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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1999
REGISTRATION NO. 333-79657
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 1
TO
FORM S-4
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COAST HOTELS AND CASINOS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 7011 88-0345706
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
COAST RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 6719 88-0345704
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
4500 WEST TROPICANA AVENUE
LAS VEGAS, NEVADA 89103
(702) 365-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL J. GAUGHAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
4500 WEST TROPICANA AVENUE
LAS VEGAS, NEVADA 89103
(702) 365-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE OF PROCESS)
COPIES TO:
KAREN E. BERTERO, ESQ.
GIBSON, DUNN & CRUTCHER LLP
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 229-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the exchange offer pursuant to the registration rights agreement
described in the enclosed prospectus have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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PROSPECTUS DATED JUNE __, 1999
$175,000,000
LOGO
Offer To Exchange
Our 9 1/2% Senior Subordinated Notes Due 2009
Which Have Been Registered Under The Securities Act Of 1933
For
Any And All Of Our Outstanding
9 1/2% Senior Subordinated Notes Due 2009
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON JULY 21, 1999, UNLESS EXTENDED.
We are offering to exchange our 9 1/2% Senior Subordinated Notes Due 2009
which have been registered under the Securities Act of 1933, as amended, for any
and all of our outstanding 9 1/2% Senior Subordinated Notes Due 2009 issued on
March 23, 1999.
THE EXCHANGE NOTES
- The terms of the registered exchange notes to be issued are substantially
identical to the terms of the outstanding notes that we issued on March
23, 1999, except for transfer restrictions, registration rights and
liquidated damages provisions relating to the outstanding notes which will
not apply to the exchange notes.
- Interest on the exchange notes accrues at the rate of 9 1/2% per year,
payable in cash every six months on April 1 and October 1, with the first
payment on October 1, 1999.
- We may redeem any of the exchange notes beginning on April 1, 2004 at an
initial redemption price of 104.75% of their principal amount plus accrued
interest. In addition, before April 1, 2002, we may redeem up to 35% of
the exchange notes at a redemption price of 109.50% of their principal
amount plus accrued interest using proceeds from a public offering of our
capital stock or a capital contribution to us by Coast Resorts, Inc., our
parent company, of the proceeds of a public offering of its capital stock.
- The exchange notes will rank equally with all of our other unsecured
senior subordinated indebtedness and will be junior to our senior
indebtedness. The exchange notes are guaranteed on a senior subordinated
basis by Coast Resorts, Inc.
- We do not intend to list the exchange notes on any securities exchange.
MATERIAL TERMS OF THE EXCHANGE OFFER
- The exchange offer expires at 5 p.m., New York City time, on July 21,
1999, unless extended.
- All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged for an equal principal amount of exchange notes which
are registered under the Securities Act of 1933.
- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- The exchange offer is not subject to any minimum tender condition, but is
subject to the terms of the registration rights agreement that we entered
into on March 23, 1999 with the placement agents for the outstanding notes
and Coast Resorts, Inc.
- We will not receive any proceeds from the exchange offer. We will pay the
expenses of the exchange offer.
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FOR A DISCUSSION OF RISKS THAT SHOULD BE CONSIDERED BY HOLDERS
IN DECIDING WHETHER TO TENDER OUTSTANDING NOTES
IN THE EXCHANGE OFFER, SEE "RISK FACTORS"
BEGINNING ON PAGE 14.
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NONE OF THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION, THE NEVADA GAMING COMMISSION OR THE NEVADA STATE GAMING CONTROL
BOARD HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL WE ACCEPT SURRENDER FOR
EXCHANGE FROM, HOLDERS OF OUTSTANDING NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
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The date of this prospectus is June __, 1999
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This prospectus incorporates important business and financial information
about us that is not included in or delivered with this prospectus. This
information is available without charge to investors in the notes upon written
or oral request. Requests should be made to:
Attn.: Chief Financial Officer
Coast Hotels and Casinos, Inc.
