier.
5.3 Maintenance of Energy Transfer Station. Supplier shall
maintain the Energy Transfer Station during the term of this Agreement,
at Supplier's sole cost and expense, in accordance with IOM
Specifications, provided that if the Energy Transfer Station is damaged
or destroyed as a result of the acts of Customer or its agents,
employees, tenants, customers, contractors or other Persons for whom
Customer is responsible, then Customer shall be liable for the cost of
the required repair or replacement.
5.4 Connection Equipment; Customer Cooling Equipment. Customer
shall maintain the Connection Equipment and the Customer Cooling
Equipment during the term of this Agreement, at Customer's sole cost and
expense, unless Customer has executed a separate agreement with Supplier
to provide such maintenance.
6. Removal of Refrigerants and Existing Chiller Equipment
6.1 Refrigerants. If Customer requests Supplier to remove the
Refrigerants from the Premises, and if Supplier notifies Customer in
writing that it has agreed to do so, Supplier shall remove said
Refrigerants within 90 days after the date of Supplier's notice, at no
cost to Customer.
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<PAGE> 14
6.2 Existing Chiller Equipment. If Customer requests Supplier to
remove the Existing Chiller Equipment from the Premises, and if Supplier
notifies Customer in writing that it has agreed to do so, Supplier shall
remove the Existing Chiller Equipment from Premises within 180 days
after the date of Supplier's notice, at no cost to Customer.
6.3 Removal of Refrigerants and Existing Chiller Equipment. If
Supplier is not requested by Customer to remove the Refrigerants and
Existing Chiller Equipment pursuant to Sections 6.1 and 6.2 above, or if
Supplier has been requested to remove the same but does not elect to do
so, then Customer shall be required to remove the Refrigerants and the
Existing Chiller Equipment from the Premises on or before the First
anniversary of the Commencement Date. Customer hereby agrees that if
chilled water service is being provided by Supplier in accordance with
the terms of this Agreement, Customer shall not use the Existing Chiller
Equipment (prior to its removal) to provide cooling service for the
Premises without Supplier's prior written consent.
6.4 Title. Customer hereby covenants that upon Supplier's
removal of the Refrigerants and/or Existing Chiller Equipment pursuant
to Sections 6.1 and 6.2, title to the Refrigerants and/or Existing
Chiller Equipment shall pass to Supplier free and clear of all rights of
and liens and other claims by Customer and other third parties, and
Supplier shall be entitled to retain all proceeds received upon the
disposition of such Refrigerants and/or Existing Chiller Equipment.
6.5 New Equipment. Within fourteen (14) days after the Effective
Date of the Lease, Supplier shall at Supplier's sole cost and expense
procure a new Lockinvar Boiler (the "Boiler") for Customer. Customer
shall be responsible for ordering and installing the Boiler and Customer
shall be the owner of the Boiler.
7. Rights of Access.
7.1 Generally. Commencing on the date of this Agreement,
Supplier and its employees, agents, contractors and representatives
shall have a non-exclusive right of access to and through the Premises
at all times to the extent reasonably necessary for the convenient and
efficient exercise and performance of Supplier's rights, duties and
obligations under this Agreement, including the installation, testing,
maintenance, operation, repair, replacement and removal of the Equipment
and maintenance and operation of the Customer's Existing Chiller
Equipment. Supplier agrees to coordinate such activities with Customer
so as to minimize disruption to Customer's business to the extent
reasonably practicable.
7.2 Protection of Energy Transfer Station. Neither Customer nor
its agents, employees. tenants, customers, contractors or other Persons
under its control shall authorize or permit any Person (other than a
duly authorized employee or agent of Supplier) to operate, maintain,
alter or otherwise have access to the Energy Transfer Station, any
component of the Energy Transfer Station or other property of Supplier
located on or in the Premises, or to break
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<PAGE> 15
or replace any seal or lock of Supplier, or to alter or interfere with
the operation of meters or Supplier's connection or metering equipment,
or any other equipment (other than the Connection Equipment) installed
by Supplier on the Premises. Subject to the foregoing sentence, Customer
and its agents, employees, tenants, customers, contractors and any other
Persons under its control may have access to the portions of the
Premises containing the items referred to in the foregoing sentence for
reasonable inspection thereof and for other unrelated purposes;
provided, however, that if at any time Customer reasonably believes that
action with respect to the aforementioned equipment or property is
necessary to prevent imminent harm to persons or property, then such
access shall be permissible if and only if Customer takes only those
actions with respect to such equipment or property, as are reasonably
necessary to prevent said imminent harm and Supplier is promptly
notified of such access and other action taken by Customer.
8. Insurance Requirements; Financial information. The respective
insurance requirements for Supplier and Customer are set forth in
Exhibit B attached hereto, and the insurance described in Exhibit B
shall be maintained throughout the term of this Agreement. The liability
of each party under this Agreement to the other party shall not be
diminished by the insurance limitations set forth in said Exhibit B. All
insurance policies required by this Section shall provide that such
policies may not be canceled or terminated without 30 days prior written
notice to both Customer and Supplier.
9. Events of Default
9.1 Supplier Defaults.
9.1.1 Performance Failures and Service Default. A
"Performance Failure" shall occur if, at any time after the
Commencement Date and for any reason other than a Force Majeure
Event or as permitted by Sections 10.1 and 10.2 hereof, (i)
Supplier shall fail to provide chilled water service as required
by this Agreement up to a lesser of the Contract Capacity or the
Tons of chilled water service then required by Customer and (ii)
such failure shall continue for a period of six (6) consecutive
hours or longer and (iii) during such period Customer is ready,
willing and able to receive such chilled water service and (iv)
Supplier's failure is not otherwise the result of Customer's
acts or omissions or those of its agents, employees, tenants,
customers or contractors or of any other Persons for whom
Customer is responsible or over which Customer has control.
Promptly upon becoming aware of a Performance Failure (whether
by notice thereof from Customer or by Supplier's monitoring of
its systems or otherwise) Supplier shall:
(i) immediately seek to determine the cause of such
Performance Failure and shall advise Customer of Supplier's
conclusions as to such cause as quickly as possible and provide
Customer with a corrective action plan;
(ii) commence implementation of such corrective action
plan,
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<PAGE> 16
using all reasonable efforts to correct or cure such Performance
Failure in the shortest period of time which is reasonable in
the circumstances (taking into account the nature and cause of
the Performance Failure);
(iii) if Supplier believes that correcting or curing
such Performance Failure requires or can reasonably be
anticipated to last more than eight (8) consecutive hours, and
Supplier and Customer agree that the Premises cannot be operated
in a reasonably normal manner due to such ongoing Performance
Failure, Supplier shall initiate (at Supplier's expense)
procuring of substitute cooling services to be brought to the
site and put into operation as quickly as possible.
If any Performance Failure, which is not cured by Supplier as set forth
in Section 9.1.1 (iii) above, continues for an additional period of
seventy-two (72) consecutive hours or more, it shall thereupon be deemed
a "Service Default."
9.1.2. Supplier Defaults. The occurrence at any time of any of
the following events shall constitute a "Supplier Default":
(i) a Service Default; or
(ii) the failure of Supplier to perform or cause to be performed
any obligation required to be performed by Supplier under this Agreement
other than a Service Default; provided, however, that if such failure by
its nature can be cured, then Supplier shall have a period of 30 days
after written notice from Customer of such failure to cure the same and
a Supplier Default shall not be deemed to exist during such period, and
provided further, that if Supplier commences to cure such failure during
such period and is diligently and in good faith attempting to effect
such cure, said period shall be extended for 30 additional days.
9.2 Customer Default. The occurrence at any time of any of the following
events shall constitute a "Customer Default":
9.2.1 Failure to pay. The failure of Customer to pay any amounts
owing to Supplier under this Agreement on or before the 30th day
following the date when due and payable (or, if such amount has been
determined to be payable pursuant to resolution of a dispute in
accordance with Sections 4.1 and 15.14. within five (5) business days
after resolution of such dispute.).
9.2.2 Failure to Perform Other Obligations. The failure of
Customer to perform or cause to be performed any other obligation
required to be performed by Customer under this Agreement; provided,
however, that if such failure by its nature can be cured, then Customer
shall have a period of 30 days after written notice from Supplier of
such failure to cure the same and a Customer Default shall not be deemed
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<PAGE> 17
to exist during such period, and provided further, that if
Customer commences to cure such failure during such period and
is diligently and in good faith attempting to effect such cure,
said period shall be extended for 30 additional days.
10. Planned Maintenance; Other Service Interruptions.
10.1 Planned Maintenance. Supplier shall have the right to
interrupt or reduce Customer's chilled water service for a reasonable
duration, (which shall not exceed eight (8) consecutive hours unless
agreed upon in advance by Customer), upon prior notice to Customer, for
the purpose of performing ordinary maintenance, repairs, replacements,
connections or changes (on or off the Premises) of or to the Energy
Transfer Station or any other equipment or apparatus which is required
by good engineering and operating practices or by manufacturers'
specifications. Supplier shall diligently attempt to restore service as
soon as is reasonably possible and, in order to minimize interference
with the normal operations of the Premises, Supplier shall coordinate
with Customer to schedule such interruptions and reductions during
non-summer months and during non-peak business hours (11:00 p.m. to 7:00
a.m.) to the extent reasonably practicable.
10.2 Other Interruptions. Supplier shall have the right to
interrupt or reduce Customer's chilled water service for a duration
determined necessary by Supplier, in its good faith judgment, without
prior notice to Customer, if (i) a Force Majeure Event has occurred that
causes or requires such interruption or reduction of such service, or
(ii) the Customer Cooling System, the Connection Equipment or the
Premises has become dangerous or defective in Supplier's good faith
judgment and, as a result thereof, Supplier believes that such
interruption or reduction is necessary to prevent injury to other
Persons or damage to or destruction of property, including but not
limited to, any component of the Energy Transfer Station or Supplier's
other equipment and piping or to prevent the interruption or reduction
of Supplier's service to its other customers. In the event of any such
interruption or reduction of service, Supplier shall diligently attempt
to restore service as soon as it is reasonably possible in the
circumstances. Supplier shall notify Customer of the interruption, the
anticipated duration of the interruption and the reason therefore as
soon as possible after the interruption or reduction.
11. Force Majeure Events. If either party to this Agreement is prevented
from or delayed in performing any of its obligations under this
Agreement by reason of a Force Majeure Event, such party shall notify
the other party in writing as soon as practicable after the onset of
such Force Majeure Event and shall be excused from the performance of
its obligations under this Agreement to the extent such Force Majeure
Event has interfered with such performance. The party whose performance
under this Agreement is prevented or delayed as the result of a Force
Majeure Event shall use reasonable efforts to remedy its inability to
perform. If a party's failure to perform its obligations under this
Agreement is due to a Force Majeure Event, then such failure shall not
be deemed a Supplier Default or a Customer Default. If Supplier fails to
provide the chilled water service required by this Agreement due to the
occurrence of a Force Majeure Event, Customer shall be entitled to an
abatement of the Contract Capacity Charge and the Consumption Charge
from the date on which such failure commenced through the date
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<PAGE> 18
on which such failure ceases or this Agreement is terminated, and the term of
this Agreement shall be extended by a period of time equal to the period of such
abatement.
12. Remedies Following Default.
12.1 Customer's Remedies upon Occurrence of a Performance
Failure Default. If a Performance Failure occurs and Supplier and
Customer agree that the Premises cannot be operated in a reasonably
normal manner due to such ongoing Performance Failure, and if Supplier
does not thereupon initiate procuring of substitute cooling services to
be brought to the site and put into operation as quickly as possible,
then Customer, at Supplier's expense, shall have the right to take any
action reasonably intended to procure substitute cooling services to be
brought to the site and put into operation as quickly as possible to
correct or cure such failure. In the event that such Performance Failure
becomes a Service Default, the foregoing shall be in addition to the
rights of Customer provided for a Service Default. All costs and
expenses incurred by Customer in procuring such cooling services may be
deducted from any sums owing Supplier for the Contract Capacity Charge
and the Consumption Charge.
12.2 Customer's Remedies Upon Occurrence of a Supplier Default.
12.2.1 Abatement. If a Service Default described in
Section 9.1.2 above has occurred, Customer shall be entitled to
an abatement of the Contract Capacity Charge and the Consumption
Charge from the date on which such Service Default commenced
through the date on which such Service Default ceases to exist,
or (if applicable) is waived or this Agreement is terminated.
Notwithstanding anything in this Agreement, at law or in equity
to the contrary, abatement of the Contract Capacity Charge and
the Consumption Charge specified in this Section 12.2.1 shall be
Customer's sole and exclusive remedy upon the occurrence of a
Service Default described in Section 9.1.2 above, subject to
Customer's termination right under Section 12.2.2 below (and in
the event of such termination, the remedies set forth in Section
12.2.3 below).
12.2.2 Termination. If a Supplier Default has occurred
and continues for not less than thirty (30) consecutive days,
then Customer at any time thereafter may give Supplier a notice
of Customer's intent to terminate this Agreement, and if such
written notice is given and Supplier fails to correct or cure
such conditions by the close of business on the fifth (5th) day
after the date on which Customer gives Supplier such written
notice of Customer's intent to terminate this Agreement as a
result of such Supplier Default, then this Agreement shall
terminate and be of no further force or effect as of the close
of business on such fifth (5th) day; provided, however, that in
the case of a Service Default which cannot be cured within
thirty (30) days and Supplier has procured substitute cooling
services for the Premises, Customer may not terminate this
Agreement so long as Supplier is diligently and in good faith
attempting to cure such Service Default.
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<PAGE> 19
12.2.3 Other Rights and Remedies.
(i) The remedies provided herein for a Performance Failure shall be
the exclusive remedies of Customer for such failure, unless and
until the same becomes a Service Default.
(ii) If any Service Default has occurred, then Customer's sole remedy
shall be abatement of charges as provided in Section 12.2.1,
unless such Service Default continues for a period permitting
Customer to terminate this Agreement pursuant to Section 12.2.2,
in which case, upon such termination, Customer may pursue any
and all legal rights or remedies available to it at law or in
equity, subject, however, to the limitations set forth in
Section 12.4 below.
(iii) If a Supplier Default which is not a Service Default has
occurred and continues for a period permitting Customer to
terminate this Agreement pursuant to Section 12.2.2, then, upon
such termination Customer may pursue any and all rights or
remedies available to it at law or in equity, subject, however,
to the limitations set forth in Section 12.4 below.
12.3 Supplier's Remedies upon Customer Default.
12.3.1 Discontinue of Performance. If any Customer Default has
occurred and is continuing, Supplier shall have the right, upon five (5)
days prior written notice to Customer, to immediately discontinue the
supply of chilled water service to Customer and disconnect all related
piping and connections following expiration of such five (5) day notice
period.
12.3.2 Termination. If a Customer Default has occurred and
continues for thirty (30) consecutive days, then Supplier at any time
thereafter may give Customer notice of Supplier's intent to terminate
this Agreement, and if such written notice is given, and if Customer
fails to correct or cure the conditions causing such Customer default
within five (5) days after the date on which the Supplier gives Customer
written notice of Supplier's intent to terminate this Agreement as a
result of such Customer Default, then this Agreement shall terminate and
be of no further force or affect as of the last day of such five (5) day
period.
12.3.3 Other Rights and Remedies. In addition to the rights and
remedies of Supplier set forth above, Supplier may pursue any and all
other rights or remedies available to it at law or in equity upon the
occurrence of a Customer Default, subject, however, to the limitations
set forth in Section 12.2 and 12.4 above and the notice requirements of
this Agreement.
12.4 No Consequential Damages. Nothing in this Agreement is intended to
cause either party to be, and neither party shall be, liable to the other party
for any lost business, lost
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<PAGE> 20
profits or revenues (other than profits and revenues lost by Supplier directly
from Customer on account of a Customer Default) or other special or
consequential damages, all claims for which are hereby irrevocably waived by
Customer and Supplier. Notwithstanding the foregoing, third party claims against
either Supplier or Customer against which such party has a right of
indemnification pursuant to Section 14 below shall not be considered to be
consequential damages.
13. Effect of Termination of Agreement.
13.1 Payment; No Further Obligations. Subject to Section 12.3 above,
upon the termination or expiration of this Agreement, any amounts then owing
under this Agreement by a party to this Agreement to other party to this
Agreement shall become immediately due and payable, and the then future
obligations of Customer and Supplier under this Agreement shall be terminated
(other than the indemnity obligations set forth in Section 14 below). Such
termination shall not relieve either party from obligations accrued prior to the
effective date of termination or expiration.
13.2 Disconnection. As soon as reasonably practicable, but in no event
later than thirty (30) days, after the date on which this Agreement is
terminated or expires, Customer shall physically disconnect the Connection
Equipment and the Customer Cooling Equipment from the Energy Transfer Station.
Within thirty (30) days after such termination or expiration, Supplier shall
give Customer written notice of Supplier's intent to (a) remove from the
Premises any or all of the components of the Energy Transfer Station and
Supplier's other equipment, piping and other property installed or located on
the Premises, in which case Supplier shall have the right to do so within sixty
(60) days after such termination or expiration, and Customer shall provide
Supplier with access to the Premises as reasonably requested by Supplier to
allow Supplier to complete such removal, or (b) with Customer's written consent,
abandon any or all of such property to Customer and said property shall become
Customer's free and clear of any liens or encumbrances created by Supplier.
14. Indemnification.
14.1 Indemnification by Supplier. Supplier shall fully indemnify, save
harmless and defend each Customer Group Member from and against any and all
Expenses incurred by such Customer Group Member, including reasonable attorneys'
fees and costs, in connection with or arising from any claim by a third party
for physical damage to or physical destruction of property, or death of or
bodily injury to any Person, caused by (i) the gross negligence or willful
misconduct of Supplier or its agents or employees or others under Supplier's
control, or (ii) a Supplier Default; provided, however, that nothing in this
Section is intended to modify the limitation of Supplier's liability set forth
in Sections 12.1 and 12.3 above.
14.2 Indemnification by Customer. Customer shall fully indemnify, save
harmless and defend each Supplier Group Member from and against any and all
Expenses incurred by such Supplier Group Member, including reasonable attorneys'
fees and costs, in connection
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<PAGE> 21
with or arising from any claim by a third party for physical damage to or
physical destruction of property, or death of or bodily injury to any Person,
caused by (i) the gross negligence or willful misconduct of Customer or its
agents or employees or others under Customer's control or (ii) a Customer
Default; provided, however, that nothing in this Section is intended to modify
the limitation of Customer's liability set forth in Section 12.3 above or
elsewhere in this Agreement.
14.3 Notice of Claims. Any Indemnified Party seeking indemnification
under this Section 14 shall deliver to the Indemnitor a Claim Notice describing
the facts underlying its indemnification claim and the amount of such claim, if
known at the time. A notice describing any action at law or in equity involving
an Indemnified Party shall be delivered promptly to the Indemnitor after the
such Indemnified Party receives notice that such action or suit has commenced;
provided, however, that failure to deliver such notice as aforesaid shall not
relieve the Indemnitor of its obligations under this Section 14, except to the
extent that such Indemnitor has been prejudiced by such failure.
14.4 Amount of Claim. The amount to which an Indemnified Party is
entitled under this Section 14 shall be determined by (i) a mutually
satisfactory written agreement between such Indemnified Party and the
Indemnitor, (ii) a final judgment or decree of any court of competent
jurisdiction, or (iii) any other means agreed upon by such Indemnified Party and
the Indemnitor.
14.5 Defense of Action. If requested by an Indemnified Party, the
Indemnitor shall assume on behalf of the Indemnified Party, and conduct with due
diligence and in good faith, the defense of such Indemnified Party with counsel
reasonably satisfactory to the Indemnified Party; provided, however, that if the
Indemnitor is a defendant in any such action and the Indemnified Party believes
that there may be legal defenses available to it which are inconsistent with
those available to the Indemnitor, the Indemnified Party shall have the right to
select separate counsel to participate in the defense of such action at the
Indemnitor's expense. If any claim, action, proceeding or investigation arises
as to which the indemnity provided for in this Section 14 applies, and the
Indemnitor fails to assume the defense of such claim, action, proceeding or
investigation after having been requested to do so by the Indemnified Party,
then the Indemnified Party may, at the Indemnitor's expense, contest or, with
the prior written consent of the Indemnitor, which consent shall not be
unreasonably withheld, settle such claim, action, proceeding or investigation.
All costs and expenses incurred by the Indemnified Party in connection with any
such contest or settlement shall be paid upon demand by the Indemnitor.
14.6 Survival of Provisions. The provisions of this Section 14 shall
survive the expiration or termination of this Agreement.