4500 West Tropicana Avenue
Las Vegas, Nevada 89103
(702) 365-7000
The exchange offer is expected to expire on July 21, 1999 and investors
must make their investment decisions by this expiration date. Therefore, in
order to obtain timely delivery of the requested information, we must receive
your request by July 14, 1999, or the date that is no later than five business
days before the expiration date. See "Where You Can Find More Information."
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TABLE OF CONTENTS
PAGE
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Where You Can Find More
Information................... ii
Special Note Regarding Forward-
Looking Statements............ iii
Summary......................... 1
Risk Factors.................... 14
The Exchange Offer.............. 27
Capitalization.................. 37
Selected Historical Financial
Data.......................... 38
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... 40
Business........................ 48
PAGE
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Nevada Regulation and
Licensing..................... 58
Management...................... 63
Certain Transactions............ 67
Principal Stockholders.......... 70
Description of Our Other
Indebtedness.................. 71
Description of The Exchange
Notes......................... 72
Material Federal Tax
Considerations................ 127
Plan of Distribution............ 131
Legal Matters................... 131
Independent Accountants......... 131
Index To Financial Statements... F-1
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WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement with the Commission under the Securities
Act to register the exchange notes to be issued in this exchange offer. As
allowed by the Commission's rules, this prospectus does not contain all of the
information that you can find in the registration statement and its exhibits. As
a result, statements made in this prospectus concerning the contents of a
contract, agreement or other document are not necessarily complete. If we have
filed any contract, agreement or other document as an exhibit to the
registration statement, you should read the exhibit for a more complete
understanding of the document or matter involved.
We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy any document we file at
the Commission's public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. You can also obtain copies of these
materials from the public reference section of the Commission at 45 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission (http://www.sec.gov).
We are incorporating by reference additional documents we may file with the
Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 after the date of this prospectus and before the exchange of the
outstanding notes for the exchange notes. This means that we are disclosing
important information to you by referring you to those documents. This
additional information is a part of this prospectus from the date of filing
those documents.
You may request a free copy of these filings by writing or telephoning us
at the following address:
Attn.: Chief Financial Officer
Coast Hotels and Casinos, Inc.
4500 West Tropicana Avenue
Las Vegas, Nevada 89103
(702) 365-7000
The indenture governing the outstanding notes will also govern the exchange
notes. The outstanding notes and the exchange notes, together, are a single
series of debt securities. The indenture requires us to provide quarterly and
annual financial reports to holders of the exchange notes.
You should not assume that the information in this prospectus is accurate
as of any date other than the date of this prospectus, or the respective dates
of those documents we incorporate by reference, regardless of when you received
this prospectus. You should rely on the information incorporated by reference or
provided in the registration statement. We have not authorized anyone else to
provide you with different information. The exchange offer is being made to, and
we will accept surrender for exchange from, holders of outstanding notes only in
jurisdictions where the exchange offer is permitted.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements." All statements
regarding our expected financial position, business, strategies and financing
plans under the headings "Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus are forward-looking statements. The words
"anticipates," "believes," "estimates," "seeks," "expects," "plans," "intends"
and similar expressions identify forward-looking statements. Although we believe
that our expectations are reasonable based on our plans, beliefs and
assumptions, our expectations may prove to be incorrect. Important factors that
could cause actual results to be materially different include the following
factors:
- increased competition, both in Nevada and other states;
- dependence on the Las Vegas area and Southern California for a majority
of our customers;
- uncertainties associated with obtaining financing on acceptable terms for
the construction of our new hotel-casino, the Suncoast;
- substantial leverage and uncertainty that we will be able to service our
debt;
- uncertainties associated with the Suncoast and other construction
projects, including the related disruption of operations and the
availability of financing, if necessary; and
- changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies.
For information with respect to these and other factors that could cause
actual results to differ from the expectations stated in the forward-looking
statements, see the text under the caption "Risk Factors." Potential investors
in the exchange notes are urged to consider these factors carefully in
evaluating the forward-looking statements contained or incorporated by reference
in this prospectus.