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<PAGE> 22
15. Miscellaneous Provisions
15.1 Notices. All notices, communications and waivers under this
Agreement shall be in writing and shall be (i) delivered in person or (ii)
mailed, postage prepaid, either by registered or certified mail, return receipt
requested, or (iii) sent by overnight express courier, addressed in each case as
set forth on the Cover Page, or to any other address as to either of the parties
to this Agreement as such party shall designate in a written notice to the other
party to this Agreement. All notices sent pursuant to the terms of this Section
shall be deemed received (x) if personally delivered, then on the date of
delivery, (y) if sent by overnight, express courier, then on the next Business
Day immediately following the day sent, or (z) if sent by registered or
certified mail, then on the earlier of the third Business Day following the day
sent or when actually received.
15.2 Assumption of Obligations; Change in Ownership. Neither party shall
assign its interest or delegate its duties under this Agreement without the
prior written consent of the other party (which consent shall not be
unreasonably withheld), except:
(i) Supplier may assign its right, title and interest under this Agreement,
or any part thereof, to any direct or indirect wholly-owned subsidiary
of Sierra Pacific Resources, with prior written notice; and
(ii) Supplier may assign its right, title and interest in this Agreement to
any lender or lenders in connection with financing (or refinancing)
Supplier's right, title and interest in Supplier's chilled water
production and distribution facilities in downtown Las Vegas, Nevada;
and
Supplier may assign to any other Person the rights and delegate the obligations
of Supplier under this Agreement in connection with a concurrent sale of
Supplier's chilled water production and distribution facilities in downtown Las
Vegas, Nevada to such Person; if
(x) such other Person is duly licensed to operate such facilities by
all applicable Nevada state and local governmental authorities;
and
(y) such other Person has a long-term debt rating from Moody's
Investors' Service, Inc. and/or Standard & Poor's Ratings Group
at least equal to that of Supplier (or, if no such long-term
debt rating is available, is otherwise of financial strength
acceptable to Customer and Customer's lenders, acting in good
faith);
(z) such other Person acknowledges and accepts such assignment and
assumes Supplier's obligations in writing;
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<PAGE> 23
and, in any such case, provided that such other Person must acknowledge
and accept such assignment and assume Supplier's obligations in writing.
(iii) Customer may assign its right, title and interest in this Agreement to
any lender or lenders to whom Customer provides a security interest or
lien in Customer's right, title and interest in the Premises in
connection with financing (or refinancing) the Premises; and
(iv) Customer may assign to any other Person the rights and delegate the
obligations of Customer under this Agreement if and only if Customer is
concurrently assigning or otherwise conveying its entire interest in the
Premises to such Person and
(x) such other Person is duly licensed to operate a casino and a
hotel by all applicable Nevada state and local governmental
authorities, and
(y) such other Person has a long-term debt rating from Moody's
Investor Service, Inc. and/or Standard & Poor's Rating Group at
least equal to that of Customer (or, if no such long-term debt
rating is available, is otherwise of financial strength
acceptable to Supplier and Supplier's lenders, acting in good
faith);
and, in any such case, provided that such other Person must acknowledge and
accept such assignment and assume Customer's obligations in writing.
15.3 Memorandum of Agreement; Informational Financing Statement.
Supplier shall have the right to record a memorandum of this Agreement in the
real estate records for the county in which the Premises is located, which
memorandum shall set forth or summarize the interest of Supplier in the Energy
Transfer Station and the Connection Equipment and the rights granted to Supplier
under this Agreement with respect to the Premises and shall otherwise be in a
form substantially similar to the form attached hereto as Exhibit E. Supplier
shall also have the right to file an informational financing statement with the
office of the Nevada Secretary of State.
15.4 Landlord Consent Agreement. As a condition precedent to Supplier's
obligations under this Agreement, if Customer is not the owner of the Premises
then Customer shall obtain from the owner of the Premises a consent to this
Agreement in a form substantially similar to the form attached hereto as Exhibit
F.
15.5 Confidential Information. Customer agrees to treat in confidence
the amount of the Contract Capacity Charge, Consumption Charge, and the Facility
Charge and the information contained in the IOM Specifications and any Riders
attached hereto. Such information shall not be communicated to any party other
than Customer's officers, directors, employees, agents, attorneys and
professional consultants to the extent such Persons need to know such
information, except to the extent disclosure of such information (i) is required
by
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<PAGE> 24
law or governmental authority, (ii) is made pursuant to litigation between the
parties, (iii) is made to any lender or prospective lender to such party
(provided that such lender or prospective lender is requested in writing to keep
such information confidential), (iv) is made to a tenant of the Premises whose
lease with Customer requires such disclosure (provided that such tenant is
requested in writing to keep such information confidential), or (v) is made to a
Person under contract with the disclosing party, or to which the disclosing
party wishes to sell its business or property, which Person has given a
confidentiality undertaking which is substantially similar to this one. The
obligation of Customer to treat in confidence, and not to use, such information
shall not apply to any information which is or becomes available to the public
other than as a result of disclosure in breach of this Section.
15.6 Successors and Assigns. The rights, powers and remedies of each
party to this Agreement shall inure to the benefit of such party and its
successors and permitted assigns.
15.7 Entire Agreement. This Agreement (including the Exhibits hereto and
any Riders attached hereto) represents the entire agreement between the parties
to this Agreement with respect to the subject matter of this Agreement and
supersedes all prior and contemporaneous oral and prior written agreements.
15.8 Amendments to Agreement. This Agreement shall not be amended,
modified or supplemented without the written agreement of Supplier and Customer
at the time of such amendment, modification or supplement.
15.9 Waivers; Approvals. No waiver of any provision of this Agreement
shall be effective unless set forth in writing signed by the party making such
waiver, and any such waiver shall be effective only to the extent it is set
forth in such writing. Failure by a party to this Agreement to insist upon full
and prompt performance of any provision of this Agreement, or to take action in
the event of any breach of any such provision or upon the occurrence of any
Supplier Default or Customer Default, as applicable, shall not constitute a
waiver of any rights of such party, and, subject to the notice requirements of
this Agreement, such party may at any time after such failure exercise all
rights and remedies available under this Agreement with respect to such Supplier
Default or Customer Default. Receipt by a party to this Agreement of any
instrument or document shall not constitute or be deemed to be an approval of
such instrument or document. Any approvals required under this Agreement must be
in writing, signed by the party whose approval is being sought.
15.10 Partial Invalidity. In the event that any provision of this
Agreement is deemed to be invalid by reason of the operation of law, or by
reason of the interpretation of such provision by any administrative agency or
any court, Supplier and Customer shall negotiate an equitable adjustment in the
provisions of the same in order to effect, to the maximum extent permitted by
law, the purpose of this Agreement and the validity and enforceability of the
remaining provisions, or portions or applications thereof, shall not be affected
by such adjustment and shall remain in full force and effect.
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<PAGE> 25
15.11 Execution in Counterparts. This Agreement may be executed
in counterparts, and all said counterparts when taken together shall
constitute one and the same Agreement.
15.12 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
15.13 No Third Party Rights. This Agreement is only for the
benefit of the parties to this Agreement, their successors and permitted
assigns and Persons expressly benefited by the indemnity provisions of
this Agreement. No other Person (including, without limitation, tenants
of the Premises) shall be entitled to rely on any matter set forth in,
or shall have any rights on account of the performance or
non-performance by any party of its obligations under, this Agreement.
15.14 Dispute Resolution. Customer and Supplier shall negotiate
in good faith and attempt to resolve promptly any dispute between them
which may develop under this Agreement; however, if Customer and
Supplier are unable to resolve any such dispute, then Customer and
Supplier jointly may request that such dispute be resolved by
arbitration in accordance with the provisions of the Commercial
Arbitration Rules of the American Arbitration Association. If Customer
and Supplier do not agree to submit such dispute to arbitration and are
not otherwise able to resolve such dispute, either Customer or Supplier
may bring such dispute to any court of competent jurisdiction for
resolution. The provisions of this Section 15.14 shall survive the
termination or expiration of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date set forth above.
E.THREE CUSTOM ENERGY SOLUTIONS, LLC, a
Nevada limited-liability company
FITZGERALDS LAS VEGAS, INC., a
Nevada Corporations
By: /s/ JEFFREY C. KLEIN
------------------------------
Name: Jeffrey C. Klein By: /s/ WILLIAM J. NOONAN
---------------------------- ---------------------------------
Title: Member, Board of Managers Name: William J. Noonan
--------------------------- -------------------------------
Title: Vice President/GM
------------------------------
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<PAGE> 26
APPENDIX A
DEFINITIONS
The following terms shall have the meanings set forth below:
"Actual Capacity Requirement" means, the maximum number of Tons of chilled
water service as metered over a 60-minute period at the Energy Transfer Station.
"Affiliate" means, with respect to any Person, any other Person, which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Agreement" means this Chilled Water Service Agreement, the Cover Page and
all exhibits, appendices and riders attached hereto, and any amendments or
modifications made thereto from time to time.
"Bankruptcy Code" means Title 11 of the United States Code.
"Business Day" means a day on which commercial banks generally are open
for business in the City of Las Vegas, Nevada.
"Chapter 11" means Chapter 11 of the Bankruptcy Code.
"Claim Notice" means a notice by a Customer Group Member or a Supplier
Group Member seeking indemnification pursuant to Section 14 of this Agreement.
"Commencement Date" shall have the meaning ascribed to such term on the
Cover Page of this Agreement.
"Connection Equipment" means all equipment and piping necessary to connect
the Customer Cooling System to the heat exchanger assembly included in the
Energy Transfer Station, as more fully described in the IOM Specifications. The
Energy Transfer Station is not a part of the Connection Equipment or the
Customer Cooling Equipment.
"Consumer Price Index" means the U.S. City Average Consumer Price Index,
all items other than food and energy, not seasonably adjusted, as it appears in
the "News" as published monthly by the United States Department of Labor, Bureau
of Labor Statistics; provided, however, that if said Consumer Price Index shall
cease to exist or is changed, then the term "Consumer Price Index" shall mean
such other or similar index or formula as Supplier reasonably selects to measure
change in the purchasing power of the U.S. dollar.
"Consumption Charge" means the monthly charge payable by Customer to
Supplier for Ton-Hours of chilled water service provided to Customer during each
month of the term of this Agreement, as the same may be adjusted from time to
time pursuant to the terms of this Agreement, the initial amount of which is
specified on the Cover Page.
<PAGE> 27
"Contract Capacity" means the number of Tons of chilled water service
specified on the Cover Page that Supplier is obligated by this Agreement to make
available to Customer from and after the Commencement Date through the date on
which this Agreement expires or is terminated.
"Contract Capacity Charge" means the monthly charge payable by Customer to
Supplier for making chilled water service up to the Contract Capacity available
for use by Customer pursuant to this Agreement, as the same may be adjusted from
time to time pursuant to the terms of this Agreement, the initial amount of
which is specified on the Cover Page. Customer's obligation to pay the monthly
Contract Capacity Charge for chilled water service up to the Contract Capacity
is unrelated to the amount of chilled water service actually required by
Customer.
"Cover Page" means the Cover Page attached to and made a part of this
Agreement, as the same may be amended from time to time.
"Customer Cooling Equipment" means the HVAC system serving the Premises,
including piping, pumps and other equipment, owned by Customer that are or will
be used by Customer to cool space within the Premises after the Commencement
Date.
"Customer Default" shall have the meaning ascribed to such term in
Section 9.2 of this Agreement.
"Customer Group Member" means Customer and its Affiliates, and the
directors, officers, agents, employees, successors and assigns of each of them.
"Delivery Point" means the point of connection between the Connection
Equipment and the Energy Transfer Station, at which point Supplier delivers
chilled water service to Customer.
"Design Pressure" means the design pressure shall be the maximum allowable
working pressure as defined in ASME B31.1 Power Piping Code.
"Distribution Lines (pipes)" means The network of main piping lines
connecting the Chilled Water Services plant to the Service Line Piping to the
customer Premises.
"Energy Transfer Station" (ETS) means the equipment and related piping and
apparatus between Supplier's Service Lines and the Connection Equipment. The ETS
is an indirect connection to the customer's system chilled water system. It
includes, without limitation, a heat exchanger assembly or equivalent device,
piping, valves, metering equipment and controls and additional equipment, if
any, installed by Supplier on the Premises pursuant to the terms of this
Agreement for use in providing chilled water service to Customer, and all
replacements and additions from time to time. The Connection Equipment or the
Customer Cooling Equipment are not a part of the Energy Transfer Station.
"Equipment" means the Energy Transfer Station and the Connection
Equipment, including associated piping, metering and other equipment.
ii
<PAGE> 28
"Existing Chiller Equipment" means all of Customer's compressors, chillers
and related equipment used by Customer prior to the Commencement Date to cool
space within the Premises, a list of which is attached hereto as Exhibit C.
"Expenses" means any and all costs and reasonable expenses incurred in
connection with investigating, defending or asserting any claim, action, suit or
proceeding incident to any matter indemnified against under this Agreement
(including, without limitation, court filing fees, court costs, arbitration fees
or costs, witness fees, and reasonable fees and disbursements of legal counsel,
investigators, expert witnesses, consultants, accountants and other
professionals), and any other losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges.
"Facility Charge" means a fixed monthly charge payable by the customer to
the supplier for making the chilled water service available to the customer.
"Force Majeure Event" means acts of God, war, civil commotion, embargoes,
strikes, epidemic, fires, cyclones, droughts, floods, emergencies, labor,
production or transportation difficulties or accidents to or involving
machinery, equipment or lines of pipe, shortages of materials, power, fuel,
equipment, transportation or labor (or the inability to obtain the same without
litigation or paying penalties, premiums or unusual prices or otherwise agreeing
to unreasonable terms or conditions), or any governmental law, regulation (or
its interpretation), order, request, instruction or injunction, or failure to
provide or cancellation of rights-of-way, permits, licenses or other
authorization, whether valid or invalid, or any other cause whether or not
similar to the foregoing, beyond the reasonable control of a party hereto,
provided that a Force Majeure Event shall not include events caused by the gross
negligence or willful misconduct of the party claiming the Force Majeure Event.
"Heat Exchanger (HX)" The equipment used to change the temperature of
water in one system by having it pass by another system. Heat exchangers are
being used in the chilled water service plant between different systems as well
as at Premises interface facilities.
"Indemnified Party" means a Customer Group Member or a Supplier Group
Member seeking indemnification pursuant to Section 14 of this Agreement.
"Indemnitor" means the Person from which indemnification is sought
pursuant to Section 14 of this Agreement.
"Initial Term" shall mean the initial term of this Agreement, the duration
of which is set forth on the Cover Page.
"IOM Specifications" means the Installation, Operation and Maintenance
Specifications attached hereto as Exhibit D, as the same may be amended from
time to time by the parties to this Agreement. In the event of any conflict
between the provision of the IOM Specifications and the other provisions of this
Agreement, such other provisions shall govern.
iii
<PAGE> 29
"Lease Agreement" means that certain Lease, made as of the 10th day of
December 1999 by and between Customer as "Landlord" and Supplier as "Tenant"
relating to the lease of premises to be used for a facility that produces and
distributes chilled water to customers in downtown Las Vegas.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
governmental authority or regulatory body.
"Premises" means the building[s] located on the property at the address
stated on the Cover Page alongside the caption "Address of Premises" and legally
described on Exhibit A attached to this Agreement.
"Producer Price Index" means the Producer Price Index for the Western
South Central Region for commercial electric power, product code 4981-123, not
seasonably adjusted, as it appears in the Producer Price Index published by the
United States Department of Labor, Bureau of Labor Statistics; provided,
however, that if said Producer Price Index shall cease to exist or is changed,
then the term "Producer Price Index" shall mean such other or similar index or
formula as Supplier reasonably selects to measure change in the price for
commercial electric power.
"Refrigerants" means all chlorofluorocarbons and other refrigerants
contained in, or owned and held by Customer for future use in, the Existing
Chiller Equipment.
"Reorganization Case" means a case commenced under Chapter 11 by the
filing of a Chapter 11 Petition.
"Return Point" means the point of connection between the Energy Transfer
Station and Supplier's chilled water delivery system, at which point chilled
water returns to Supplier's pipes after it has passed through the Energy
Transfer Station.
"Section 365(a)" means Section 365(a) of the Bankruptcy Code.
"Section 503(b)(1)" means Section 503(b)(1) of the Bankruptcy Code.
Service Line (pipe) - The service lines run from the branch fittings on
the main distribution pipes to the inside of the Premises wall. A set of
isolation valves and cathodic isolation flanges will be installed at the point
where the service line penetrates the Premises wall. The flanges represent the
point of delivery.
"Supplier Default" shall have the meaning ascribed to such term in Section
9.1 of this Agreement.
"Supplier Group Member" means Supplier and its Affiliates, and the
directors, officers, agents, employees, successors and assigns of each of them.
iv
<PAGE> 30
"Tax" means any present or future tax (including any sales and use taxes),
levy, impost, duty, charge, assessment or fee of any nature (including interest,
penalties and additions thereto) that is imposed by any federal, state, local or
other taxing authority on chilled water service or equipment provided or used by
Supplier or on any aspect of such service, or on any payments made by Customer
to Supplier, under this Agreement, provided that Taxes shall not include general
federal and state taxes on Supplier's gross income.
"Ton" means refrigeration capacity equivalent to the cooling capacity of
one ton of ice melting in a period of twenty-four hours (at a rate of 12,000 BTU
per hour).
"Ton-Hour" means cooling service equivalent to 12,000 BTU of cooling,
measured as a function of the gallons of chilled water which pass through the
Energy Transfer Station and the temperature difference of the chilled water at
the Delivery Point and the Return Point, and calculated on the basis of the
aggregate BTU gain occurring.
v
<PAGE> 31
EXHIBIT A
Legal Description of Premises:
301 Fremont Street
Las Vegas, Nevada 89102
<PAGE> 32
EXHIBIT B
Insurance Requirements(a) Supplier's Insurance. At all times during the
term of this Agreement, Supplier, at its sole expense, shall purchase and
maintain in full force and effect, the following insurance coverage:
(i) Workers' compensation coverage shall be at statutory limits
and shall comply with the applicable statutes for all
employees of Supplier who perform services at the site and in
connection therewith.
(ii) Commercial General Liability Insurance shall be written on a
combined single limit basis and shall be endorsed to provide
limits specifically for Supplier operations of
Bodily Injury and Property Damage $2,000,000 each occurrence
Personal Injury and Advertising
Liability $2,000,000 each occurrence
Products and Completed Operations
Aggregate $2,000,000 each occurrence
General Aggregate Limit other than
Products/Completed Operations $2,000,000 aggregate limit
(iii) Business Automobile Liability Insurance shall contain
combined single limits of:
Bodily Injury and Property Damage $1,000,000 each accident
Coverage shall apply to all owned, non-owned and hired
vehicles under the operation, maintenance or use of Supplier
in connection with this project.
(iv) Excess or Umbrella Liability Insurance coverage may be
written in a combination of layers which equal $10,000,000
per occurrence and in the annual aggregate. Coverage shall be
excess to those coverages listed in Subparagraphs (a)(ii)
through (a)(iii), above.
(v) All risk property insurance (including boiler and machinery
insurance) covering physical loss and damage to all
improvements forming part of the Premises, including all
machinery, equipment and fixtures on or connected to the
premises, for the full replacement value thereof.
<PAGE> 33
(vi) All insurance in Subparagraphs (a)(i) through (a)(v), above,
shall be with insurers acceptable to Customer and, to the
extent required, be approved to do business in the State of
Nevada. However, such insurers may include surplus lines
carriers or Lloyds of London. All aggregates shall be on an
annual basis. Within ten (10) days from the date this
Agreement is signed by both Supplier and Customer, Supplier
shall provide Customer with certificates of insurance
evidencing such coverage. The certificates will stipulate
that the insurance will not be canceled without thirty (30)
days prior written notice to Customer. Notwithstanding
certificate requirements, above, Supplier shall provide to
Customer evidence from the Employers' Insurance (formerly the
State Industrial Insurance System) of compliance with the
workers' compensation statutes and proof of coverage.
Supplier shall provide, at the request of Customer,
certificates evidencing coverage of all insurance policies
specified above within fifteen (15) days of such request.
Customer will be named as additional insured on policies
listed in (a)(ii) through (a)(v), above.
(vii) Supplier may, at its option, elect to insure or self-insure
Supplier property owned, maintained or used at the Premises.
Customer may also, at its option, elect to insure or
self-insure all or portions of Customer insurance. Supplier
waives its rights of recovery against Customer and, if
applicable, will cause its underwriters to waive their rights
of subrogation against Customer for loss, damage, and loss of
use of such Supplier property.