All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
our cautionary statements. The forward-looking statements included or
incorporated herein are made only as of the date of this prospectus, or as of
the date of the document incorporated by reference. We do not intend, and
undertake no obligation, to update these forward-looking statements.
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SUMMARY
This is a summary and it does not contain all the information that may be
important to you. You should read this entire prospectus carefully before you
decide whether to purchase any notes. In this prospectus, "we," "us," and "our"
refer to Coast Hotels and Casinos, Inc. Coast Resorts, Inc., a Nevada
corporation, is our sole stockholder.
OUR COMPANY
We own and operate three hotel-casinos in Las Vegas. Our two largest
casinos, The Orleans and the Gold Coast, are strategically located to capitalize
on the strong demographics of the Las Vegas local resident market. Our third
casino, the Barbary Coast, benefits from foot traffic at its prime location on
the Las Vegas Strip. Based on our success in the locals market with The Orleans
and the Gold Coast, we are currently planning to build the Suncoast, the first
locals-oriented hotel-casino near Summerlin in west Las Vegas, one of the
fastest growing areas of the Las Vegas Valley.
While the mega-resorts on the Las Vegas Strip draw visitors from around the
world, the Las Vegas locals gaming market is growing as a result of the rapid
population growth in the Las Vegas metropolitan area. According to the Bureau of
Business and Economic Research at the University of Nevada, Reno, as of July
1998, the Las Vegas metropolitan area had a population of approximately 1.2
million residents. From 1990 to 1998 the population of the Las Vegas
metropolitan area grew 61.8%, an average annual growth rate of 6.2%. The growth
was driven primarily by Nevada's favorable climate and tax structure, a strong
economy and a well-developed infrastructure. For example, the opening of new Las
Vegas Strip mega-resorts has created thousands of jobs which, together with the
increasing popularity of Las Vegas as a retirement community, have contributed
to population growth and enlarged the locals market. Because the locals market
depends to a lesser extent on attracting tourists or competing with other
destination leisure activities, it is less susceptible to market swings and
cycles that affect the Strip casinos. In addition, Nevada law imposes more
stringent requirements for approval of new hotel-casinos in Clark County that
are not located in the vicinity of the Strip or downtown Las Vegas. We believe
that this barrier to entry into the market will enable The Orleans and the Gold
Coast, along with our proposed Suncoast property, to benefit from the increasing
Las Vegas locals market.
The most recent Clark County Residents Study prepared by the Las Vegas
Convention and Visitors Authority in 1997-1998 found that gambling ranked third
among all activities in which residents said they participated most often.
Residents mentioned only "eating out" and "movies" as more frequent activities.
Approximately 73% of Clark County adult residents said they gamble at least
occasionally. Of those residents, 47% said they do so at least once a week and
44% budget $25 or more per visit. In addition, over 72% of Las Vegas resident
gamblers prefer locations that are off the Strip and away from downtown Las
Vegas. Based on the results of the Convention and Visitors Authority study,
researchers estimated the total amount budgeted annually for gambling by all
adult Las Vegas residents to be over $1.33 billion.
BUSINESS STRATEGY
Our business and marketing strategy is to attract gaming customers to our
casinos by offering consistently high quality gaming, hotel, entertainment and
dining experiences at
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affordable prices. We emphasize attracting and retaining repeat customers. Our
primary target market for The Orleans and the Gold Coast consists of
value-oriented local middle-market gaming patrons who gamble frequently. We
believe that our target customers return to our hotel-casinos because of their
convenient locations, friendly employees, higher slot machine and video poker
payout rates than are offered at casinos on the Las Vegas Strip and high quality
entertainment and amenities. Additionally, we offer Las Vegas visitors spacious,
well-appointed and competitively priced guest rooms.