(b) Customer's Insurance. At all times during the term of this Agreement,
Customer, at its sole expense, shall purchase and maintain in full force and
effect, the following insurance coverage:
(i) Commercial general liability insurance on an occurrence basis
(including contractual liability) with limits of not less
than $2,000,000 per occurrence and annually in the aggregate,
and with a deductible not exceeding $100,000, covering
liability claims arising or resulting from insured acts or
omissions of Customer, its agents, employees and others under
its control; and
(ii) All risk property insurance (including boiler and machinery
insurance) covering physical loss and damage to all
improvements forming part of the Premises, including all
machinery, equipment and fixtures on or connected to the
Premises, for the full replacement value thereof.
(iii) Garage keeper's liability insurance on an occurrence basis
with limits of not less than $1,000,000 per occurrence and
annually in the aggregate, and with a deductible not
exceeding $25,000.
<PAGE> 34
(vi) Automobile liability insurance on an occurrence basis with
limits of not less than $1,000,000 per occurrence and
annually in the aggregate, and with a deductible not
exceeding $25,000.
(vii) Workers' compensation coverage shall be at statutory limits
and shall comply with the applicable statutes for all
employees of Customer who perform services at the site and in
connection therewith.
(viii) All insurance in Subparagraphs (b)(i) through (a)(iv), above,
shall be within insurers acceptable to Supplier and, to the
extent required, be approved to do business in the State of
Nevada. However, such insurers may include surplus lines
carriers or Lloyds of London. All aggregates shall be on an
annual basis. Within ten (10) days from the date this
Agreement is signed by both Supplier and Customer, Customer
shall provide Supplier with certificates of insurance
evidencing such coverage. The certificates will stipulate
that the insurance will not be canceled without thirty (30)
days prior written notice to Supplier. Notwithstanding
certificate requirements, above, Customer shall provide to
Supplier evidence from the Republic Western Company of
compliance with the workers' compensation statutes and proof
of coverage. Customer shall provide, at the request of
Supplier, certificates evidencing coverage of all insurance
policies specified above within thirty (30) days of such
request. Supplier will be named as additional insured on
policies listed in (b)(i) through (b)(iv), above.
(c) At the conclusion of each three year period during the term of this
Agreement, the amount of the general liability insurance required under clauses
(a)(ii) and (b)(i) above shall be reviewed and increased, if agreed upon by the
parties hereto, by a mutually agreed upon amount.
(d) If either party at any time fails to provide the insurance coverage
required under clauses (a) or (b) above, the other party upon prior written
notice shall be entitled to purchase such coverage and charge the failing party
for the costs of such coverage and all other costs incurred in connection with
obtaining the same.
<PAGE> 35
EXHIBIT D
Installation, Operation and Maintenance Specifications
The purpose of this exhibit is to outline the method and means of operating and
maintaining the Supplier's chilled water system that will deliver chilled water
service to the customer's premises:
a) Supplier's Chilled Water System Overview
The provision of chilled water to the Customer's premises is based on the
establishment of a central chilled water plant located at 301 Fremont St.
that produces chilled water cooling energy for space cooling. The chilled water
is distributed to each Customer via supply and return Service Line(s) dedicated
to each Customer. The central chilled water plant primary piping and
Distribution Lines are both designed to provide chilled water on a variable-flow
(demand) basis. The Distribution Lines will be configured as hydraulically
decoupled from the central chilled water plant primary piping. The system will
be designed to operate such that the temperature differential or Delta T between
the central chilled water plant primary piping and the Distribution Lines is
maintained as close as possible to the chilled water plant design temperature
differential. This is used to ensure that the central chilled water plant is
used at the highest efficiency possible at any given load.
The chilled water system at each Customer will have a plate and frame heat
exchanger as part of the Energy Transfer Station (ETS). The plate and frame heat
exchanger transfers chilled water cooling energy from the Service Lines to the
Customer cooling system. The plate and frame heat exchanger prevents mingling of
the central chilled water plant cooling medium and the Customer cooling system
medium. Chilled water energy consumption and demand are metered at the service
entry point or point of demarcation of the Customer facility. The plate and
frame heat exchanger(s), energy meter(s), and associated controls will be
installed in the Customer Premises as a packaged unit, which, along with the
Energy Transfer Station, marks the point of demarcation between the Supplier and
the Customer cooling system. This interface point with the packaged equipment is
termed the Energy Transfer Station (ETS).
B) Chilled Water Service Temperatures
The chilled water supply temperatures are specified as "entering" the Supplier
side of the Energy Transfer Station. The supplier will ensure that the chilled
water supply temperature will be within the range of 40 to 42(degree)F.
The Supplier anticipates that the Customer requires 45(degree)F leaving chilled
water temperature from the Customer side of the Energy Transfer Station. The
Supplier anticipates that the Customer will return chilled water to the Customer
side of the Energy Transfer Station at 55 - 59(degree)F.
<PAGE> 36
c) Distribution System - General System Description
The Supplier will provide the chilled water services to the Customer from the
City Centre Chilled Water Plant. The chilled water distribution system is a
network of piping, pumps, and controls linking the chilled water source with the
Customer. The system is installed in the easement allocated using trenched
construction methods.
The distribution network will be designed to have a minimum cover of two (2)
feet over the Distribution Lines. The actual amount of cover will depend on
utility conflicts and Distribution Line servicing requirements. Typical piping
will be installed with approximately three feet of cover. In the majority of
cases, direct buried valves and vents will be installed on the cooling
distribution system. Drains will be installed either at valve chambers or at
separately built chambers, as necessary. Valves, vents, and drains will be
installed on-line and within the easements.
d) Energy Transfer Station(s) (ETS) - General Description
The chilled water from the Supplier is circulated in the Distribution and
Service Lines from the central chilled water plant to the Energy Transfer
Station. The customer side of the Energy Transfer Station uses cooling energy as
needed to reduce the temperature of the Customer cooling system. The manner in
which the Customer uses chilled water cooling energy in its cooling systems has
no direct interconnect to the distribution system from the supplier. The
Customers cooling system is isolated from the chilled water Service and
Distribution Lines of the Supplier by way of a heat exchanger.
The interface point at which the energy exchange takes place and is measured as
it enters a Customer facility is referred to as the "Energy Transfer Station"
(ETS).
e) Energy Transfer Station (ETS)
The ETS is a prefabricated unit including a plate and frame heat exchanger used
for the transfer of heat energy. The ETS usually consists of flat plate heat
exchangers for the chilled water, energy meters, control valves, and
thermometers. The Service lines, pipes that connect the Energy Transfer Station
with the Distribution Lines, are assembled on-site and will include isolating
valves, strainers, and pressure indicators. The Customer will be responsible for
connection of the Customer cooling system to the Customer side of the Energy
Transfer Station. The Supplier will coordinate the required specifications of
the Customer side of the Energy Transfer Station with the Customer.
The minimum space requirements for the installation of the ETS will be
approximately 250 Sq. Ft and the room will be dust free with ventilation.
<PAGE> 37
f) Energy Metering
The consumption of chilled water cooling energy by the Customer will be measured
by an Energy Meter. The Energy Meter measures the flow of the entering and
leaving chilled water of the Energy Transfer Station In addition to measuring
flow, the Supplier side of the Energy Transfer Station is measured for, entering
and leaving chilled water temperatures. The Energy Meter will be able to
calculate the instantaneous energy demand, the peak energy demand, and total
usage/consumption to-date for billing purposes.
g) Chilled Water Plant Equipment
The chilled water production system will use electric-driven, mechanical
chillers to generate cold water for distribution. The chillers will be
high-efficiency units. Each chiller will be a factory prepackaged and factory
witness tested unit that includes unit piping connections, controls,
instrumentation, and local control panel.
The chiller(s) condenser will be supplied with cooling water from cooling towers
located on the roof of the chilled water plant building. The towers will be
suitable for outdoor, all-weather operation. Each chiller would be equipped with
a dedicated evaporator circulation pump as well as a dedicated condenser water
circulation pump. The evaporator circulation pumps are required, as the central
chilled water plant primary piping and the Distribution Lines will be configured
as a hydraulically decoupled system. The cooling tower bank will be supplied
with makeup water from the makeup water system.
h) Distribution Pumps
The chilled water will be distributed to the Distribution Lines by a set of
variable-speed/horizontal split-case, and standby fixed-speed pumps located in
the central chilled water plant. Control of the distribution pumps will be via
the chilled water plant's DDC control system based on the Distribution Lines
pressure differential.
i) Plant Control System
The central plant will be controlled by a direct digital control system (DDC).
The DDC control system is based on a central chilled water plant serving all
customers from the central chilled water plant. The DDC control system will
allow the central chilled water plant to operate in automatic mode, or allow the
operator to operate selected equipment manually. The DDC control system will
monitor each system for faults, provide warning alarms, and initiate shutdowns
as required to protect the safety of the operating staff and to minimize damage
to the equipment. The DDC control system also will collect, calculate, and store
data pertaining to the energy produced or consumed at the central chilled water
plant. The DDC control system will also be used to collect and store energy
consumed values for billing purposes from each of the Customers receiving
chilled water service.
<PAGE> 38
j) Equipment and Redundancy
The philosophy followed in establishing the amount of redundancy to be installed
is to ensure enough standby chilling capacity to satisfy the cooling
requirements of the Customer. Electric supply to the central chilled water plant
has been designed to include separate power feeds from different utility company
substations to the central chilled water plant
k) Spare Parts
Onsite capital spare parts will not be required because complete spare units
will be installed for the chillers. The only items needed to be stored at the
plant are the consumable items such as chemicals, oils, belts, filter elements,
temperature instruments, pressure instruments, gaskets, pressure regulator
overhaul kits, etc.
<PAGE> 39
EXHIBIT E
Form of Memorandum of Agreement
THIS MEMORANDUM is made by E.THREE CUSTOM ENERGY SOLUTIONS, LLC, a Nevada
limited-liability company (the "Supplier"), and FITZGERALDS LAS VEGAS, INC.
(the "Customer"). Reference is hereby made to that certain Chilled Water Service
Agreement dated as of December 10, 1999 (the "Agreement"), between Supplier and
Customer, pursuant to which Supplier, at Customer's request, has agreed to
provide certain chilled water service to the property commonly known as 301
Fremont Street and legally described in the manner set forth on Exhibit A
attached hereto (the "Property").
The purpose of this Memorandum is to provide notice of the Agreement and,
in accordance therewith, Supplier and Customer hereby acknowledge and agree that
notwithstanding the manner or method by which Energy Transfer Station or the
Connection Equipment (as such terms are hereinafter defined) are installed in
the Property, (i) neither the Energy Transfer Station nor the Connection
Equipment (nor any part thereof) shall be deemed to be a "fixture" attached to
the Property subject to the lien of any mortgage or other encumbrance of the
Property, and (ii) the Energy Transfer Station and the Connection Equipment are
the personal property of Supplier (subject to the terms and conditions of the
Agreement) and are not to be deemed part of the collateral pledged to any lender
or creditor of Customer as security for the repayment of any indebtedness of
Customer.
As used herein, the term "Energy Transfer Station" shall mean the
equipment and related piping and apparatus between Supplier's distribution
piping and the Connection Equipment, including, without limitation, a plate
frame heat exchanger assembly or equivalent device, piping, valves, metering
equipment and controls and additional equipment, if any, described in the IOM
Specifications (as defined in the Agreement) installed by Supplier on the
Property pursuant to the terms of the Agreement for use in providing chilled
water service to Customer, and all replacements and additions thereof.
As used herein, the term "Connection Equipment" shall mean all equipment
and piping necessary to connect the HVAC system used by Customer to cool space
within the Property to the heat exchanger assembly included in the Energy
Transfer Station.
IN WITNESS WHEREOF, Supplier and Customer have executed this instrument as
of the day and year set forth below.
Dated: December 10, 1999
E.THREE CUSTOM ENERGY SOLUTIONS, LLC FITZGERALDS LAS VEGAS, INC.
By: /s/ JEFFREY C. KLEIN By: /s/ WILLIAM J. NOONAN
---------------------------------- ----------------------------------
Title: Member, Board of Managers Title: Vice President/G.M.
<PAGE> 40
RIDER REGARDING RENEWAL TERM
This Rider is attached to and forms a part of that certain Chilled Water
Service Agreement dated December 10, 1999 between Supplier and Customer (the
"Agreement"). Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in the Agreement.
1. Renewal. The term of the Agreement may be extended for one (1)
subsequent consecutive period of five (5) years (such period being referred to
in this Agreement as a "Renewal Term"), upon written notice from Customer to
Supplier given not less than one year prior to the expiration date of the
Initial Term, and for one subsequent consecutive period of five (5) years, upon
written notice from Supplier to Customer given not less than one year prior to
the expiration date of the Renewal Term. The Contract Capacity Charge and the
Consumption Charge during the Renewal Term shall equal the then existing
Contract Capacity Charge and the Consumption Charge under the Agreement, subject
to further adjustments as provided therein.
2. Conflict. In the event of any conflict between the provision of the
Agreement or the Cover Page and the provisions of this Rider, the provisions of
this Rider shall govern.
E.THREE CUSTOM ENERGY SOLUTIONS, LLC, FITZGERALDS LAS VEGAS, INC.
a Nevada limited-liability company
By: /s/ JEFFREY C. KLEIN By: /s/ WILLIAM J. NOONAN
---------------------------------- ----------------------------------
Title: Member, Board of Managers Title: Vice President/G.M.
<PAGE> 41
RIDER REGARDING MISCELLANEOUS ISSUES
This Rider is attached to and forms a part of that certain Chilled Water
Service Agreement dated December 10, 1999 between Supplier and Customer (the
"Agreement"). Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in the Agreement.
Metering.
(a) All metering equipment will be furnished, paid for, and
maintained by the Supplier. The Supplier shall calibrate
Supplier's metering equipment for the Premises not less than
one time per year and, at Customer's request, Supplier shall
provide Customer at no charge the written results of any
calibration or testing of such metering equipment.
(b) The regular meter reading and billing will be monthly. If more
than one meter is installed within the premises, the readings
of all meters will be used in calculating the invoice with
respect thereto.
(c) If the suppliers metering record is interrupted at any time
for any reason, the measurement of chilled water service to be
billed for such period of interruption will be estimated by
the supplier based at its option upon (i) the supplier's meter
record immediately before and after the period of
interruption, (ii) past customer usage during a similar period
and under similar conditions, (iii) Comparable usage during
the period of interruption by other Premises which are cooled
using chilled water service provided by the supplier, duly
measured by functioning meters, or (iv) some reasonable
combination of these methods, and the customer will pay
invoices during such period based on the estimated
measurement. All billings based on estimated usage will
indicate the method of estimation employed.
Distribution Piping - The customer acknowledges that all distribution
piping located within the premises for the delivery of chilled water from
the Energy Transfer Station to the premises shall be owned and maintained
by the customer.
Personnel. Supplier, from time to time, shall provide Customer with a list
of all of Supplier's personnel who are authorized to have access to the Energy
Transfer System and Connection Equipment on the Premises. Notwithstanding
anything to the contrary set forth in the Agreement, no personnel other than
those identified on the aforementioned list shall be permitted such access.
Supplier agrees that if no emergency then exists, during normal business hours
the Premises manager shall be notified prior to Supplier's personnel being
granted access to the Premises, and after normal business hours the security
guard then on duty shall be given such notice. In the event of an emergency,
such notice shall not be required prior to obtaining access to the Premises, but
Supplier shall use its best efforts to notify the Premises manager or security
guard of
<PAGE> 42
such emergency as soon as reasonably practicable.
Conflict. In the event of any conflict between the provision of the
Agreement or the Cover Page and the provisions of this Rider, the provisions of
this Rider shall govern.
E.THREE CUSTOM ENERGY SOLUTIONS, LLC, FITZGERALDS LAS VEGAS, INC.
a Nevada limited-liability company
By: /s/ JEFFREY C. KLEIN By: /s/ WILLIAM J. NOONAN
---------------------------------- ----------------------------------
Title: Member, Board of Managers Title: Vice President/G.M.
<PAGE> 43
EXHIBIT 10(hh)(i)
LEASE AGREEMENT
Dated as of December 10, 1999
Between
e.three Custom Energy Solutions, LLC
and
Fitzgeralds Las Vegas, Inc.
301 Fremont Street
Las Vegas, NV 89101
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions 1
2. Representations and Warranties 2
2.1 Representations and Warranties of Landlord 2
2.2 Representations and Warranties of Tenant 2
3. Grant and Term 2
3.1 Grant 2
3.2 Term 2
3.3 Renewal Options 3
3.4 Acceptance of Premises: Environmental Matters:
Environmental Indemnity 4
3.5 Quiet Enjoyment 5
4. Rent 5
4.1 Base Rent 5
4.2 Rent Payments 6
4.3 Net Lease 6
4.4 Rent 6
5. Entry, Use and Possession 6
5.1 Entry 6
5.2 Use and Possession 6
5.3 Signage 7
</TABLE>
i
<PAGE> 45
<TABLE>
<S> <C>
5.4 Limitations on Use 7
5.5 Construction of Improvements: Alterations 8
6. Insurance and Waiver of Subrogation 9
6.1 Insurance 9
6.2 Additional Requirements 10
6.3 Waiver of Subrogation Rights: Default 10
6.4 Failure of Tenant to Insure 10
6.5 No Consequential Damages 10
7. Damage or Destruction of Facility and Condemnation 11
7.1 Damage or Destruction 11
7.2 Eminent Domain 12
8. Assignment 12
8.1 Assignment 12
8.2 Subletting by Tenant 13
8.3 Consent Not a Release 13
8.4 Transfer by Landlord - Release from Liability 14
9. Liens and Encumbrances 14
9.1 Encumbering Landlord's Title 14
9.2 Collateral Assignment and Liens 14
10. Utilities 15
10.1 Utilities: Services 15
11. Indemnity 15
</TABLE>
ii
<PAGE> 46
<TABLE>
<S> <C>
11.1 General Indemnity 15
11.2 Limitation on Indemnity 15
11.3 Effect of Waiver 16
11.4 Survival of Obligation 16
12. Title 16
12.1 Title: Subordination 16
13. Surrender and Holdover 17
13.1 Surrender and Removal of Improvements 17
13.2 Holding Over 17
14. Defaults 18
14.1 Tenant Defaults 18
14.2 Landlord Remedies: Termination 18
14.3 Performance by Tenant's Lender 19
14.4 Landlord Default: Tenant Remedies 20
15. Miscellaneous 21
15.1 Estoppel Certificates 21
15.2 Amendments and Waivers must be in Writing 21
15.3 Notices 22
15.4 Time of Essence 22
15.5 Relationship of Parties 22
15.6 Captions 22
15.7 Severability 22
</TABLE>
iii
<PAGE> 47
<TABLE>
<S> <C>
15.8 Governing Law and Venue 22
15.9 Covenants Binding on Successors: No Third Party Beneficiaries 22
15.10 Recording of Lease 22
15.11 Default Rate of Interest 23
15.12 Self-Help 23
15.13 No Merger 23
15.14 Counterparts 23
15.15 Accord and Satisfaction 23
15.16 Reservation of Minerals 23
15.17 Post-Filing Payment Obligations 24
</TABLE>
iv
<PAGE> 48
LIST OF ANNEXES AND EXHIBITS
ANNEX A - Definitions
ANNEX B - Landlord's Representations and Warranties
ANNEX C - Tenant's Representations and Warranties
ANNEX D - Conditions Precedent
ANNEX E - Base Rent
EXHIBIT A - Legal Description of the Premises
EXHIBIT B - Legal Description of the Other Lands
EXHIBIT B-1 - Depiction of Landlord Parcel Easement
EXHIBIT B-2 - Depiction of Temporary Construction Easement
EXHIBIT C - Tenant's Work
EXHIBIT D - Landlord's Work
EXHIBIT E - Insurance
EXHIBIT F - Notices
v
<PAGE> 49
LEASE
THIS LEASE (as amended, restated, modified, and supplemented and in
effect from time to time, this "Lease") is made as of the 10th day of December
1999, by and between FITZGERALDS LAS VEGAS, INC., a Nevada corporation
("Landlord"), and E.THREE CUSTOM ENERGY SOLUTIONS LLC, a Nevada limited
liability company ("Tenant").
WITNESSETH:
WHEREAS, Landlord owns certain real estate located in downtown Las
Vegas, Nevada 89101 at the northwest corner of Carson Street and 4th Street, a
legal description of which is set forth on Exhibit A to this Lease, and which is
hereinafter referred to as the "Premises";
WHEREAS, Tenant desires to lease the Premises from Landlord, together
with the Other Lands as described in Section 3.1 and Exhibit B attached hereto,
for the purpose of Tenant developing, constructing, owning and operating a
facility for producing and distributing chilled water to various customers in
downtown Las Vegas the ("Facility"), and Landlord is agreeable to the same, on
and subject to the terms and conditions of this Lease;
WHEREAS, Landlord has acknowledged the possibility that it will file a
Chapter 11 Petition during the Initial Lease Term;
WHEREAS, Landlord and Tenant consider this Lease and the Chilled Water
Service Agreement to be integral components of the overall contractual
relationship between them, and neither Landlord nor Tenant would be willing to
enter into this Lease without also entering into the Chilled Water Service
Agreement and having both agreements assumed by Landlord under Section 365 (a)
during the administration of its Reorganization Case; and
WHEREAS, Landlord and Tenant are entering into this Agreement based on
Landlord's agreement to assume the Chilled Water Agreement, as well as this
Lease, in a timely manner under Section 365 (a) during the administration of its
Reorganization Case;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, it is hereby agreed between Tenant and Landlord as
follows:
ARTICLE 1 - DEFINITIONS
Section 1.1 Definitions. Capitalized terms used in this Lease and not
otherwise defined herein are used with the meanings given such terms in Annex A
hereto, as it may be amended, restated, modified or supplemented and in effect
from time to time.
<PAGE> 50
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of Landlord. To induce Tenant
to enter into this agreement, Landlord makes the representations and warranties
set forth on Annex B attached hereto to Tenant as of the Effective Date and the
Commencement Date.
Section 2.2 Representations and Warranties of Tenant. To induce Landlord
to enter into this Agreement, Tenant makes the representations and warranties
set forth on Annex C attached hereto to Landlord as of the Effective Date and
the Commencement Date.
ARTICLE 3 - GRANT AND TERM
Section 3.1 Grant. For and in consideration of the rents herein
specified and of the covenants and agreements herein contained on the part of
Tenant to be performed:
(a) Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, the Premises.
(b) Landlord hereby grants to Tenant nonexclusive easements
over, in and under the real property described on Exhibit "B" as
Landlord Parcel ("Landlord Parcel") (i) for the purpose of providing
access to Landlord's buildings, and (ii) to permit access for, and the
construction, installation, maintenance, repair, security and
replacement of, pipes, ducts, cables, conduit and other equipment and
apparatus used or to be used by Tenant for the construction, operation
and maintenance of the Facility and the Distribution System, and for
installation of the Distribution System from the Facility to Fourth
Street, which easements are depicted on Exhibit B-1.
(c) Landlord hereby grants to Tenant and its successors and
assigns an exclusive temporary easement in the real property in Clark
County, Las Vegas, Nevada that is depicted on Exhibit B-2 ("Temporary
Construction Easement"), for purposes of staging all construction
activities related to the Facility and Distribution System. This
easement shall terminate and expire upon completion of construction of
the Facility and Distribution System.
The easements granted in this Section 3.1, except with respect to the
easement granted in Section 3.1 (c) shall continue so long as this Lease remains
in effect and shall expire and be of no further force or effect upon the
expiration or termination of this Lease. Each easement granted under this Lease
shall exist by virtue of this Lease, without the necessity of or confirmation by
any other document, and shall run with the Premises. Upon the expiration,
termination (in whole or in part) or the release of any such easement in
accordance with the provisions of this Lease, the same shall be deemed to have
expired, or have been terminated or released without the necessity of
confirmation by any other document.
Section 3.2 Term. The terms and conditions of this Lease, other than the
obligation of
2
<PAGE> 51
Tenant to pay the Initial Base Rent, as defined below, shall be effective as of
the date of this Lease ("Effective Date"); subject, however, to Tenant's right
to terminate this Lease upon the failure of any condition precedent set forth in
this Lease or in Annex D attached hereto. The initial term of this Lease shall
be a period commencing on the date that all conditions set forth on Annex D,
attached hereto, are fully satisfied or waived by Tenant or the date Tenant
takes possession, whichever occurs first (the "Commencement Date") and, except
as otherwise provided in this Lease to the contrary, ending on the date that is
twenty (20) years following the Commencement Date (the "Initial Lease Term"),
subject to Section 3.3. below. The parties hereto shall execute a written
statement setting forth (i) that all conditions precedent are either waived or
satisfied, (ii) the Commencement Date and (iii) the expiration date of the Term
promptly after the same shall have been ascertained. The term of this Lease, as
the same may be extended or renewed, is referred to herein as the "Lease Term".
Section 3.3 Renewal Options.
(a) Landlord hereby grants to Tenant two (2) successive five (5) year
options to renew the term hereof (each a "Renewal Option") with respect to all
(but not less than all) of the Premises demised under or pursuant to this Lease
(the term of each Renewal Option is referred to as a "Renewal Term") commencing
as of the expiration date of the Initial Lease Term or any Renewal Term then in
effect, upon the following terms and conditions: (i) Tenant shall give Landlord
written notice of Tenant's election to exercise the Renewal Option not later
than six (6) months prior to the expiration date of the Initial Lease Term or
any Renewal Term then in effect; and
(ii) No Tenant Default exists and is continuing on the date
Tenant exercises the Renewal Option or on the expiration date of the
Initial Lease Term or such Renewal Term then in effect, and this Lease
has not been terminated on the date on which Tenant exercises the
Renewal Option or on the proposed commencement date of the Renewal Term.
(b) If Tenant timely and properly exercises the Renewal Option:
(i) The Base Rent payable monthly for the Renewal Term shall be
determined in accordance with Annex F;
(ii) Tenant shall have no further options to renew the Lease
Term beyond the expiration date of the last Renewal Term which becomes
effective hereunder;
(iii) Tenant shall accept the Premises at the commencement of
each Renewal Term in its "as is" condition, and Landlord shall not be
obligated to perform any leasehold improvement work in the Premises or
give Tenant any allowance for any such work or any other purposes during
or for any Renewal Term; and
3
<PAGE> 52
(iv) Except for the rate of Base Rent and except as otherwise
provided herein, all of the terms, provisions, representations and
warranties of this Lease shall remain the same and in full force and
effect during each Renewal Term.
(c) If Tenant exercises a Renewal Option, then, upon either party's
request Landlord and Tenant shall execute and deliver an amendment to this Lease
or a memorandum in recordable form reflecting the lease of the Premises by
Landlord to Tenant for the Renewal Term on the terms provided above, which
amendment or memorandum shall be executed and delivered within thirty (30) days
after Tenant exercises a Renewal Option.
(d) Any unused Renewal Options shall automatically terminate and become
null and void upon the expiration or termination of this Lease.
(e) Notwithstanding the foregoing, if Tenant shall fail to give any such
notice within the time limit set forth above, Tenant's right to exercise its
options shall nevertheless continue until thirty (30) days after Landlord shall
have given Tenant notice of Landlord's election to terminate such option, and
Tenant may exercise such option at any time until the expiration of said thirty
(30) day period.
It is the intention of the parties to avoid forfeiture of Tenant's
rights to extend the Term under any of the options set forth in this Section 3.3
through inadvertent failure to give notice of exercise thereof within the time
limits prescribed. Accordingly, if Tenant shall fail to give notice to Landlord
of Tenant's election to extend the Lease Term for any of the aforesaid renewal
periods and if Landlord shall fail to give notice to Tenant of Landlord's
election to terminate Tenant's right to extend the Lease Term under the option
applicable thereto, then and so often as such event shall occur, the Term shall
be automatically extended from month to month upon all of the terms and
conditions then in effect, subject to Tenant's right under such option to extend
the Term for the remainder of the applicable Renewal Term covered thereby, and
subject to Landlord's right to place the thirty (30) day limit on such option by
a notice in the manner provided in this Section, and subject to adjustments in
the initial Base Rent as more specifically set forth in Annex E.
Section 3.4 Acceptance of Premises; Environmental Matters;
Environmental Indemnity. Upon expiration of the Inspection Period and
satisfaction, in Tenant's sole and absolute discretion, of the conditions set
forth on Annex D, Tenant accepts the Premises and agrees that, other than as set
forth in this Lease, neither Landlord, nor any of Landlord's agents, has made
any oral or written representations or warranties with respect to the Premises
and Landlord has no obligation and has made no promises to remediate any
environmental condition of the Premises, or any part thereof, or to alter,
remodel, improve, repair or renovate the Premises or any part thereof, other
than as set forth on Exhibit D hereto.
Notwithstanding the foregoing, Landlord hereby agrees to indemnify,
defend and hold Tenant harmless, from and against: (a) any Hazardous Material
located on the Premises solely as a result of the acts or omissions of the
Landlord at any time after the date hereof; or (b) any condition
4
<PAGE> 53
of the Premises existing as of the date hereof, or which arises or occurs after
the date hereof solely as a result of the acts or omissions of the Landlord,
which violates any Hazardous Materials or Environmental Laws. Tenant hereby
agrees to indemnify, defend and hold Landlord harmless, from and against: (a)
any Hazardous Material located on the Premises as a result of the acts or
omissions of Tenant at any time after the date hereof; or (b) any condition of
the Premises which arises or occurs after the date hereof as a result of the
acts or omissions of Tenant, which violates any Hazardous Materials or
Environmental Laws. The provisions of this Section 3.4 shall survive the
expiration or termination of this Lease.
Notwithstanding the Effective Date of this Lease or Tenant's
unwillingness to accept the Premises, Tenant shall not be liable or responsible
for any clean-up, remediation, reporting, evaluation, costs or fees, of whatever
nature, or any diminution in value of the Premises arising from or in connection
with any known or unknown Hazardous Material or violation of Environmental Laws
discovered or disturbed on, in, under or around the Premises during or as a
result of Tenant's due diligence examination of the Premises during the
Inspection Period and Landlord hereby agrees to indemnify, defend and hold
Tenant harmless, from and against any such loss, cost, fees (including
attorneys' fees and discovery costs), expense, liability, suit or proceeding
arising from or in connection with any Hazardous Material or violation of
Environmental Laws discovered or disturbed on, in, under or around the Premises
during or as a result of Tenant's due diligence examination of the Premises.
Tenant shall be entitled to approve or disapprove in good faith any legal
counsel or experts used in connection with Landlord's defense of Tenant. In the
event that Landlord and Tenant are unable to agree, in good faith, upon
acceptable legal counsel, Tenant may, in its sole and absolute discretion,
select its legal counsel the costs and fees for which legal counsel and defense
shall be paid directly by Landlord. Any amounts advanced by Tenant and not
reimbursed by Landlord within thirty (30) days following Landlord's receipt of
written demand therefore shall accrue interest at the rate of twelve percent
(12%) per annum until paid.
In case any action, suit or proceeding is brought against a party hereto by
reason of any such occurrence, at the indemnified party's option, the
indemnifying party shall, at the indemnifying party's sole cost and expense, by
counsel selected by the indemnifying party (which counsel must be reasonably
satisfactory to the indemnified party), defend such action, suit or proceeding,
or cause the same to be defended.
Section 3.5 Quiet Enjoyment. Landlord covenants that Tenant shall have
quiet enjoyment of the Premises and further agrees that Landlord's activities
shall not have an adverse effect on Tenant's activities. For the purposes of
this paragraph, "adverse effect" means a materially detrimental effect on the
ownership, construction, maintenance, repair, or operation of the Facility or
the Distribution System.
ARTICLE 4 - RENT
Section 4.1 Base Rent. Tenant covenants and agrees to pay the
Landlord as rent for the Premises an initial Base Rent of One Hundred Thirty
Nine Thousand and Ninety One Dollars ($139,091) per annum ("Initial Base
Rent"), payable in advance in equal monthly
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installments without any set-off or deduction, except as provided in this Lease.
Rent for each subsequent Lease Year shall be increased from time to time in
accordance with Annex E. Tenant's obligation to pay Rent shall commence on
January 1, 2000 or the date that Tenant takes possession of the premises,
whichever is later (the "Rent Commencement Date"). The parties hereto shall
execute a written statement setting forth the Rent Commencement Date promptly
after the same shall have been ascertained which statement may be combined with
the statement identified in Section 3.2.
Section 4.2 Rent Payments. Base Rent shall be payable to Landlord, at
301 Fremont Street, Las Vegas, Nevada 89101 or at such other place as Landlord
may designate in writing to Tenant from time to time. All payments of Rent shall
be made in lawful money of the United States. Tenant's obligation to pay Base
Rent on or after the Rent Commencement Date shall, however, be subject to a
right of setoff in favor of Tenant for amounts payable by Fitzgeralds Las Vegas,
Inc., or its successor or assigns, to Tenant under any Chilled Water Service
Agreement between such parties in effect from time to time; provided, however,
that Tenant shall not offset any payment of Base Rent unless amounts payable
under any such Chilled Water Service Agreement are at least thirty (30) days
past due.
Section 4.3 Net Lease. This Lease shall be a "net" lease and, commencing
on the Commencement Date and until the expiration or termination of this Lease,
Tenant shall be responsible for and pay all Impositions of any kind whatsoever
relating to the Premises and the Facility and any alterations, improvements and
additions thereto.
Section 4.4 Rent. As used herein the term "Rent" shall mean the sum of
the Base Rent and any other amounts (if any) which are due from Tenant to
Landlord from time to time pursuant to the provisions of this Lease.
ARTICLE 5 - ENTRY, USE AND POSSESSION
Section 5.1 Entry. As of the Effective Date, Landlord hereby grants to
Tenant the right to enter upon the Premises and Other Lands in order to conduct
such due diligence as is reasonably necessary with respect to the conditions set
forth on Annex D and as of the Commencement Date, Landlord hereby grants to
Tenant the right to enter upon the Premises and Other Lands to construct,
operate and maintain the Facility and Distribution System. Tenant shall pay all
costs and expenses of obtaining the reports and surveys identified on Annex D,
which reports and surveys shall be and remain the property of Tenant. Upon
Landlord's request, Tenant will provide Landlord with a copy of said reports and
surveys. Prior to entry upon the Premises and Other Lands, Tenant shall provide
to Landlord evidence of comprehensive general liability insurance in the amount
set forth on Exhibit E. It is the intent of the parties that Tenant shall not
have exclusive possession of the premises until the Commencement Date.
Section 5.2 Use and Possession. Upon satisfaction or waiver by Tenant of
the
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conditions set forth on Annex D and the taking of possession of the Premises by
Tenant, which shall be evidenced by execution and delivery of the statements
described in Sections 3.2 and 4.1, Tenant shall with due diligence construct,
operate and maintain the Facility on the Premises to provide chilled water to
customers. The Facility shall be constructed within the boundary lines of the
Premises. The Facility and the Distribution System may include fiber optic cable
and conduit and related equipment installed by Tenant for use in connection with
providing and monitoring the chilled water service or for providing other
telecommunications services. Tenant understands that there are other
telecommunications facilities in and around casino/hotel and Tenant agrees not
to install or use any telecommunication equipment that interferes with the
operation of existing equipment in Landlord's casino/hotel. Title to the
Facility and to all of the personal property owned by Tenant and used in
connection with the construction, operation and maintenance of the Facility and
the Distribution System shall be in Tenant (as against Landlord and/or
Landlord's lenders) at all times, except as otherwise provided elsewhere in this
Lease.
Section 5.3 Signage. Landlord and Tenant will both display signage on
the exterior of the Facility. Tenant's signage will read "Nevada Power Services"
and will include its red logo, and will be placed on both the south and east
walls of the Facility. Tenant's signage must be of such size as to be easily
readable from the adjacent streets. Tenant will work with Landlord so that
Tenant's signage coordinates with and does not overpower Landlord's signage and
Landlord's casino/hotel. Tenant shall be responsible for all costs of
purchasing, installing and maintaining Tenant's signage. Landlord shall be
responsible for all costs of purchasing, installing and maintaining the Landlord
signage. Landlord signage shall not interfere with the operation or use of the
Facility and shall not require any material modification to the Facility.
Ownership and title to any Landlord signage shall remain with Landlord. Landlord
shall pay to Tenant the cost of any utilities used in connection with Landlord's
signage; provided, however, that in the event that Landlord fails or refuses to
maintain the Landlord signage or pay for such utilities used in connection
therewith, Tenant may cause such obligations to be performed or discharged and
upon receipt of written demand from Tenant, Landlord shall reimburse Tenant for
all reasonable costs in relation thereto. Landlord and Tenant shall agree on the
amount per month that Landlord shall pay Tenant for utilities used in operating
the signage. Tenant shall pay for the cost of purchasing, installing and
maintaining its signage. If Tenant fails or refuses to maintain its signage,
Landlord may cause such obligations to be performed or discharged and upon
written demand from Tenant, Landlord shall reimburse Tenant for all reasonable
costs in relation thereto.
Section 5.4 Limitations on Use. Tenant shall not use the Premises for
any purpose other than a Chilled Water Distribution Facility. Landlord hereby
acknowledges and agrees, however, that Tenant may distribute and/or sell chilled
water services from the Facility to locations outside of the Premises and to
third Persons. Tenant shall not use or occupy the Premises, or permit the use or
occupancy of the Premises, in any manner or for any purpose which would:
(a) violate any law, statute, ordinance or other federal, state
or local governmental rule, regulation or requirement ("Applicable Law")
including, without limitation, those with respect to hazardous or toxic
materials, or the provisions of any applicable governmental permit or
document related to the Facility or the Premises;
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(b) violate any reasonable safety or security regulation or
policy of Landlord, as Landlord may from time to time adopt; provided,
however that in no event shall any such rule, regulation or policy
substantially or materially interfere with or restrict the operation or
maintenance of the Facility or require Tenant to expend any substantial
funds to comply with any such rule, regulation or policy, except as
otherwise agreed to, in writing, by Tenant;
(c) in any way cause an adverse effect on any of Landlord's
activities or Landlord's use of Landlord's property (provided that the
handling of interruptions of chilled water service to Landlord shall be
exclusively addressed in a Chilled Water Service Agreement between
Landlord and Tenant); or
(d) cause the cancellation, ineffectiveness or increased premium
of any fire or other insurance maintained or required hereunder to be
maintained by Tenant or Landlord.
Section 5.5 Construction of Improvements; Alterations.
(a) Tenant's Work. For purposes of this Article 5, the term "Tenant's
Work" shall mean and refer to the design construction and installation of all
aspects of the Facility and Distribution System as described in detail in
Exhibit C hereto (such work being referred to herein as the "Tenant's Work").
Tenant shall be responsible for all cost associated with Tenant's work.
(b) Landlord's Work. Any work to be performed by Landlord in connection
with the construction and development of the Facility and Distribution System is
described in detail in Exhibit D hereto (such work being referred to herein as
the "Landlord's Work"). Tenant shall pay to Landlord or reimburse Landlord for
the actual costs and fees incurred by Landlord in connection with Landlord
obtaining the permits and approvals described on Exhibit D except Tenant shall
have no obligation to pay or reimburse to Landlord any costs related to site
improvements or changes required of Landlord by the City of Las Vegas that have
been deferred from prior projects or that are required because of prior
construction or commitments by the Landlord. Any amounts advanced by Landlord
and not reimbursed by Tenant as provided herein shall accrue interest at the
rate of twelve percent (12%) per annum until paid. Tenant agrees to pay or
reimburse Landlord for said costs and fees upon receipt of Landlord's written
demand therefore. Tenant shall not be required to pay for any costs or fees
incurred by Landlord in connection with obtaining any permits or approvals for
(i) structural or cosmetic alteration to Landlord's hotel casino, other than
such alterations with respect to the inter-connection of the Facility to
Landlord's hotel casino, but exclusive of any work required to Landlord's
facility to bring such facility into compliance with current building, health or
safety codes or (ii) signage or any other lighting or decorative identifications
or displays.
To enhance the aesthetics of the Premises, Landlord may install
landscaping in the areas surrounding the Facility ("Landlord Landscaping").
Landlord shall be responsible for all costs of
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purchasing, installing and maintaining such Landlord Landscaping; provided that
upon completion of installation of the Landlord Landscaping, Tenant shall pay to
Landlord $15,000 towards the purchase and installation of the Landlord
Landscaping upon receipt of Landlord's invoice therefore. Landlord shall provide
a suitable water line from the Facility to permit irrigation of the Landlord
Landscaping. Landlord shall, at Landlord's sole cost and expense, maintain the
Landlord Landscaping and pay to Tenant the cost of any utilities used in
connection with Landlord's Landscaping; provided, however, that in the event
that Landlord fails or refuses to maintain its landscaping or pay for utilities
used in connection with Landlord's Landscaping, Tenant may cause such
obligations to be performed or discharged and upon receipt of written demand
from Tenant, Landlord shall reimburse Tenant for all costs in relation thereto.
Any amounts advanced by Tenant and not reimbursed by Landlord as provided herein
shall accrue interest at the rate of twelve percent (12%) per annum until paid.
Landlord shall install, at Landlord's sole cost and expense, any necessary
separate meters for any utilities used in connection with the Landlord
Landscaping. Landlord shall coordinate its installation and maintenance program
with Tenant; provided, however, that in no event and at no time may any Landlord
Landscaping or Landlord's installation and maintenance program therefore
interfere with or delay Tenant's construction schedule for the Facility or the
operation of or access to the Facility.