We believe that the most important factors in successfully operating our
casinos are:
- Convenient locations with easy access. The Orleans and the Gold Coast are
located on major east-west arteries in Las Vegas and offer easy access
and ample parking, enabling customers to avoid traffic congestion on the
Strip. For visitors to Las Vegas, the Barbary Coast is conveniently
located at the "Flamingo Four Corners" in the center of the Strip.
- Friendly atmosphere. A key element of our strategy is to provide patrons
with friendly personal service that is designed to foster customer
loyalty and generate repeat business. Locals appreciate a friendly,
casual gaming environment where employees make them feel at home.
- Value. We offer value to our gaming patrons by providing video poker and
slot machines with better odds than those traditionally found at Strip
casinos. We also offer lower minimum wager limits on our table games than
Strip casinos. In order to appeal to our value-conscious customers, our
many restaurants and bars serve generous portions of quality food and
beverages at attractive prices.
- High quality entertainment and amenities. We believe we compete
effectively with other locals-oriented casinos by offering a number of
high quality amenities that generate foot traffic. These amenities
include movie theaters, bowling centers, "headliner" entertainment
theater, quality restaurants and entertainment lounges featuring popular
musical groups.
CASINO PROPERTIES
The Orleans. We designed The Orleans to differentiate it in the Las Vegas
market by combining an upscale, off-Strip experience with an exciting New
Orleans French Quarter-themed environment and a wide variety of non-gaming
amenities. The Orleans is strategically located on Tropicana Avenue, a short
distance from the Las Vegas Strip and McCarran International Airport. The
Orleans features an approximately 105,000 square foot casino, 840 hotel rooms,
12 "stadium seating" first-run movie theaters, a 70-lane bowling center,
approximately 40,000 square feet of banquet and meeting facilities, including an
approximately 17,000 square foot grand ballroom, a wedding chapel, five full-
service restaurants, specialty themed bars, a barber shop, a child care
facility, a video arcade, a beauty salon and approximately 4,000 parking spaces.
The Orleans also includes an 850-seat theater that features headliner
entertainment and other special events. The Orleans' slot club has over 200,000
members. The Orleans bowling center and movie theaters were chosen by the Las
Vegas Review-Journal as the "Best of Las Vegas" in 1999, enhancing The Orleans'
reputation as a multi-faceted entertainment facility.
The Gold Coast. The Gold Coast is located on West Flamingo Road
approximately one mile west of the Las Vegas Strip near Interstate 15, the major
highway linking Las Vegas and Southern California, offering easy access from all
four directions in the
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Las Vegas Valley. The Gold Coast features an approximately 70,000 square foot
casino, a keno lounge, a race and sports book and a 700-seat bingo parlor which
was voted "Best of Las Vegas" in 1999 by the readers of the Las Vegas
Review-Journal. The Gold Coast also features 712 hotel rooms and suites, a
swimming pool with a covered bar, three full-service restaurants, a 380-seat
buffet restaurant, a fast-food restaurant, a snack bar and ice cream parlor.
Entertainment amenities include a 72-lane bowling center, two movie theaters,
banquet and meeting facilities, four bars, two entertainment lounges and a
showroom/ dance hall featuring live musical entertainment. The Gold Coast's slot
club has issued nearly 500,000 club cards to its members since inception and
currently has over 100,000 active members. In addition, the Gold Coast is a
sponsor of the annual National Finals Rodeo, which attracts thousands of
visitors to Las Vegas each December. The awards ceremonies for the Rodeo are
held nightly at the Gold Coast during the 10-day event.
The Barbary Coast. The Barbary Coast is located at the corner of Las Vegas
Boulevard and Flamingo Road, one of the busiest intersections on the Strip,
along with Caesars Palace, Bally's Las Vegas and Bellagio. Historically, the
Barbary Coast has relied on foot traffic on the Las Vegas Strip for a
significant amount of its revenues. As a result, the Barbary Coast's customer
base is primarily visitors to the Las Vegas area. In addition to its favorable
location on the Strip, the Barbary Coast has also benefited from its more
intimate gaming atmosphere, allowing it to develop a loyal base of table game
and slot customers. The Barbary Coast features 197 spacious hotel rooms and
suites, an approximately 30,000 square foot casino, race and sports books, three
bars and three restaurants, including two award-winning gourmet restaurants,
Michael's and Drai's on the Strip.