(c) Alterations. Tenant shall have the right to make additions,
improvements and alterations to the Facility and Distribution System
(collectively, "Alterations") from time to time during the Lease Term; provided,
however, that prior to altering the exterior of the Facility or the footprint of
the Facility, Tenant shall obtain the Landlord's prior written consent, which
consent shall not be unreasonably withheld.
(d) Mutual Cooperation. Landlord and Tenant, both acting reasonably,
agree to cooperate with each other so that the Landlord's Work and Tenant's Work
can be completed in a timely manner to permit completion of the Facility and
commencement by Tenant of exporting of chilled water service there from by not
later than June 26, 2000. Tenant shall prosecute construction of any
improvements on the Premises with due diligence, subject, however, to
unavoidable delays and/or Force Majeure Events.
(e) All Improvements, Construction and Alterations. All improvements,
construction and alteration shall be constructed in a good and workmanlike
manner in accordance with all applicable rules, regulations and codes. Tenant
shall provide Landlord with as-built construction documents for the Facility for
safety purpose in the event of an emergency. Other than as necessary for safety
purposes, Landlord agrees not to disclose such documents without the prior
written consent of Tenant.
ARTICLE 6 - INSURANCE AND WAIVER OF SUBROGATION
Section 6.1 Insurance. At all times from and after the date hereof,
Tenant and Landlord shall each, at its sole expense, purchase and maintain in
full force and effect, the insurance coverage set forth in Exhibit E hereto.
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Section 6.2 Additional Requirements. All insurance required to be
purchased by Tenant or Landlord pursuant to this Article 6 shall be placed with
reputable companies licensed to do business in the State of Nevada and shall
provide for deductibles reasonably acceptable to Landlord or Tenant, as
applicable. Prior to the Commencement Date, each party shall deliver to the
other certificates of insurance evidencing the insurance required hereby. All
such insurance will require not less than thirty (30) days prior written notice
to both parties in the event of modification or cancellation of coverage.
Section 6.3 Waiver of Subrogation Rights; Default. Each party hereby
releases and waives for itself and, to the extent legally possible for it to do
so, without invalidating its insurance coverage, on behalf of its insurer, the
other party hereto and its respective officers, directors, agents, members,
partners, servants, and employees from liability for any loss or damage to any
or all property located on the Other Lands or the Premises which loss or damage
is of the type and within the limits covered by the "all-risk" property damage
insurance and other property/casualty insurance which the parties have agreed to
obtain and maintain in effect pursuant to Section 6.1, irrespective of any
negligence on the part of the released party and its respective officers,
directors, agents, partners, members, servants, or employees, which may have
contributed to or cause such loss or damage. Each party covenants that it will,
if available, obtain for the benefit of the other party and its officers,
directors, agents, members, partners, servants, and employees, a waiver of any
right of subrogation which the insurer of such party may acquire against such
party by virtue of the payment of any such loss covered by property/casualty
insurance. In the event a party is by law, statute or governmental regulation
unable to obtain a waiver of the right of subrogation for the benefit of the
other party (and its respective, officers, directors, agents, members, partners,
servants, and employees) or its insurance carriers will not give such a waiver
or its property/casualty insurance will be invalidated or terminated by the
waiver and release set forth in the first sentence of this Section 6.3, then,
during any period of time when such waiver is unobtainable, said party shall not
have been deemed to have released any subrogated claim of its insurance carrier
against such other party (or its respective officers, directors, agents,
members, partners, servants, or employees), and during the same period of time,
such other party shall not have been deemed to have released the party which has
been unable to obtain such waiver (or such party's respective officers,
directors, agents, members, partners, servants, or employees) from any claims it
or its insurance carrier may assert which otherwise would have been released
pursuant to this Section 6.3.
Section 6.4 Failure of Tenant to Insure. If Tenant at any time fails to
provide the insurance coverage required by Section 6.1, Landlord will be
entitled, but not obligated, to purchase such coverage, after written notice of
Landlord's intent, and to collect the cost of such coverage from Tenant as
additional rent. Any amounts advanced by Landlord and not reimbursed by Tenant
as provided herein shall accrue interest at the rate of twelve percent (12%) per
annum until paid.
Section 6.5 No Consequential Damages. Notwithstanding anything to the
contrary in this Lease, in no event shall Landlord or Tenant be liable to the
other for any lost business, loss of profits or other special and/or
consequential damages, whether direct or indirect, in respect of which each
hereby excuses the other and waives any and all such claims against the other,
provided that
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the foregoing is not intended to be a waiver of any rights or obligations of
Tenant or Landlord under any Chilled Water Service Agreement or other agreement
between Fitzgeralds Las Vegas, Inc. and Tenant.
ARTICLE 7 - DAMAGE OR DESTRUCTION OF FACILITY AND CONDEMNATION
Section 7.1 Damage or Destruction. If any building or improvement at any
time on the Premises or Landlord Signage shall be damaged or destroyed by any
cause whatsoever (other than the negligence or willful misconduct of the
Landlord), during the first seventeen (17) years of this Lease, Tenant shall,
with reasonable promptness repair and replace the same at its own expense, to at
least the condition existing immediately prior to such damage or destruction,
and shall do so, even though proceeds of any insurance policies covering the
loss shall be insufficient to reimburse Tenant therefore; provided, however that
if such proceeds of insurance are more than sufficient to pay the cost of any
such rebuilding, Tenant shall be entitled to receive any surplus. Except for
damage or destruction caused by the negligence or willful misconduct of
Landlord, Tenant shall not be entitled to any abatement of Rent during any
period of reconstruction nor shall Tenant's obligations under this Lease be
terminated, notwithstanding any damage or destruction to said building or
improvements.
If during the last three (3) Lease Years of the Initial Term or any
Renewal Term the Facility is damaged to the extent of fifty percent (50%) or
more of the full restoration cost (exclusive of the land and foundations), then
this Lease may be terminated at the election of either Landlord or Tenant,
provided that notice of such election shall be delivered by the electing party
to the other within thirty (30) days after the occurrence of such damage or
destruction. Upon the exercise of such option to terminate by either party
hereto, this Lease shall be deemed of no further force or effect, the parties
shall be released from all further liabilities thereafter arising under this
Lease, except as to indemnity, and any pre-existing unperformed obligations, and
all Rent or other charges paid by Tenant for periods after the date of
destruction shall be promptly refunded. Notwithstanding the foregoing, however,
if at the time of such damage or destruction Tenant has the right to extend the
Term as provided in Section 3.3 hereof, then Tenant may elect to exercise such
right within twenty (20) days after receiving notice of Landlord's election to
terminate pursuant to this Section 7.1, and in such case Landlord's notice of
termination shall be void and Tenant shall diligently proceed to repair the
Facility. Notwithstanding the termination of this Lease as provided in this
paragraph, Tenant's obligation for unpaid Rent, Additional Rent or any other
sums due under this Lease through the date of termination, restoration of the
Premises and Landlord and Tenant's indemnification obligations shall survive
such termination as provided in the Lease. Notwithstanding that Tenant's future
obligation to pay Rent under the Lease may be terminated pursuant to this
paragraph, to the extent that Tenant is entitled to any insurance proceeds
related to the destruction of the Facility after the discharge and full payment
of all of Tenant's creditors who have a security interest in the Facility,
Distribution System, Chilled Water Agreements or any equipment within the
Facility, Landlord shall be entitled to receive from the remaining insurance
proceeds an amount equal to the Base Rent that would otherwise have been due
under the Lease, exclusive of any adjustments, for the remainder of the Lease
term then in effect.
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Section 7.2 Eminent Domain. If the whole of the Premises (or such part
of the Premises that the balance of the Premises is no longer suitable for
Tenant's permitted use) shall be taken by any public authority under the power
of condemnation or eminent domain, the term of this Lease shall cease as of the
date possession shall be taken by such public authority, except as to indemnity
and any pre-existing unperformed obligations, and Tenant shall pay Rent,
additional rent and any other sums due under this Lease up to that date with an
appropriate refund by Landlord of such Rent as may have been paid in advance for
any period subsequent to the date possession is taken. If less than all of the
Premises shall be so taken (and the balance of the Premises is suitable for
Tenant's permitted use), the term of this Lease shall continue, but the Premises
shall be redefined to properly identify and delete that portion of the Premises
that has been taken and Tenant shall pay Rent and any other sums due under this
Lease up to the date of possession by a public authority with appropriate refund
by Landlord of such prorated Rent as may have been paid in advance for any
period subsequent to the date possession is taken. Thereafter the Base Rent
shall be proportionately adjusted and Tenant shall promptly restore the
remaining improvements on the Premises, exclusive of any Landlord Signage
effected by such taking. Landlord and Tenant shall each be entitled to
participate in the negotiations and settlement of any amounts or other
compensation in connection with the condemnation or other taking of the Premises
or any part thereof.
ARTICLE 8 - ASSIGNMENT
Section 8.1 Assignment. Except for a "Permitted Transfer" (as such term
is herein defined) which may be made at any time without Landlord's consent, but
only after prior written notice to Landlord, Tenant shall not, either prior or
subsequent to the commencement of the Initial Term or a Renewal Term, assign
this Lease or any interest under this Lease without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed. For
purposes of this Article 8, the term "Permitted Transfer" shall mean: 1) any
transfer or assignment of Tenant's interest in this Lease made in connection
with a transfer of Tenant's interest in the Facility in a transaction permitted
by the terms of any Chilled Water Service Agreement between Tenant and Landlord,
and their respective successors and assigns; 2) a transfer of Tenant's interest
in the Lease and Facility to another entity that is directly or indirectly a
wholly-owned subsidiary of Sierra Pacific Resources. In any event, no such
assignment shall be valid unless there shall be delivered to Landlord in due
form for recording, within ten (10) days after the date of the assignment (a) a
duplicate original of the instrument of assignment, and (b) an instrument of
assumption by the transferee of all of the Tenant's obligations under this Lease
and under the Landlord's Chilled Water Agreement; and (c) Tenant or assignee
shall within sixty (60) days prior to effective date of assignment provide
evidence that the prospective assignee is a reputable party whose financial net
worth, credit and financial responsibility is considering the responsibilities
involved, reasonably satisfactory to Landlord.
Landlord acknowledges and agrees that the transferee under any
assignment or transfer to which Landlord has consented as aforesaid, as well as
the transferee or assignee under any Permitted Transfer, shall be deemed to be
the "Tenant" for purposes of this Lease and shall be
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afforded all of the rights, benefits and obligations of Tenant hereunder.
Upon the effective date of any assignment or transfer of this Lease
conforming to the terms hereof, but not otherwise, the assignor shall have no
further liability under this Lease to Landlord except as to matters of liability
which shall have accrued and are unsatisfied as of such date, it being intended
that the covenants and obligations contained in this Lease on the part of Tenant
shall be binding upon Tenant and its successors and assigns only during and in
respect of their respective successive periods of tenancy, excepting any
covenants relating to indemnification for Hazardous Materials on, in or under
the Premises. Without limiting any of the foregoing, but in addition thereto,
any assignment in contravention of the terms hereof is void, but this shall not
impair any remedy of Landlord because of Tenant having engaged in an act
prohibited by the terms hereof.
Section 8.2 Subletting by Tenant. Tenant may sublet all but not less
than all of said Premises provided that: 1) the potential subtenant assumes all
of Tenant's obligations under this Lease and any Chilled Water Agreement between
Tenant and Landlord; and 2) Tenant delivers to Landlord an executed counterpart
of such sublease which shall be expressly conditioned upon and subject to
Landlord's prior written consent and the terms hereof, together with full and
complete current financial statements of the potential sublessee, not less than
sixty (60) days prior to the effective date thereof. Landlord shall not
unreasonably withhold its consent to a proposed sublease provided the
prospective sublessee is a reputable party whose financial net worth, credit and
financial responsibility is, considering the responsibilities involved,
reasonably satisfactory to Landlord, and providing the sublessee uses the
Premises and Facility for the sole purpose of operating a Chilled Water
Facility. Any sublease in violation hereof shall be void, but without thereby
impairing any remedy of Landlord because of Tenant having engaged in an act
prohibited by the terms hereof. Additionally, Tenant will furnish to Landlord
for Landlord's approval, the floor plan for all of the space proposed to be
sublet by Tenant. And, the sublease shall contain a provision substantially to
the effect that if there be any termination of the within Lease then the
subtenant, at the request of Landlord, will attorn to Landlord, and the sublease
shall continue in effect with Landlord.
Landlord agrees to enter into Nondisturbance and Attornment Agreements
with subtenants of Tenant if the sublease of such subtenant shall have been
first approved in writing by Landlord. Without limiting that which would
constitute reasonable grounds for Landlord's withholding of approval, it is
agreed that it shall not be deemed unreasonable for Landlord to refuse to give
such consent to any such sublease if the sublessee cannot demonstrate that it
has the financial ability to perform under the terms of this Lease. In no
circumstance shall Landlord be required to give its approval if such sublease
(i) calls for the granting of a concession in rent, or (ii) would impose upon
the Landlord any obligation to make alterations to the Premises demised under
the sublease or to pay the subtenant for alterations made by it.
Section 8.3 Consent Not a Release. Neither a Permitted Transfer nor the
consent by Landlord to any assignment or subletting shall be deemed to be a
consent to or relieve Tenant from obtaining Landlord's consent to any subsequent
assignment or subletting requiring consent under
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Section 8.1 above.
Section 8.4 Transfer by Landlord - Release From Liability. In the event
Landlord shall sell or transfer the Premises or any part thereof, and as a part
of such transaction shall assign its interest as Landlord in and to this Lease,
and Landlord shall provide an instrument of assumption by the transferee of all
the obligations of Landlord under this Lease. Then from and after the effective
date of such sale, assignment, or transfer, Landlord shall have no further
liability under this Lease to Tenant except as to matters of liability which
shall have accrued and are unsatisfied as of such date, it being intended that
the covenants and obligations contained in this Lease on the part of Landlord
shall be binding upon Landlord and its successors and assigns only during and in
respect of their respective successive periods of ownership of the fee,
excepting any covenants relating to indemnification for Hazardous Materials on,
in or under the Premises as set forth in this Lease, and the granting of those
certain easements in, under and over the Landlord Parcel as described in this
Lease. Tenant shall, immediately upon written request from any such assignee,
execute and deliver to such assignee an instrument in proper form by which
Tenant attorns to said assignee.
ARTICLE 9 - LIENS AND ENCUMBRANCES
Section 9.1 Encumbering Landlord's Title. Tenant shall make all payments
and take all actions at its own cost and expense as may be necessary to ensure
that no lien, charge, or order for payment of money is registered against
Landlord's interest in and to the Premises that results from any work, services
or materials supplied to Tenant or the Facility or any act or omission of Tenant
and that is not discharged or vacated (or with respect to which payment has not
been secured by the placement of a bond in an amount, form and content
reasonably acceptable to Landlord) within thirty (30) Business Days after Tenant
receives notice of such registration. Tenant shall indemnify, defend and save
harmless Landlord against any and all costs, liabilities, suits, penalties,
claims and demands, including reasonable attorney's fees, arising there from.
Any claim to, or lien upon, the Premises arising from the acts or omissions of
Tenant shall accrue only against the leasehold estate of Tenant and the Tenant's
interest in the Facility. If Tenant fails to cause such lien, charge or order to
be discharged of record or bonded within ninety (90) Business Days after Tenant
receives notice of such registration, then Landlord shall have the right to
cause the same to be discharged. All amounts paid by Landlord to cause any such
lien, charge or order to be discharged shall constitute additional Rent payable
by Tenant to Landlord, or, at Landlord's option, may be recovered from Tenant in
an appropriate proceeding.
Section 9.2 Collateral Assignment and Liens. Landlord agrees that Tenant
shall have the right to grant to a lender a security interest in Tenant's
interest in this Lease for collateral purposes and to grant to such lender
security interests in and liens on the personal property, fixtures, machinery
and equipment of Tenant located on the Premises. Tenant covenants and agrees to
promptly provide to Landlord a copy of any notice of default received by Tenant
from Tenant's lender.
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'
ARTICLE 10 - UTILITIES
Section 10.1 Utilities; Services. Tenant shall purchase the water, gas
and sewage services necessary for the operation of the Facility directly from
the utility, authority or municipality providing such service, and shall pay for
such services when such payments are due. Tenant covenants to pay all such
charges for these utility services and any others required in the operation of
its business on or before their due date.
ARTICLE 11 - INDEMNITY
Section 11.1 General Indemnity. Subject to Section 11.2 below, each
party hereto shall protect, indemnify and save the other party and its agents
and employees harmless from and against all liabilities, obligations, claims,
damages (other than lost business, lost profits and other special and/or
consequential damages, whether direct or indirect, all claims for which are
hereby irrevocably waived), penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) imposed
upon or asserted against such other party by reason of any accident, physical
injury to or death of persons or physical loss of or physical damage to property
arising:
(a) from the conduct of such party's business;
(b) from any breach or default on the part of the indemnifying
party in the performance of any covenant or agreement on the part of
such party to be performed pursuant to the terms of this Lease;
(c) from the indemnifying party's violation of any Federal,
state or local law, regulation or action governing environmental or
workman or Facility operations safety statutes applicable to the
Facility or work being performed; or
(d) due to any other legally actionable act or omission of the
indemnifying party or its agents, contractors or employees.
In case any action, suit or proceeding is brought against a party hereto by
reason of any such occurrence, at the indemnified party's option, the
indemnifying party shall, at the indemnifying party's sole cost and expense, by
counsel selected by the indemnifying party (which counsel must be reasonably
satisfactory to the indemnified party), defend such action, suit or proceeding,
or cause the same to be defended.
Section 11.2 Limitation on Indemnity. The aforesaid indemnification
shall not be applicable to any claim, demand, penalty, cause of action, fine,
liability, settlement, damage, cost or other expense of any type whatsoever
occasioned, arising and caused solely and directly as the result of the
negligence or willful misconduct of a party claiming a right to be indemnified
or its agents or employees.
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Section 11.3 Effect of Waiver. The indemnities of either party contained
in this Lease shall not apply or pertain to liabilities, obligations, claims,
damages, penalties, causes of action, costs or expenses to the extent such party
has waived claims in respect thereto pursuant to Section 6.3 above.
Section 11.4 Survival of Obligation. The duty to indemnify under this
Article 11 will continue in full force and effect notwithstanding the expiration
or termination of this Lease, with respect to any loss, liability, damage or
other expense based on factors and conditions which occurred prior to such
termination.
ARTICLE 12 - TITLE
Section 12.1 Title; Subordination. Landlord may mortgage or otherwise
encumber the premises; however, Landlord agrees to promptly notify Tenant in
writing of any mortgage, trust deed, or ground lease encumbering the Premises,
other than the mortgages in effect as of the date hereof (copies of which
Landlord has provided to Tenant). If at any time the Premises shall become
subject to any mortgage, trust deed or ground lease, other than the mortgages in
effect on the date hereof, Landlord shall deliver to Tenant a recordable
non-disturbance agreement (pursuant to which, among other things, the Lease, and
Tenant's right of possession of the Premises on the terms and conditions set
forth in the Lease, would be honored by any lender, ground lessor or person or
entity claiming by, through or under such lender or ground lessor, in the event
a foreclosure or deed-in-lieu of foreclosure occurred or a ground lease was
terminated and no Tenant Default then existed) satisfactory in form and
substance to Tenant acting in a commercially reasonable manner (herein called a
"Non-Disturbance Agreement") signed by such lender or ground lessor, as the case
may be. In the event Landlord should request an extension of time to procure a
non-disturbance agreement, said request shall be granted provided Landlord
demonstrates it has made a request for the non-disturbance agreement within the
initial 30 day period.
With respect to the existing mortgages identified on Annex B Section
(e), Landlord shall obtain Non-Disturbance Agreements, in a form reasonably
acceptable to Tenant, from the mortgagees thereunder prior to the Commencement
Date, which obligation is a condition precedent as set forth on Annex D.
Without limiting the foregoing, if the mortgagee or trustee in any first
mortgage or first trust deed hereafter made desires this Lease to be subject and
subordinate to its mortgage or trust deed, then all or a portion of the rights
and interests of Tenant under this Lease (other than rights in respect of any
Taking) shall be subject and subordinate to such mortgage or trust deed and to
any and all advances to be made thereunder, and to the interest thereon, and all
renewals, replacements and extensions thereof, if and only if such mortgagee or
trust deed holder or such ground lessor, as the case may be, has delivers to
Tenant a Non-Disturbance Agreement signed by such lender or ground lessor, as
the case may be. Any mortgagee or trustee in any mortgage or trust deed
hereafter made may elect that, instead of making this Lease subject and
subordinate to its mortgage or trust deed, the rights and interest of Tenant
under this Lease shall have priority over the lien of its mortgage or trust
deed. Tenant agrees that in the event that any trustee or mortgagee or ground
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lessor elects to make this Lease subordinate to its mortgage, trust deed or
ground lease, and Tenant receives from such lender or ground lessor a signed
Non-Disturbance Agreement in a form reasonably acceptable to Tenant, Tenant
shall, upon the request thereof, attorn to any such trustee or mortgagee who
becomes owner of the Premises through foreclosure or deed in lieu of foreclosure
or to any other purchaser of the Premises at a foreclosure sale or to such
ground lessor, as the case may be.
ARTICLE 13 - SURRENDER AND HOLDOVER.
Section 13.1 Surrender and Removal of Improvements. No later than the
180th day following the date on which this Lease expires or is terminated in
accordance with the terms hereof, but subject to extension upon the occurrence
of a Force Majeure Event or delays caused by Landlord, Tenant shall surrender
the Premises to Landlord, free and clear of any liens or encumbrances arising
out of the use and operation of the Facility by Tenant. Additionally, Tenant
shall have removed from the Premises any and all machinery, equipment and
personal property and other improvements at Tenant's expense and shall have
restored the Premises to a level, graded condition acceptable to Landlord and
otherwise as reasonably practicable restore the Premises to its original
condition. Tenant's interest in any improvements remaining on the Premises after
the 180th day following expiration or earlier termination of this Lease shall be
vacated and surrendered by Tenant to Landlord, without the payment of any
consideration, unless otherwise agreed to, in writing, by the parties, and shall
automatically become the property of Landlord. Landlord may but shall not be
obligated to remove and/or store any of Tenant's property or improvements left
on the Premises after expiration of the 180 day period. Should Landlord elect to
remove and/or store Tenant's remaining property, upon written demand by
Landlord, Tenant shall pay to Landlord all reasonable costs incurred by Landlord
in connection with the storage or removal of any machinery, equipment and
personal property and other improvements which Tenant has not removed. Any sums
not paid when due shall accrue interest at the rate of twelve percent (12%) per
annum until paid.
Upon the expiration of the Lease Term or sooner termination of this
Lease, Tenant shall execute, acknowledge and deliver to Landlord a proper
instrument in recordable form, releasing and quitclaiming to Landlord all right,
title and interest of Tenant in and to the Premises, other lands and easements
granted herein by Landlord to Tenant.
Section 13.2 Holding Over. Except for the 180 day period referred to in
Section 13.1 above or such shorter period as Tenant requires in order to remove
the Facility under Section 13.1 (and it is agreed that Tenant shall pay Landlord
Rent and Impositions at the rate(s) in effect during such 180 days or shorter
holdover period, payable monthly in advance), Tenant shall have no right to
occupy the Premises or any portion thereof after the expiration of the Term or
after termination of this Lease or of Tenant's right to possession. In the event
Tenant holds over, Landlord may exercise any and all remedies available to it at
law or in equity to recover possession of the Premises and for any damages
resulting from such holdover.
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ARTICLE 14 - DEFAULTS
Section 14.1 Tenant Default. Tenant agrees that any one or more of the
following events shall be considered a "Tenant Default" as said term is used
herein:
(a) Tenant shall fail to pay any Rent or other charge owing by
Tenant pursuant to the terms of this Lease, and such failure shall
continue for fifteen (15) days after notice thereof in writing to
Tenant:
(b) Tenant shall fail to keep, observe or perform any of the
other covenants or agreements herein contained to be kept, observed and
performed by Tenant, and such failure shall continue for thirty (30)
days (or such shorter period as is specifically referred to in this
Lease for any particular breach) after notice thereof in writing to
Tenant; provided, however, in the event that such failure cannot
reasonably be cured within the aforesaid thirty (30) day period (or
shorter period, if applicable), and Tenant shall within said period
commence to cure said default and diligently thereafter prosecutes to
correction said failure, the period for completion shall be extended for
so long as is reasonably required to cure said default; or
(c) The estate or interest of Tenant in the Premises is levied
upon or attached in any proceeding and such process is not stayed,
vacated or discharged within ninety (90) days after such levy or
attachment.
(d) Abandonment or surrender of the Premises or of the leasehold
estate.
(e) The appointment of a receiver to take possession of Tenant's
interest in the Premises, Tenant's improvements on the Premises,
Tenant's interest in the leasehold estate, or of Tenant's operations on
the Premises for any reason, including but not limited to assignment for
benefit of creditors or voluntary or involuntary bankruptcy proceedings,
but not including receivership (i) pursuant to any mortgage permitted by
provisions of this Lease relating to purchase or construction of
improvements, or (ii) instituted by Landlord, the event of default being
not the appointment of a receiver at Landlord's instance but the event
justifying the receivership, if any.
(f) An assignment by Tenant for the benefit of creditors or the
filing of a voluntary or involuntary petition by or against Tenant under
any law for the purpose of adjudicating Tenant bankrupt; or for
extending time for payment, adjustment or satisfaction of Tenant's
liability; or for reorganization, dissolution, or arrangement on account
of or to prevent bankruptcy or insolvency; unless the assignment or
proceeding, and all consequent orders, adjudications, custodies and
supervisions are dismissed, vacated or otherwise permanently stayed or
terminated within thirty (30) days after the assignment, filing, or
other initial event.
Section 14.2 Landlord Remedies. In the event of any such Tenant
Default,
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Landlord may, at any time thereafter, with or without notice or demand, and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have by reason of such default or breach, do any number or all of the
following:
(a) Terminate Tenant's right to possession of the Leased Premises, in
which case this Lease shall terminate and Tenant shall immediately surrender
possession of the Leased Premises to Landlord. In such event, Landlord shall be
entitled to immediately recover from Tenant the following: all damages incurred
by Landlord by reason of Tenant's default, including, but not limited to, the
cost of recovering possession of the Leased Premises; expenses of reletting,
reasonable attorneys' fees and any real estate commission actually paid; and the
worth at the time of the amount by which the unpaid rent for the balance of the
term after the breach exceeds the amount of such rental loss for the same period
that Tenant proves could be reasonably avoided. All sums due Landlord pursuant
to this paragraph 14.2 (a) shall bear interest at the annual rate of twelve
percent (12%) from the date the same becomes due and payable hereunder, and in
the event such sum is an expenditure of money by Landlord, then from the date
such expenditure is made by Landlord. Landlord shall have an affirmative duty to
mitigate.
(b) Terminate Tenant's possession, but not terminate this Lease, in
which event Landlord may lease the Leased Premises for the account of Tenant,
and Tenant shall pay any deficiency in rent, and all other charges incurred by
Landlord attributable to the breach and reletting. Landlord shall not be deemed
to be unreasonable in its mitigation efforts if it refuses to let the Leased
Premises to a person or entity which does not meet the criteria set forth in
paragraphs 5.1 and 14.2, above.
(c) Maintain Tenant's right to possession in which case this Lease shall
continue in effect, whether or not Tenant shall have abandoned the Leased
Premises. In such event, Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent
and all other sums as they become due hereunder.
(d) Terminate this Lease.
Subject to the foregoing, Landlord shall have such rights and remedies
for Tenant defaults as provided elsewhere in this Lease and at law and in
equity, and all remedies shall be cumulative such that Landlord's exercise or
failure to exercise any remedy shall not limit or prevent Landlord from
exercising any other remedy available to Landlord. Notwithstanding the
foregoing, Tenant may offset against any damages owed by Tenant to Landlord any
amounts due or damages awarded or incurred pursuant to that certain Chilled
Water Services Agreement between Landlord and Tenant, provided, however, that
Tenant shall not offset any payment of Base Rent unless amounts payable under
the Chilled Water Services Agreement are at least thirty (30) days past due.
Section 14.3 Performance by Tenant's Tender. Tenant may make a mortgage
or mortgages of its interest in this Lease and Tenant may grant security
interests in the Facility, Distribution System and equipment and improvements on
the Premises. If Tenant shall have made any such mortgage or security interest,
(the holder of such mortgage and/or security
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interest being herein referred to as "Leasehold Mortgagee" and such mortgage
being herein sometimes referred to as "Leasehold Mortgage") and if the Leasehold
Mortgagee(s) shall have given to Landlord a notice ("Leasehold Mortgagee's
Notice") specifying the name and address of the Leasehold Mortgagee, Landlord
shall give to the Leasehold Mortgagee a copy of each notice of a default by
Tenant at the same time as and whenever any such notice of a default shall
thereafter be given by Landlord to Tenant, addressed to such Leasehold Mortgagee
at the address last furnished to the Landlord. Failure to give simultaneous
notice of such Leasehold Mortgagee shall not impair any notice properly given to
Tenant and shall not enlarge Tenant's cure period. Such Leasehold Mortgagee
shall thereupon have an additional period of thirty (30) days, after service of
such notice upon it for remedying the default or causing the same to be
remedied, than is given Tenant after service of such notice upon Tenant. Such
Leasehold Mortgagee, in case Tenant shall be in default, shall, within the
additional period, and otherwise as herein provided, have the right to remedy
such default or cause the same to be remedied. No default by Tenant shall be
deemed to exist, so long as the Leasehold Mortgagee shall have notified Landlord
within the period of time allowed for Tenant to cure that the Leasehold
Mortgagee intends to cure on behalf of the Tenant within the additional 30 day
cure period. From and after receiving the Leasehold Mortgagee's Notice, Landlord
and Tenant will not cancel, surrender, modify, or amend this Lease in any
respect without the prior written consent of the Leasehold Mortgagee.
If a Leasehold Mortgagee shall acquire Tenant's interest in the Lease as
a result of a sale under such Leasehold Mortgage pursuant to a power of sale
contained herein, pursuant to a judgment or foreclosure or through any transfer
in lieu of foreclosure, such Leasehold Mortgagee shall have the privilege of
transferring its interest in this Lease to a nominee or a wholly owned
subsidiary corporation with the prior consent of Landlord (which consent shall
not be unreasonably withheld) and provided, that there shall be delivered to
Landlord in due form for recording, within ten days after the date of such
transfer (a) a duplicate original or the instrument of assignment, and (b) an
instrument of assumption by the transferee of all of the Tenant's obligations
under this Lease, and said Leasehold Mortgagee shall be relieved of any further
liability under this Lease from and after the effective date of such transfer,
except as to matters of liability which shall have accrued and are unsatisfied
as of such date. Any purchaser at a foreclosure sale, other than a Leasehold
Mortgagee, must assume this Lease and it shall have no right in respect to the
Premises unless it so assumes and delivers a duplicate original of the
assumption agreement (to be executed in form for recording) within ten (10) days
after such purchaser acquired title to the Tenant's interest in this Lease.
Under no circumstances may the purchaser or new tenant be in the lodging or
gaming industry.
Section 14.4 Landlord Default; Tenant Remedies. In the event Landlord
shall fail to keep, observe or perform any of its covenants or agreements
contained in this Lease and such failure shall continue for thirty (30) days
after written notice from Tenant to Landlord, then Tenant shall have the right
to exercise all remedies available to Tenant at law and in equity; provided,
however, in the event that such failure cannot reasonably be cured within the
aforesaid thirty (30) day period (or shorter period, if applicable), and
Landlord shall within said period commence to cure said default and diligently
thereafter prosecutes to correction said failure, the period for completion
shall be extended for so long as is reasonably required to cure said default.
Tenant shall
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also have such other rights and remedies for a breach by Landlord of its
obligations under this Lease as are set forth herein or are available under
Applicable Law, and all remedies shall be cumulative such that Tenant's exercise
or failure to exercise of any remedy shall not limit or prevent Tenant from
exercising any other remedy available to Tenant.
ARTICLE 15 - MISCELLANEOUS
Section 15.1 Estoppel Certificates.
(a) Tenant shall, at any time and from time to time upon not less than
thirty (30) days' prior written request from Landlord, execute, acknowledge and
deliver to Landlord, in form reasonably satisfactory to Landlord, a written
statement certifying (if true) that Tenant has accepted the Premises, that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified and stating
the modification), that, to the best of Tenant's knowledge, Landlord is not in
default hereunder (or if there is a default, stating the nature of said
default), the date to which the rental and other charges have been paid, and
such other accurate certifications as may reasonably be required by Landlord or
Landlord's mortgagee or any transferee or proposed transferee of the Premises.
Any statement delivered by Tenant pursuant to this Section 15.1 may be relied
upon by Landlord and Landlord's lenders and prospective lenders.
(b) Landlord shall, at any time and from time to time upon not less than
thirty (30) days' prior written request from Tenant, execute, acknowledge and
deliver to Tenant, in form reasonably satisfactory to Tenant, a written
statement certifying (if true) that this Lease is unmodified and in full force
and effect (or, if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), that, to the best of
Landlord's knowledge, no Tenant Default then exists (or if there is a Tenant
Default, stating the nature thereof), the date to which the rental and other
charges have been paid and such other accurate certifications as may reasonably
be required by Tenant or by such other person or entity, as the case may be.
Furthermore, Landlord shall execute and deliver a nondisturbance agreement in a
form reasonably requested by Tenant, which shall state that upon foreclosure or
other enforcement of rights of a lender's interest in the Premises, so long as
there is no uncured default under this Lease, Landlord shall recognize as its
tenant such lender, its successor or assigns, or other purchaser through
lender's exercise of power of sale, foreclosure or other proceeding (whether be
deed in lieu of foreclosure or any other method) and such tenant shall peaceably
and quietly have, hold and enjoy the Premises and the appurtenant rights related
thereto for the full term of this Lease, as this Lease may be extended or
earlier terminated in accordance with the provisions of this Lease, subject to
the terms, covenants, conditions, provisions and agreement of the Lease;
provided, however, that any such purchaser or new tenant is not engaged in the
lodging or gaming industry. Any statement delivered by Landlord pursuant to this
Section 15.1 may be relied upon by Tenant and Tenant's lenders and prospective
lenders.
Section 15.2 Amendments and Waivers Must Be In Writing. This Lease
contains the entire agreement between the parties. None of the covenants, terms
or conditions of this Lease, to
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be kept and performed by either party, shall in any manner be altered, waived,
modified, changed or abandoned except by a written instrument, duly signed by
both parties and delivered.
Section 15.3 Notices. All notices and other communications under this
Lease shall be given in accordance with Exhibit F hereto.
Section 15.4 Time of Essence. Time is of the essence of this Lease, and
all provisions herein relating thereto shall be strictly construed.
Section 15.5 Relationship of Parties. Nothing contained herein shall be
deemed or construed by the parties hereto, nor by any third party, as creating
the relationship of principal and agent or of partnership, or of joint venture,
between Landlord and Tenant, it being understood and agreed that no provision in
this Lease or any acts of the parties hereto shall be deemed to create any
relationship other than the relationship of landlord and tenant.
Section 15.6 Captions. The captions of this Lease are for convenience
only and are not to be construed as part of this Lease and shall not be
construed as defining or limiting in any way the scope or intent of the
provisions hereof.
Section 15.7 Severability. If any term or provision of this Lease shall
to any extent be held invalid or unenforceable, or shall be in conflict with the
requirements of any law, such term or provision shall be deemed to be
inapplicable and the remaining terms and provisions of this Lease shall not be
affected thereby, but each term and provision of this Lease shall be valid and
be enforced to the fullest extent permitted by law.
Section 15.8 Governing Law and Venue. This Lease shall be construed and
enforced in accordance with the law of the State of Nevada. Venue for any
action, suit or proceeding arising from or related to this Lease shall be
exclusively in Clark County, Nevada. Landlord and Tenant expressly waive, to the
extent permitted by applicable law, the right to trial by jury in any such
action, suit or proceeding.
Section 15.9 Covenants Binding on Successors; No Third Party
Beneficiaries. All of the covenants, agreements, conditions and undertakings
contained in this Lease shall extend and inure to and be binding upon the
successors and permitted assigns of the respective parties hereto, the same as
if they were in every case specifically named, and wherever in this Lease
reference is made to either of the parties hereto, it shall be held to include
and apply to, wherever applicable, the successors and permitted assigns of such
party. Nothing herein contained shall be construed to grant or confer upon any
person or persons, firm, corporation or governmental authority, other than the
parties hereto and their successors and permitted assigns, any right, claim or
privilege by virtue of any covenant, agreement, condition or undertaking in this
Lease contained.
Section 15.10 Recording of Lease. A short form notice or memorandum of
this Lease and the easements created hereby (but not the Lease itself) may be
recorded against the Premises by either party hereto, provided that the form
thereof has received the prior approval of Landlord and
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Tenant, which approval shall not be unreasonably delayed or withheld.
Section 15.11 Default Rate of Interest. Any amount owing by either
party under this Lease that is not paid on or before the 30th day after the due
date of such amount shall bear interest at a rate equal to one and one-half
percent (1.50%) per month, or the maximum legal rate, whichever is greater, from
such date through and including the date of payment thereof (calculated using
actual days elapsed and a year of 365 or 366 days, as applicable).
Section 15.12 Self-Help. Landlord may, but shall not be obligated to,
perform any duty or obligation of the Tenant under this Lease if and to the
extent Tenant fails to perform such duty or obligation and such failure
continues for thirty (30) days after written notice thereof. If Landlord so
elects to cure or attempt to cure such failure of the Tenant, then all
reasonable costs and expenses incurred by Landlord in curing or attempting to
cure such failure, including without limitation reasonable attorneys' fees and
court costs shall be repaid by the Tenant within fifteen (15) Business Days
after a written request therefore (together with an invoice and reasonable
backup therefore). The rights and remedies provided for in this Section 15.13
are non-exclusive, and nothing herein shall prevent Landlord from exercising
any other right or remedy available to it under this Lease or at law or in
equity (subject to the limitations set forth in this Lease).
Section 15.13 No Merger. There shall be no merger of this Lease nor of
the leasehold estate created by this Lease with the fee estate in the Premises
or any part thereof by reason of the fact that the same person may own or
acquire or hold, directly or indirectly (a) this Lease or the leasehold estate
created by this Lease or any interest in this Lease or in any such leasehold
estate and (b) the fee estate in the Premises or any part thereof or any
interest in such fee estate and no such merger shall occur unless and until
Landlord, Tenant, each holder of a mortgage on the fee estate in the Premises
and each holder of a mortgage on the leasehold estate created by this Lease
shall join in a written instrument effecting such merger.
Section 15.14 Counterparts. This Lease may be executed in any number of
counterparts and by the different parties hereto on separate counterparts each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
Section 15.15 Accord and Satisfaction. No payment by Tenant or receipt
by Landlord of a lesser amount then the Rent, additional rent or other sums due
hereunder shall be deemed to be other than on account of the Rent, additional
rent or other sums due hereunder nor shall any endorsement or statement on any
check or any letter accompanying any check or statement be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of the Rent, additional rent or other
sums due hereunder or pursue any other remedy provided for in this Lease.
Section 15.16 Reservation of Minerals. There is reserved to Landlord the
title and exclusive right to all the minerals and minerals of every kind and
character now known to exist or hereafter discovered upon, within or underlying
said Premises, or that may be produced therefrom, including, without limiting
the generality of the foregoing, all petroleum, oil, natural
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gas and other hydrocarbon substances and products derived therefrom and all
geothermal steam or brines which may be produced or derived therefrom, together
with the exclusive and perpetual right thereto, without, however, the right to
use or penetrate the surface of, or to enter upon said Premises within five
hundred (500) feet of the surface thereof, to extricate or remove the same.
Section 15.17 Post-Filing Payment Obligations. Any payment obligations
which Landlord incurs under this Lease during the pendency of its Reorganization
Case shall be deemed administrative expenses under Section 503(b)(1) in such
Reorganization Case.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year first above written.
FITZGERALDS LAS VEGAS, INC. E.THREE CUSTOM ENERGY SOLUTIONS, LLC
By: /s/ WILLIAM J. NOONAN By: /s/ JEFFREY C. KLEIN
------------------------- ---------------------------------
Name: WILLIAM J. NOONAN Name: JEFFREY C. KLEIN
----------------------- -------------------------------
Title: V.P. / G.M. Title: Member Board of Managers
---------------------- ------------------------------
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ANNEX A
DEFINITIONS
The following terms shall have the meanings specified or referred to
herein:
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Applicable Laws" has the meaning set forth in Section 5.3.
"Alterations" has the meaning set forth in Section 5.2.
"Bankruptcy Code" means Title 11 of the United States Code.
"Base Rent" has the meaning set forth in Section 4.1.
"Business Day" means a weekday which is not a statutory legal holiday in
the City of Las Vegas, Nevada.
"Chapter 11" means Chapter 11 of the Bankruptcy Code.
"Chilled Water Service Agreement" means a written agreement between
Landlord and Tenant under which Tenant agrees to provided chilled water service
to Landlord for use off the Premises and Landlord agrees to compensate Tenant
for such service, as such agreement may be amended, restated, modified or
supplemented and in effect from time to time.
"Commencement Date" has the meaning set forth in Section 3.2.
"Distribution System" means the wiring, conduit, electrical equipment,
pumps, piping, meters, sensors and other equipment used to distribute chilled
water from the Facility to customers located in the downtown Las Vegas area.