The Suncoast. We are currently designing and developing the Suncoast to
expand our presence in the growing Las Vegas locals market. The Suncoast will
serve one of the fastest growing areas of the Las Vegas valley and will be
located on approximately 50 acres in Peccole Ranch, a master-planned community
adjacent to Summerlin. We are designing the Suncoast with a Mediterranean theme.
It is expected to include an approximately 78,000 square foot casino, 232 hotel
rooms with an average size of approximately 550 square feet, approximately
15,000 square feet of banquet and meeting facilities, 16 "stadium seating" movie
theaters, four full-service restaurants and approximately 3,400 parking spaces.
We have an estimated construction and development budget of approximately $150.0
million and, subject to obtaining financing, we expect construction to begin in
mid-1999. We have assembled a construction team with substantial experience in
the development and construction of hotel-casinos in Las Vegas and with whom we
have worked successfully in the past, including J.A. Tiberti Construction Co.,
Inc. and Yates-Silverman, Inc.
FINANCING PLANS FOR THE SUNCOAST
We do not yet have financing in place to fund the construction of the
Suncoast. Our credit facility contains a provision that allows us to increase,
with lender approval, the available borrowing capacity under the facility to up
to $200.0 million. We intend to use this increased capacity in part to finance
the construction of the Suncoast. The increase in the facility remains subject
to a number of contingencies, including lender approval and the negotiation of
additional terms relating to the construction. We cannot assure you that we will
be able to obtain the increase in the credit facility or that it will be
available on acceptable terms. See "Description of Our Other Indebtedness."
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We are a Nevada corporation and a wholly owned subsidiary of Coast Resorts,
Inc. Our principal executive offices are located at 4500 West Tropicana Avenue,
Las Vegas, NV 89103, and our telephone number is (702) 365-7000. You may obtain
additional information about us at our website, www.coastcasinos.com.
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THE EXCHANGE OFFER
The Exchange Offer........... Up to $175,000,000 aggregate principal amount of
exchange notes registered under the Securities
Act are being offered in exchange for the same
principal amount of the outstanding notes. The
terms of the exchange notes and the outstanding
notes are substantially identical. Outstanding
notes may be tendered for exchange in whole or
in part in any integral multiple of $1,000. We
are making the exchange offer in order to
satisfy our and Coast Resorts' obligations under
the registration rights agreement relating to
the outstanding notes. For a description of the
procedures for tendering the outstanding notes,
see "The Exchange Offer -- Procedures for
Tendering Outstanding Notes."
Expiration Date.............. 5:00 p.m., New York City time, July 21, 1999,
unless the exchange offer is extended, in which
case the expiration date will be the latest date
and time to which the exchange offer is
extended. See "The Exchange Offer -- Terms of
the Exchange Offer."
Conditions to the Exchange
Offer...................... The exchange offer is subject to customary
conditions described under "The Exchange
Offer -- Conditions to the Offer," some of which
we may waive in our sole discretion. The
exchange offer is not conditioned upon any
minimum principal amount of outstanding notes
being tendered. We reserve the right in our sole
and absolute discretion, subject to applicable
law, at any time and from time to time:
- to delay the acceptance of the outstanding
notes for exchange,
- to terminate the exchange offer if one or more
specific conditions have not been satisfied,
- to extend the expiration date of the exchange
offer and retain all outstanding notes
tendered pursuant to the exchange offer,
subject, however, to the right of holders of
outstanding notes to withdraw their tendered
outstanding notes, or
- to waive any condition or otherwise amend the
terms of the exchange offer in any respect.
See "The Exchange Offer -- Terms of the
Exchange Offer."