"Effective Date" shall mean the date upon which this Lease is (i) signed
by both parties hereto and a fully executed copy is delivered to and received by
both parties hereto.
"Environmental Laws" means all present and future laws (whether common
law, statute, rule, regulation or otherwise), permits, and other requirements of
governmental authorities relating to the environment or to any Hazardous
Material or Hazardous Material Activity, including, without limitation,
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(42 U.S.C. sections 9601 et seq.); the Hazardous Materials Transportation Act;
Nevada Hazardous Materials Statute (NRS Chapter 459); the Resource Conservation
and Recovery Act (42 U.S.C. sections 6901 et seq.); the Toxic Substance Control
Act; the Clean Air Act; Safe Drinking Water Act, the Federal Water Pollution
Control Act; the Hazardous Substance
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Control Act; the Hazardous Substance Act; the Occupational Health and Safety
Act; any so-called "Super-Fund" or "Super-Lien" law, or any other federal, state
or local statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to, or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance or material, as of
now or at any time hereafter in effect.
"Facility" has the meaning set forth in the Recitals to this Agreement.
"Force Majeure Event" means acts of God, war, civil commotion, embargoes,
strikes, epidemic, fires, cyclones, droughts, floods, emergencies, provided that
a Force Majeure Event shall not include events caused by the gross negligence or
willful misconduct of the party claiming the Force Majeure Event.
"Hazardous Materials" means for purposes of this Lease shall be
interpreted broadly to include, but not be limited to, any material or substance
that is defined or classified under federal, state, or local laws as (a) a
"hazardous substance" pursuant to section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. section 9601(14), section
311 of the Federal Water Pollution Control Act, 33 U.S.C. section 1321, as now
or hereafter amended; (b) a "hazardous waste" pursuant to section 1004 or
section 3001 of the Resource Conservation and Recovery Act, 42 U.S.C. sections
6903, 6921, as now or hereafter amended; (c) a toxic pollutant under section
307(a)(1) of the Federal Water Pollution Control Act, 33 U.S.C. section
1317(a)(1); (d) a "hazardous air pollutant" under section 112 of the Clean Air
Act, 42 U.S.C. section 7412, as now or hereafter amended; (e) a "hazardous
material" under the Hazardous Materials Transportation Uniform Safety Act of
1990, 49 U.S.C. App. section 1802(4), as now or hereafter amended; (f) toxic or
hazardous pursuant to regulations promulgated now or hereafter under the
aforementioned laws; or (g) presenting a risk to human health or the environment
under other applicable federal, state or local laws, ordinances, or regulations,
as now or as may be passed or promulgated in the future. "Hazardous Materials"
shall also mean any substance that after release into the environment and upon
exposure, ingestion, inhalation, or assimilation, either directly from the
environment or directly by ingestion through food chains, will or may reasonably
be anticipated to cause death, disease, behavior-abnormalities, cancer, or
genetic abnormalities. Toxic or hazardous materials specifically includes, but
is not limited to, asbestos, polychlorinated biphenyls ("PCBs"), petroleum and
petroleum-based derivatives, and urea formaldehyde.
"Hazardous Material Activity" means any actual, proposed or threatened
storage, holding, existence, release, emission, discharge, generation,
processing, abatement, removal, disposition, handling or transportation of any
Hazardous Material from, under, into or on the premises or surrounding property
after the date hereof, including, without limitation, any "Release" as defined
in the Comprehensive Environmental Response, Compensation, and Liability Act of
1980 (42 U.S.C. sections 9601 et seq.).
"Impositions" means all taxes, levies and assessments; use and occupancy
taxes; water and water assessments, fees and use charges; charges for public
utilities; excises; levies; license and
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permit fees; transit taxes; real estate taxes; intangible and other personal
property taxes; business and occupation taxes; occupational license taxes, and
all other governmental impositions and charges of every kind and nature
whatsoever, whether the same are extaordinary or ordinary, general or special,
or unforeseen or foreseen, which at any time from and after the date hereof
shall be or become due and payable, but shall not include any general income
taxes or franchise fees assessed against Landlord or the amount of any taxes,
assessments or levies based upon or related to the interconnection of the
Facility to Landlord's contiguous facilities.
"Inflation Index" means the U.S. City Average Consumer Price Index, all
items other than food and energy, not seasonably adjusted, as it appears in the
"News" as published monthly by the United States Department of Labor, Bureau of
Labor Statistics; provided, however, that if said Consumer Price Index shall
cease to exist or is changed, then the term "Consumer Price Index" shall mean
such other or similar index or formula as Tenant and Landlord shall agree upon
to measure change in the purchasing power of the U.S. dollar.
"Initial Lease Term" has the meaning set forth in Section 3.2.
"Landlord" means the Person identified as the "Landlord" in the first
paragraph of this Agreement, and the successors and permitted assigns of such
Person.
"Landlord's Work" has the meaning set forth in Section 5.4(b).
"Lease" means this Lease, as it may be amended, restated, modified or
supplemented and in effect from time to time.
"Lease Term" has the meaning set forth in Section 3.2.
"Lease Year" means a one year period of time beginning on the Commencement
Date or any anniversary thereof and ending one year later.
"Non-Disturbance Agreement" has the meaning set forth in Section 12.1.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or governmental authority or regulatory body.
"Premises" has the meaning set forth in the Recitals to this Agreement.
"Renewal Option" has the meaning set forth in Section 3.3(a).
"Renewal Term" has the meaning set forth in Section 3.3(a).
"Rent" has the meaning set forth in Section 4.4.
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"Reorganization Case" means a case commenced under Chapter 11 by the
filing of a Chapter 11 Petition.
"Section 365(a)" means Section 365(a) of the Bankruptcy Code.
"Section 503(b)(1) means Section 503(b)(1) of the Bankruptcy Code.
"Tenant" means the Person identified as the "Tenant" in the first
paragraph of this Agreement, and the successors and permitted assigns of such
Person.
"Tenant Default" has the meaning set forth in Section 14.1.
"Tenant's Work" has the meaning set forth in Section 5.4(a).
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ANNEX B
LANDLORD'S REPRESENTATIONS AND WARRANTIES
(a) Landlord is a corporation duly organized and existing in good
standing under the laws of the State of Nevada, with all requisite corporate
power and authority to enter into and perform this Lease and to carry out its
obligations hereunder;
(b) Landlord's execution, delivery and performance of this Lease have
been duly authorized by all requisite corporate action on its part, and this
Lease has been duly executed and delivered by Landlord and constitutes
Landlord's legal, valid and binding obligation;
(c) Landlord's execution, delivery and performance of this Lease will
not result in a breach or violation of, or constitute a default under, any
agreement, lease, or instrument to which it is a party or by which it or its
properties may be bound or affected;
(d) No suit, action or arbitration, or legal, administrative or other
proceeding is pending or has been threatened against Landlord seeking to prevent
or enjoin Landlord from executing and delivering this Lease or carrying out its
obligations hereunder or that which could adversely affect the validity or
enforceability of this Lease or the ability of Landlord to fulfill its
commitments hereunder, or which could result in any material adverse change in
the business or financial condition of Landlord;
(e) Landlord is the owner in fee simple estate of the Premises, free and
clear of any liens, security interests, mortgages, deeds of trust or other
encumbrances, other than a first mortgage lien securing approximately
$15,000,000 of indebtedness and a second mortgage lien securing approximately
$205,000,000 of indebtedness of Landlord's parent, Fitzgeralds Gaming
Corporation, guaranteed by Landlord, and the leasehold granted hereby is not
subject to any conflicting interest in or claim to the Premises in favor of
anyone other than the interest secured by such first and second mortgage liens;
(f) To the best of Landlord's knowledge, no Hazardous Materials exist
on, in or under the Premises and the Premises is in compliance with
Environmental Laws applicable to the Premises.
(g) There are no leasing or rental agreements in effect demising the
Premises, other than the Lease, and there are no executory contracts, options or
agreements in existence which relate to the purchase of all or any portion of
the Premises or any interest therein;
(h) Landlord has no knowledge of any outstanding violations of any
applicable pollution, zoning, Environmental Protection Agency, health, safety,
OSHA, fire, environmental, sewerage and building codes, statutes, ordinances and
regulations pertaining to the Premises or Landlord's facility;
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(i) Landlord has no knowledge of any delinquent special taxes or
assessments against the Premises, or any portion thereof;
(j) Landlord has no knowledge of any increase in the real estate tax
assessment of the Premises or any portion thereof.
(k) Landlord has no knowledge that during Landlord's ownership of the
Premises (i) "Hazardous Materials" (as hereinafter defined) have been located on
the Premises or have been released into the environment, or discharged, placed
or disposed of at, on or under the Premises; (ii) underground storage tanks have
been located on the Premises; (iii) the Premises have ever been used as a dump
for waste material; (iv) any portion of the Premises is located in an area that
has been designated a wetlands or other environmental protection area; and (v)
the Premise and its prior uses have not complied with and at all times have
complied with, any applicable governmental law, regulation or requirement
relating to environmental and occupational health and safety matters and
Hazardous Materials; and
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ANNEX C
TENANT'S REPRESENTATIONS AND WARRANTIES
(a) Tenant is a limited liability company duly organized and existing in
good standing under the laws of the State of Nevada, with all requisite limited
liability company power and authority to enter into and perform this Lease and
to carry out its obligations hereunder;
(b) Tenant's execution, delivery and performance of this Lease have been
duly authorized by all requisite limited liability company action on its part,
and this Lease has been duly executed and delivered by Tenant and constitutes
Tenant's legal, valid and binding obligation;
(c) Tenant's execution, delivery and performance of this Lease will not
result in a breach or violation of, or constitute a default under Tenant's
organizational documents, any law, regulation, writ or injunction, any
agreement, lease, or instrument to which it is a party or by which it or its
properties may be bound or affected;
(d) No suit, action or arbitration, or legal, administrative or other
proceeding is pending or has been threatened against Tenant seeking to prevent
or enjoin Tenant from executing and delivering this Lease or carrying out its
obligations hereunder or that which could adversely affect the validity or
enforceability of this Lease or the ability of Tenant to fulfill its commitments
hereunder, or which could result in any material adverse change in the business
or financial condition of Tenant; and
(e) As of the date of this Lease, Tenant is an indirect wholly-owned
subsidiary of Sierra Pacific Resources, a Nevada corporation.
(f) Neither the construction nor the operation of the Facility will
generate or cause the release of Hazardous Materials on, in or under the
Premises.
(g) The Facility will be constructed and operated in compliance with all
applicable laws including Environmental Laws.
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ANNEX D
CONDITIONS PRECEDENT
As further conditions to Tenant taking possession of the Premises:
(a) Tenant must have obtained a copy of a current title insurance
commitment for the issuance of a leasehold title policy, issued by a title
insurance company approved by Tenant, insuring Tenant's leasehold interest
in the amount of twelve million Dollars ($12,000,000) under this Lease
showing only the Permitted Exceptions and Nondisturbance Agreements from
the holder of any mortgage to which this Lease is subordinate, which title
insurance commitment must be obtained on or before the Commencement Date.
(b) Tenant shall have thirty (30) days from the Effective Date
(said thirty (30) day period being herein referred to as the "Inspection
Period") to satisfy or waive all contingencies in subsections (i) through
(vii) and (c) - (f) below. In the event Tenant determines, in Tenant's
sole and absolute discretion, that any of the forgoing conditions are not
satisfactory or Tenant determines for any other reason that it does not
desire to lease the Premises, Tenant shall notify Landlord within such
thirty (30) day period that Tenant is terminating this Lease, whereupon
this Lease shall terminate and be of no further force and effect and
neither party hereto shall have any further liability to the other, except
for the indemnification obligation of Landlord set forth in the third
paragraph of Section 3.4 of the Lease. Failure of Tenant to so notify
Landlord within the ninety (90) days specified herein of Tenant's desire
to terminate this Lease or waive the following conditions shall be deemed
a waiver of such conditions and the parties will remain bound by the terms
of this Lease:
(i) Tenant obtaining, at Tenant's sole cost and expense,
survey, surveyors, report, surveyor's certificate and any other
appraisals, inspections, or tests desired by Tenant to determine
whether the Premises is usable by Tenant for the purpose of
constructing and operating a chilled water facility. Upon Landlord's
request, Tenant will provide Landlord with a true and correct copy
of any surveys, reports, inspections, or tests performed pursuant to
this subsection (b).
(ii) Tenant's satisfaction that the Premises is suitable for
the construction and operation of the Facility and Distribution
System as determined by Tenant in Tenant's sole and absolute
discretion, including, but not limited to, obtaining necessary
governmental permits, licenses and consents with respect to the
Distribution System.
(iii) Tenant's receipt of satisfactory evidence of the absence
of any toxic or Hazardous Materials in, on or under the Premises or
having adversely affected the soil conditions.
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(iv) Tenant's receipt of satisfactory evidence that soil
conditions are such to be able to support the improvements planned
by Tenant.
(v) Landlord and Tenant shall have entered into a Chilled
Water Services Agreement mutually acceptable to Landlord and Tenant;
(vi) Tenant shall have entered into contracts with others for
the provision of chilled water services in service capacities equal
to at least two thousand tons.
(vii) Tenant shall be satisfied, in Tenant's sole and absolute
discretion, that the services to be provided by the Facility do not
require the issuance of a certificate of public convenience or
necessity from the Public Utilities Commission of Nevada or are
otherwise regulated by any governmental agency.
(c) Landlord has delivered to Tenant all existing topographical
(including a topographical survey), engineering, environmental and other
studies with regard to the Premises in Landlord's possession.
(d) Landlord shall have applied for and obtained from state,
county and/or city authorities all requisite permits, approvals and
variances to permit Tenant's modifications to Landlord's adjacent hotel
and casino necessary for the connection of the Facility and the
Distribution System thereto.
(e) Landlord shall have applied for and obtained from state,
county and/or city authorities either an alley vacation (so that the
Facility and/or the relevant portion of the Distribution System can be
connected to Landlord's hotel casino underground through the alley) or an
air-rights easement or variance (so that the Facility and the relevant
portion of the Distribution System can be connected to the Landlord's
hotel casino via piping at the second story level or above over the alley.
(f) Landlord shall have delivered to Tenant fully executed
Nondisturbance and Attornment Agreements, in recordable form, in
substantially the form approved by Tenant, from all mortgagees or
beneficiaries under deeds of trust encumbering the Premises.
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ANNEX E
BASE RENT
Base Rent will be $139,091 for the Lease Year commencing January 1, 2000 and
ending December 31, 2000 (the "Initial Base Rent"), payable in advance in equal
monthly installments of $11,590.92 each.
Base Rent for each subsequent Lease Year, including a Lease year during a
Renewal Term, will be equal to the product of (A) the Initial Base Rent,
multiplied by (B) the percentage increase, if any, in the "Inflation Index" for
the period from December 31, 1999 through the most recent December 31st. For
each determination of the Inflation Index, the most recently published Inflation
Index figures as of December 31(st) of the Lease Year most recently ended shall
be used.
Once the amount of Base Rent for any Lease Year after 2000 is determined, the
monthly payments thereof shall each be in an amount equal to one-twelfth (1/12)
of the Base Rent for such Lease Year.
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EXHIBIT A
LEGAL DESCRIPTION OF THE PREMISES
A PARCEL OF LAND, BEING A PORTION OF THE SOUTHWEST QUARTER (SW 1/4) OF THE
NORTHEAST QUARTER (NE 1/4) OF SECTION 34, TOWNSHIP 20 SOUTH, RANGE 61 EAST,
M.D.M., CLARK COUNTY, NEVADA, BEING A PORTION OF LOTS 23 THROUGH 28 INCLUSIVE IN
BLOCK 30 OF CLARK'S LAS VEGAS TOWNSITE AS SHOWN ON PLAT BOOK 1 PAGE 37 OF CLARK
COUNTY RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE INTERSECTION POINT OF THE CENTERLINE OF FOURTH STREET WITH THE
CENTERLINE OF CARSON STREET; THENCE ALONG THE CENTERLINE OF CARSON STREET NORTH
62 degrees 04'42" WEST 116.93 FEET; THENCE DEPARTING SAID CENTERLINE OF CARSON
STREET NORTH 27 degrees 55'18" EAST 40.00 FEET TO A POINT ON THE NORTH RIGHT OF
WAY LINE OF CARSON STREET, SAME POINT BEING THE POINT OF BEGINNING; THENCE ALONG
SAID NORTH RIGHT OF WAY LINE NORTH 62 degrees 04'42" WEST 63.09 FEET; THENCE
DEPARTING SAID NORTH RIGHT OF WAY NORTH 27 degrees 54'35" EAST 125.67 FEET;
THENCE SOUTH 62 degrees 04'42" EAST 63.09 FEET; THENCE SOUTH 27 degrees 55'18"
WEST 125.67 FEET TO THE POINT OF BEGINNING.
SAID PARCEL CONTAINS 7,928 SQUARE FEET (0.18 ACRES), MORE OR LESS.
The premises are shown on the attached Survey dated November 12, 1999.
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[VICINITY MAP]
35a
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EXHIBIT B
LEGAL DESCRIPTION OF THE OTHER LANDS
Landlord grants to Tenant the Distribution System Easement, Air Rights Easement
and Temporary Construction Easement as more particularly described below over,
in and under the Landlord Parcel as shown on the attached Exhibits B-1 and B-2.
Distribution System Easement to Fourth Street: (see Exhibit B-1)
An non-exclusive easement for the purpose of installing, repairing and
maintaining chilled water distribution pipes for the supply and return of
chilled water to and from the Facility. The approximate location of the easement
shall be agreed upon as necessary from time to time in order to serve other
customers and the exact location shall be where such pipes are finally placed
within the Landlord Parcel. The easement shall contain two pipes each
approximately twelve inches in diameter installed at a depth of approximately
four feet. The width of the easement shall be approximately eight feet wide and
shall begin at the northeast portion of the Facility and shall run in an
easterly direction toward Fourth Street. The easement shall include a
nonexclusive easement and the right of ingress and egress over the Landlord
Parcel to install, maintain and repair the pipes.
Air Right Easement Connecting Facility to Landlord's Casino/Hotel: (see Exhibit
B-1)
An exclusive easement for the installation, repair and maintenance of chilled
water pipes from the northwest part of the Facility above the alley as depicted
on Exhibit B-1 at approximately 20 feet in height above the ground in a westerly
direction and connecting the Facility to the Landlord's existing hotel casino
facility at the location depicted on Exhibit B-1.
Temporary Construction Easement (see Exhibit B-2)
For purposes of staging all construction activities related to the Facility and
Distribution System, Landlord grants to Tenant an exclusive easement over and on
the portion of the parking lot depicted on Exhibit B-2 beginning at least 20'
from what is known as the Thompson Building to the edge of the lot abutting the
sidewalk on Fourth and Carson Streets.
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EXHIBIT B-1
DEPICTION OF LANDLORD PARCEL EASEMENT
[VICINITY MAP]
37
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EXHIBIT B-2
DEPICTION OF TEMPORARY CONSTRUCTION EASEMENT
[VICINITY MAP]
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EXHIBIT C
TENANT'S WORK
PROJECT DESCRIPTION:
Tenant shall design, construct, operate and maintain The City Centre Chiller
Plant which will be housed in a new building to be constructed within the
boundaries of the Premises (except for the Distribution System). The Central
Plant building, which will house the energy plant, is located on Fourth Street
and Carson Street and is approximately 13,000 sq. ft. in size. In general, the
building will be constructed as a structural steel building with slab on deck
construction with an EIFS exterior (plaster / stucco veneer) and will be
approximately 60 feet above grade to the parapet. The first floor will house on
the Carson Street end the electrical rooms including the back-up generator and
the North end of the building will house the control room. In between these, the
new entrance and valet drive through will be located. On the second floor of the
building, the chilled water plant including the plate and frame exchangers and
pumps will be located. The roof of the building will house the cooling towers.
The cooling plant is made up of electric driven water cooled chillers initially
totaling 3,600 nominal-tons, servicing approximately 2,200 tons connected
customer loads, primary and secondary pumps, VFDs, and a plate and frame Heat
exchanger. The primary piping headers have been sized for 5,000 nominal-tons
with future connections for 2 additional chillers.
The primary purpose of this building is to serve chilled water for cooling to
Downtown Las Vegas properties including gaming, commercial and governmental
customers.
Tenant shall pay the cost of the permits and approvals as described in paragraph
1 of Exhibit D.
Tenant, at its expense, shall provide engineering documents and the cost of
actual construction for the curb cuts off of 4th Street and Carson Street; it
shall also provide the design and engineering plans for the landscaping and
irrigation.
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EXHIBIT D
LANDLORD'S WORK
1. Apply for and obtain from county and/or city authorities all requisite
permits and approvals, including variances to any set-back requirements,
to permit construction of the Facility abutting against Landlord's
existing facilities as described in Section 3.1, and to connect the
Distribution System to Landlord's hotel casino.