Withdrawal Rights............ Tenders of outstanding notes may be withdrawn at
any time on or prior to the expiration date by
delivering a written notice of withdrawal to the
exchange agent in conformity with the procedures
discussed under "The Exchange
Offer -- Withdrawal of Tenders."
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Procedures for Tendering
Outstanding Notes.......... Unless tendering by book-entry transfer,
tendering holders of outstanding notes must
complete and sign a letter of transmittal in
accordance with the instructions contained in
the letter of transmittal. Tendering holders
must forward the completed letter of transmittal
by mail, facsimile or hand delivery, together
with any other required documents, to the
exchange agent, or must submit to the exchange
agent the outstanding notes you are tendering or
comply with the specified procedures for
guaranteed delivery of outstanding notes.
Brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer, in which case an
Agent's Message must be delivered to the
exchange agent in lieu of delivery of a letter
of transmittal. If your outstanding notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee,
we urge you to contact your nominee holder
promptly if you wish to tender outstanding notes
pursuant to the exchange offer. See "The
Exchange Offer--Procedures for Tendering
Outstanding Notes."
Letters of transmittal and certificates
representing outstanding notes should not be
sent to us or to Coast Resorts. Those documents
should be sent only to the exchange agent. The
address, and telephone and facsimile number, of
the exchange agent are set forth in "The
Exchange Offer -- Exchange Agent" and in the
letter of transmittal.
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes............. Upon consummation of the exchange offer, we will
accept any and all outstanding notes that are
properly tendered in the exchange offer and not
withdrawn prior to 5:00 p.m., New York City
time, on the expiration date. The exchange notes
issued pursuant to the exchange offer will be
delivered promptly after acceptance of the
outstanding notes. See "The Exchange
Offer -- Terms of the Exchange Offer."
Resales of Exchange Notes.... We believe that you will be able to offer for
resale, resell or otherwise transfer exchange
notes issued in the exchange offer without
compliance with the registration and prospectus
delivery provisions of the federal securities
laws, provided that:
- you are not a broker-dealer;
- you are not participating in a distribution of
the exchange notes; and
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- you are not an "affiliate" of Coast Hotels and
Casinos, Inc., as the term is defined in Rule
144A under the Securities Act of 1933.
Our belief is based on interpretations by the
staff of the Commission, as set forth in
no-action letters issued to third parties
unrelated to us. The staff has not considered
this exchange offer in the context of a
no-action letter, and we cannot assure you that
the staff would make a similar determination
with respect to this exchange offer.
If our belief is not accurate and you transfer
an exchange note without delivering a prospectus
meeting the requirements of the federal
securities laws or without an exemption from
these laws, you may incur liability under the
federal securities laws. We do not and will not
assume, or indemnify you against, this
liability.
Each broker-dealer that receives exchange notes
for its own account in exchange for outstanding
notes which were acquired by the broker-dealer
as a result of market-making or other trading
activities must agree to deliver a prospectus
meeting the requirements of the federal
securities laws in connection with any resale of
the exchange notes. See "The Exchange Offer --
Resales of the Exchange Notes."
Exchange Agent............... The exchange agent with respect to the exchange
offer is Firstar Bank of Minnesota, N.A. The
address, and telephone and facsimile numbers, of
the exchange agent are set forth in "The
Exchange Offer -- Exchange Agent" and in the
letter of transmittal.
Use of Proceeds.............. Neither we nor Coast Resorts will receive any
cash proceeds from the issuance of the exchange
notes offered hereby.
Certain United States Federal
Income Tax
Considerations............. You should review the information set forth
under "Material Federal Tax Considerations"
prior to tendering outstanding notes in the
exchange offer.