2. Apply for and obtain from county and/or city authorities either an alley
vacation (so that the Facility can be connected to Landlord's hotel casino
underground through the alley) or an air-rights easement or variance (so
that the Facility and the relevant portion of the Distribution System can
be connected to the Landlord's hotel casino via piping at the second story
level or above over the alley.
3. Provide to Tenant within five (5) days after Tenant's request, Landlord's
signage requirements and install Landlord Signage in coordination with
Tenant's construction schedule.
4. Provide to Tenant within five (5) days after Tenant's request, Landlord's
landscaping and irrigation scope of work. Tenant will prepare engineering
documents for the work described in this paragraph per Exhibit C. Landlord
will install Landlord's landscaping and irrigation in coordination with
Tenant's construction schedule.
5. Provide Tenant within five (5) days after Tenant's request, Landlord's
concept of revised vehicular entrance off of 4th Street and vehicular
control on the Lots 23-27 from which the Tenant will provide
engineering/construction documents as mandated by the City in regards to
those curb cuts and related sidewalks on 4th and Carson Streets required
to obtain building permits and ultimately construct the prescribed work.
The Landlord will provide engineering for the remainder of the work to be
performed on the remainder of Lots 23-27. The cost of the actual
construction will be allocated between Tenant and Landlord as described
elsewhere in this document.
6. Perform all changes, improvements or relocations required by the City of
Las Vegas as a condition to issuing the Permit to construct, but which is
required because of prior construction or commitments.
7. Install the landscaping that is designed by Tenant (which design must be
approved by Landlord) and provide the irrigation from its facilities
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EXHIBIT E
INSURANCE
1. Tenant will maintain:
(i) Workers' compensation insurance, with limits of liability at least
equal to the statutory requirements therefore;
(ii) Employer's liability insurance of not less than $1,000,000;
(iii) Comprehensive general liability insurance against liability for
injury to or death of any person or damage to property in connection
with the use, operation or condition of the Facility of not less
that $2,000,000 combined single limit per occurrence and annual
aggregate;
(iv) "All-risk" property insurance covering the Facility to the extent of
the full replacement cost thereof and, during construction of the
Facility, "all-risk builder's risk" insurance covering the Facility
to the extent of the full replacement thereof;
(v) During any and all periods of construction of the Facility, Tenant
shall cause its general contractors (including all contractors who
contract directly with Tenant) to obtain (i) commercial general
liability insurance with a minimum limit of liability of $5,000,000
combined single limit for bodily injury, personal injury and
property damage and include the Customer as an additional insured
and (ii) workers' compensation insurance, with limits of liability
at least equal to the statutory requirements therefore and
employer's liability insurance of not less than $1,000,000; and
(vi) Excess liability umbrella coverage of at least $50,000,000.
2. The Landlord shall maintain:
(i) Workers' compensation insurance, with limits of liability at least
equal to the statutory requirements therefore;
(ii) Employer's liability insurance of not less than $1,000,000;
(iii) Comprehensive general liability (including public liability and
property damage,) Insurance coverage covering occurrences, accidents
and incidents on the Landlord's property that (1) occur from and
after the date hereof (regardless of when the claim is filed) and
(2) result of bodily injury, personal injury or death to any person
or
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entity and/or damage or destruction of property. Said insurance
shall have a combined single limit of liability per occurrence of
not less than $1,000,000 on a primary basis and not less than
$50,000,000 on an excess/umbrella basis, or such greater amounts as
are typical for similar casino-hotel projects in Las Vegas, Nevada;
and
(iv) "All-risk" property insurance covering the Premises and improvements
thereon to the extent of the full replacement cost thereof.
Each party hereto agrees that the insurance described above to be provided by
the other party may be provided by and through blanket coverages which may be
provided in whole or in part through a policy or policies covering other
liabilities and locations of the party obligated to provide such insurance and
its affiliates.
3. Tenant may, at its option, elect to insure of self-insure Tenant
insurance. Landlord may also, at its option, elect to insure or
self-insure all or portions of Landlord insurance.
If self-insured, Tenant and/or Landlord, as the case may be shall submit
to the other within (10) days after the execution of this Agreement and
annually thereafter during the term of this Agreement a certificate of
compliance confirming that it has fulfilled its self-insurance
requirements.
In addition, any contractor or subcontractor hired by Tenant will during
the term of this Agreement maintain and keep in force general public
liability insurance against claims for personal injury, death or property
damage occurring in or on the Premises with combined policy limits of at
least Two Million Dollars ($2,000,000).
4. At the conclusion of each three (3) year period during the terms of this
Agreement, the amount of the general liability insurance required under
clauses (a)(ii) and (b)(i) above shall be reviewed and increased, if
agreed upon by the parties hereto, by a mutually agreed upon amount.
5. If either party at any time fails to provide the insurance coverage
required under clauses (a) or (b), the other party upon written notice
shall be entitled to purchase such coverage and charges the failing party
for the reasonable costs of such coverage and all other reasonable costs
incurred in connection with obtaining the same.
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EXHIBIT F
NOTICES
All notices and communications under this Agreement shall be in writing and
shall be (a) delivered in person, or (b) mailed, postage prepaid, either by
registered or certified mail, or (c) sent by reputable overnight express
carrier, or (d) sent by facsimile, addressed or to the facsimile number, in each
case, as follows:
if to Tenant: e.three Custom Energy Solutions, LLC
5450 W. Sahara Avenue, Suite 200
Las Vegas, Nevada 89146
Attention: Executive Director of Operations
With copy to: Sierra Pacific Energy Company
5450 W. Sahara Avenue, Suite 200
Las Vegas, Nevada
Attn: General Counsel
and
if to the Landlord: Fitzgeralds Las Vegas, Inc.
301 Fremont Street
Las Vegas, Nevada 89101
Attention: General Manager
Tel: (702) 388-2106
Fax: (702)388-0327
With copy to: Fitzgeralds Las Vegas, Inc.
301 Fremont Street
Las Vegas, Nevada 89101
Attention: General Counsel
or to such other address or facsimile number as either party may hereafter
designate to the other by such notice.
All notices sent pursuant to this Agreement shall be deemed received (i) if
personally delivered, then on the date of delivery, (ii) if sent by overnight,
express carrier, then on the next Business Day immediately following the day
timely sent for overnight delivery, (iii) if sent by registered or certified
mail, then on the earlier of the third Business Day following the day sent or
when actually received, or (iv) by facsimile transmission as long as such
transmission and confirmation copy of such transmission is sent the same day
by any of the methods described in (i), (ii) or (iii) above.
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EXHIBIT 10(ii)
Must be Executed by Property Owner and
Developer and Returned to the District
on or Before: 12/08/2000 Agreement No. 106298
CONSTRUCTION AGREEMENT
THIS AGREEMENT, made and entered into by and between the Las Vegas Valley
Water District, a quasi-municipal corporation of the State of Nevada,
hereinafter called "District", Party of the First Part, and FITZGERALDS LAS
VEGAS, INC., whose address is 301 Fremont Street, Las Vegas, NV 89101,
hereinafter called "Property Owner", Party of the Second Part, and E-THREE
CUSTOM ENERGY SOLUTIONS, LLC, whose address is 6655 W. Sahara Avenue, Suite
B102, Las Vegas, NV 89145, hereinafter called "Developer", Party of the Third
Part, WITNESSETH:
RECITALS
WHEREAS, District is engaged in the business of distributing potable
water in the City of Las Vegas, Nevada, and portions of the County of Clark,
State of Nevada; and
WHEREAS, Property Owner is the owner of property generally located on the
northwest corner of Carson Avenue and 4th Street, and further referenced as
Clark County Assessors Parcel Numbers 139-34-610-038 and 139-34-610-039; and
WHEREAS, Developer is engaged in the development of the above-described
real property and is desirous of installing water facilities to said property;
and
WHEREAS, District is willing to permit the installation of water
facilities with the understanding that there is no commitment for future water
service granted under this Agreement; and
WHEREAS, Developer is willing to construct at its sole cost and expense
the water facility(s) and appurtenances.
Now, this Agreement WITNESSETH:
ARTICLE I
DEVELOPER AND PROPERTY OWNER AGREE:
1. At Developer's sole cost and expense to furnish all necessary materials,
labor, and equipment for the construction of the water main(s), fire hydrants
and laterals, service connections, backflow prevention assemblies, and
appurtenances, from the main to the point where the water being delivered
leaves the piping owned by the District hereinafter called "water facilities",
shown on that certain plan or plans, entitled:
CITY CENTER CHILLER PLANT
Utility Plan
2. That said water facilities shall be constructed in the locations shown,
and in accordance with the above-mentioned plan or plans, as approved by the
District, and in conformance with District specifications.
3. That all work shall be subject to inspection by an authorized
representative of the District and the District shall be notified sufficiently
in advance of any work to be undertaken, in order that necessary inspection can
be arranged.
4. To comply with the District's Service Rules that are in force on the
effective date of this Agreement including those sections pertaining to the
water commitment process and construction of the water facilities identified in
Article I, paragraph 1 above.
5. At Developer's sole cost and expense, to perform all survey work
necessary to ensure installation of the water facilities at the location and to
the grades called for in the plans.
Page 1 of 6
<PAGE> 2
Agreement No. 106298
6. At Developer's sole cost and expense, to disinfect and pressure test
all water facilities to the satisfaction of the District and the health
authorities having jurisdiction.
7. That connections to existing mains shall be made only in the presence
of an authorized representative of the District and at the times specified by
the District.
8. That all water facilities shall be located outside of driveways,
driveway approaches, or other areas subject to vehicular traffic. In the event
any water facilities are located within those areas either inadvertently or
otherwise, the Developer shall cause such water facilities to be relocated
outside of the driveways, driveway approaches or other areas described above,
in accordance with District's requirements, or shall reimburse the District for
the cost of relocating said water facilities. If extraordinary conditions exist
that would prevent compliance with this requirement, Developer may submit to
the District a written request for a waiver of this requirement pursuant to the
District's Service Rules.
9. To furnish to the District easements, in a form satisfactory to the
District, where water facilities are approved to be installed in other than
dedicated streets or alleys. Said easements to be not less than twenty (20) feet
in width and perpetual. The conditions of said easements shall be such that no
building, structures, trees, shrubs, or other improvements which would interfere
with its use by District can be placed upon it, that District will have the
right to operate, maintain, repair, replace, and/or change the size and/or
number of water facilities; and that proper access to all parts of the easement
by District forces and equipment is provided. The conditions of said easements
shall further provide that the property owner agrees to pay any and all costs
incurred by the District to make and/or maintain said easements accessible to
the District. It may be provided that other utility lines can be installed in
said easement, so long as they do not interfere with its use by District, and
are in compliance with state laws and regulations.
10. Should any defective material or workmanship affecting the water
facilities installed by Developer be disclosed within one (1) year of the date
of completion and acceptance of the water facilities by the District, Developer
shall immediately cause the defect to be corrected, or shall reimburse District
for its cost to correct said defect. For the purpose of this Agreement,
failures including, but not limited to, any leak or break in the water
facilities, or any pavement settlement, shall be considered conclusive evidence
of defective materials and/or workmanship. Any corrective actions by Developer
shall themselves be warranted for a one (1) year period. If the Developer fails
to reimburse District for cost of repairs, subsequent projects will not be
approved until all reimbursements are paid.
11. That upon completion of construction of the work and acceptance of
the work by the District, to furnish a Bill of Sale for the water facilities
identified in Article I, paragraph 1 above, conveying to the District all
rights, title, and interest in all the water facilities and to certify that the
water facilities will be free of liens and other encumbrances.
12. That any of the water facilities installed under this Agreement, once
disinfected and tested to the satisfaction of the District and once connected
to existing District facilities, may be used by the District to deliver water
to real property other than that of the Property Owner.
13. To indemnify, defend and hold the District harmless from any and all
claims, demands, liens, actions, damages, costs, expenses and attorneys' fees
based upon or arising out of alleged acts or omissions of the Developer,
Property Owner, or its officers, employees, agents, contractors, licensees or
invitees during the construction and installation of the water facilities. As
a material part of the consideration for this Agreement, the Developer and
Property Owner hereby assumes all risk of injury to persons and damage to
property resulting from the construction of the water facilities from any
source and to whomever belonging, except to the extent caused by willful or
negligent acts of the District or its agents and hereby waives all claims in
respect thereof against the District and agrees to defend and hold the District
harmless from and against any such claims by others. The District shall not be
liable or responsible for the loss of or damage to any of the Developer or
Property Owner's property, or that of its employees, customers or invitees,
resulting from burglary, theft or vandalism; nor shall the District be liable
for loss of or damage or injury to persons or property occurring during the
construction of the water facilities for any cause, or under any
circumstances, except to the extent caused by or resulting from the willful or
negligent acts of the District or its agents.
Page 2 of 6
<PAGE> 3
Agreement No. 106298
14. That all water delivered through the service connections will be
metered and the developer is responsible for all bills for water until such
time as the first occupant activates the water service account with the
District's Customer Service Division.
15. If the District discovers that water is being taken through an
unmetered service connection, the Developer shall pay, within twenty days from
the billing date, the District's bill for estimated quantities of water taken,
as determined solely and exclusively by the District. The Developer understands
that payment under this section does not act as a defense to any criminal
violations he may be charged with for the taking of water.
16. That installation of said water facilities does not assure or
guarantee that a complete water service will be available in the future. Until
such time as a complete service connection is approved by the District and a
water commitment is obtained, no water may be taken from the water facilities
installed under this agreement. This agreement does not grant Developer or
Property Owner any property right in a water service to the subject property.
Developer and Property Owner further agrees to be bound by any current or
future water commitment regulation which the District may establish.
17. That the Developer, Property Owner, and their officers, employees,
agents, contractors, licensees or invitees, at the Developer's and Property
Owner's sole cost and expense, shall at all times comply with all applicable
laws, ordinances, statutes, rules, acts or regulations in effect or that become
in effect during the time work is performed under this Agreement, including but
not limited to those laws outlined by the Endangered Species Act of 1973 and
The Clark County Desert Conservation Plan, August 1, 1995.
18. That the Developer is fully responsible for ensuring no harm comes to
any tortoises found on the work site, unless it is unavoidable. Tortoises will
not be intentionally killed, harmed or taken for private use. In the event that
a desert tortoise is encountered on the work site, the Clark County Pick-up
Service shall be called at (702) 593-9027.
19. That in the event of abandonment or cessation of construction of the
water facilities for one year, prepaid installation fees and other charges may
be used by the District to pursue completion of all or part of the water
facilities as provided in the District Service Rules.
20. That at such time as the District accepts and approves an application
for water service to said real property, the Developer will be required to pay
all applicable fees, charges and deposits in accordance with the Service Rules
that are in effect at the time the application for water service is approved.
21. That the Developer or his successors and assigns will make a separate
application for water service from the water facilities described in Article I,
paragraph 1 above in accordance with the District's Service Rules in effect at
that time.
22. The District, its officers and employees shall be immune for any
breach of this Agreement caused by an incorrect date being produced, calculated
or generated by a computer or other information system that is owned or
operated by the District, its officers or employees, regardless of the cause of
the error (reference NRS 41.0321).
ARTICLE II
DISTRICT AGREES:
1. That upon completion of construction of the water facilities,
acceptance of same by the District, and fulfillment by the Developer and
Property Owner of all requirements of this Agreement to operate and maintain
the water facilities installed pursuant to this Agreement in accordance with
the District's Service Rules as the same are established and amended.
2. That construction water may be provided through metered fire hydrants
in accordance with the District's Service Rules.
Page 3 of 6
<PAGE> 4
Agreement No. 106298
ARTICLE III
IT IS MUTUALLY AGREED:
1. The above described property shall have no water commitment by virtue
of the installation of the water facilities. Future use of said facilities
requires that a water commitment be obtained from the District before the
facilities can be utilized.
2. That this Agreement shall inure to the benefit of, and be binding
upon, the respective parties hereto and their successors and assigns.
Assignments must be completed on forms provided by the District, and a fully
executed original must be provided to the District.
3. That the effective date of this Agreement is the date that the
Agreement is formally executed by the District.
4. That this Agreement shall terminate if construction of the water
facilities covered by the plan or plans identified in Article I, paragraph 1
of this Agreement is not started within one (1) year from the date of District
approval of said plan or plans; or if such construction is commenced within
said one (1) year period, but is not diligently prosecuted to completion within
2 years from the date of the plan approved. Termination under this paragraph
shall occur upon the District's written notice that Developer has not followed
the conditions of this Agreement.
5. That all water facilities installed under this Agreement shall be and
remain the exclusive property of the District, and shall become a part of the
District's general water distribution system after acceptance by the District.
6. That if this Agreement terminates in accordance with Article III,
paragraph 4 of this Agreement, right, title and interest of all or any portion
of water facilities installed, as determined solely and exclusively by the
District, shall become the exclusive property of the District for the District
to use, modify, or to dispose of as the District deems appropriate.
7. That in the event a portion of the water facilities are constructed
but this agreement terminates, the above described property shall have no water
commitment by virtue of the installation of the water facilities. Requests for
future use of said facilities, if retained in place, may require that a new
water commitment be obtained before the facilities can be utilized.
8. That for the purpose of making refunds or any notifications that may
be required by this Agreement, the Developer's address and Property Owner's
address are as identified on page 1 of this Agreement, and it is the
Developer's and Property Owner's responsibility to notify the District in
writing of a change in address.
9. That noncompliance or violation of the District's Service Rules or
any provision of this Agreement by Developer or its officers, employees,
agents, contractors, licensees or invitees shall be cause for the District, at
its sole discretion, to revoke construction approval of the water facilities
without challenge by Developer and without liability for any damages caused by
said revocation.
10. That all parties are acquainted with the provisions of the applicable
District Service Rules in force on the effective date of this Agreement.
11. That failure of the District to enforce any provision of this
Agreement shall not constitute a waiver by the District, and the District may
choose to enforce any breach of this Agreement at any time.
12. That this agreement may be recorded by the District as an "Official
Record" in the office of the Recorder for Clark County, Nevada.
13. This Agreement is intended solely for the benefit of the District and
Developer and is not intended to benefit, either directly or indirectly, any
third party or member(s) of the public at large. Any promise by the District to
refund connection charges to Developer is solely for the benefit of the
Developer.
Page 4 of 6
<PAGE> 5
14. The laws of the State of Nevada shall govern as to the
interpretation, validity and effect of this Agreement.
15. That each party hereto warrants to the other that it, and its
signatory hereunder, it duly authorized and empowered to execute this Agreement
and to bind said party to the terms of this Agreement.
IN WITNESS WHEREOF, the Property Owner has executed this Agreement on the
____ day of ________,_____.
PROPERTY OWNER:
Fitzgeralds Las Vegas, Inc.
/s/ WILLIAM J. NOONAN III
- ---------------------------------------------------------
William J. Noonan III, Vice President and General Manager
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
On 1/4/2000, before me, the undersigned, a NOTARY PUBLIC, in and for said
County and State, personally appeared William J. Noonan known to me to be the
person described in and who executed the foregoing instrument and who
acknowledged to me that he executed the same freely and voluntarily and for the
uses and purposes therein mentioned.
WITNESS my hand and official seal.
[SEAL]
Notary Public - State of Nevada
COUNTY OF CLARK
ANN M. DILLON
My Appointment Expires
September 23, 2001
/s/ ANN M. DILLON
- ----------------------------- ------------------------------
Notary Stamp/Seal Notary Public
Page 5 of 6
<PAGE> 6
Agreement No. 106298
IN WITNESS WHEREOF, the Developer has executed this Agreement on the 5th
day of January, 2000.
DEVELOPER:
e-Three Custom Energy Solutions, LLC
/s/ STEVEN S. BOSS
- --------------------------------------
Steven Boss, Manager
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
On January 5th, 2000, before me, the undersigned, a NOTARY PUBLIC, in and
for said County and State, personally appeared Steven S. Boss known to me to be
the person described in and who executed the foregoing instrument, and who
acknowledged to me that_he_executed the same freely and voluntarily and for the
uses and purposes therein mentioned.
WITNESS my hand and official seal.
[SEAL]
Notary Public - State of Nevada Emily A. Robins
COUNTY OF CLARK -------------------------------
EMILY A. ROBINS Notary Public
My Appointment Expires
July 19, 2000
- --------------------------------
Notary Stamp/Seal
THIS AGREEMENT shall be in full force and effect as of the 8th day of
February, 2000, when it was duly signed by the proper officer of the Las Vegas
Valley Water District.
ATTEST: LAS VEGAS VALLEY WATER DISTRICT
/s/ [Illegible] /s/ [Illegible]
- ---------------------------- ---------------------------------
Assistant Secretary Secretary
Page 6 of 6
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