TERMS OF THE EXCHANGE NOTES
The exchange offer applies to an aggregate principal amount of $175,000,000
of the outstanding notes. The form and terms of the exchange notes will be
identical in all material respects to the form and terms of the outstanding
notes, except:
- The exchange notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer;
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- holders of the exchange notes will not be entitled to any liquidated
damages under the registration rights agreement relating to the
outstanding notes; and
- holders of the exchange notes will not be, and upon consummation of the
exchange offer, holders of the outstanding notes will no longer be,
entitled to specific rights under the registration rights agreement for
the outstanding notes intended for the holders of unregistered
securities.
The exchange notes will be our obligations entitled to the benefits of the
indenture. See "Description of the Exchange Notes."
Exchange Notes Offered....... $175.0 million aggregate principal amount of
9 1/2% Senior Subordinated Notes Due 2009.
Maturity..................... April 1, 2009.
Interest..................... Interest on the exchange notes is payable
semi-annually in cash on April 1 and October 1
of each year, commencing October 1, 1999. For a
description of the requirement to offer to
exchange the exchange notes and the possible
effect on the interest rate, see "Description of
the Exchange Notes -- Registration Rights."
Optional Redemption.......... The exchange notes are redeemable, at our
option, in whole or in part, at any time on or
after April 1, 2004, initially at 104.75% of
their principal amount, plus accrued interest
and declining ratably to 100% of their principal
amount, plus accrued interest, on or after April
1, 2007.
In addition, at any time and from time to time
before April 1, 2002, we may redeem up to 35% of
the principal amount of the exchange notes with
the proceeds of one or more sales of our capital
stock or of a capital contribution to us by
Coast Resorts of the proceeds of a public
offering of its capital stock, at a redemption
price of 109.50% of their principal amount, plus
accrued interest. We may complete these
redemptions only if at least $113.75 million
aggregate principal amount of exchange notes
remains outstanding after each redemption,
excluding exchange notes held by us or Coast
Resorts, and such redemption occurs within 45
days of the date of the closing of the sale of
capital stock. See "Description of the Exchange
Notes -- Optional Redemption."
Gaming Redemption............ If any state, federal or local body having
authority to regulate our gaming operations
notifies a holder or beneficial owner of the
exchange notes that the holder or owner must
obtain a license, qualification or finding of
suitability under an applicable gaming law and
either the person does not apply for the
license, qualification or finding of suitability
within 30 days or any shorter period
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required by the gaming authority or the person
will not be licensed, qualified or found
suitable under an applicable gaming law, then we
may require the person to dispose of its
exchange notes within a specified period of time
or redeem the person's exchange notes at a price
equal to 100% of the principal amount thereof,
plus accrued interest. See "Description of the
Exchange Notes -- Gaming Redemption."
Change of Control............ Upon the occurrence of a change of control, you
may require us to purchase your exchange notes
at 101% of the principal amount plus accrued
interest, if any. We cannot assure you that we
will have the financial resources necessary to
purchase the exchange notes at the time of the
change of control. The covenant requiring us to
repurchase the exchange notes upon a change of
control requires us to repay all senior
indebtedness, including indebtedness under our
credit facility, before we repurchase the
exchange notes. See "Description of the Exchange
Notes -- Repurchase of Notes upon a Change of
Control."
Parent and Subsidiary
Guarantees................. The exchange notes will be guaranteed on a
senior subordinated basis by our parent, Coast
Resorts, and by our future subsidiaries, if any,
that at any time have a fair market value of
more than $250,000. See "The Description of the
Exchange Notes -- Parent Guarantee and
Subsidiary Guarantee."
Ranking...................... The exchange notes are our unsecured, senior
subordinated indebtedness and are subordinated
to all our senior indebtedness, including
borrowings under our credit facility. The Coast
Resorts guarantee is subordinated in right of
payment to all its existing and future senior
indebtedness. The credit facility provides us
with $75.0 million of total borrowing
availability, all of which constitutes senior
indebtedness. At March 31, 1999, we had
approximately $64.8 million of senior
indebtedness, including approximately $47
million of borrowings outstanding under the
credit facility. As of that date, Coast Resorts
was obligated as guarantor of borrowings under
the credit facility. Coast Resorts' guarantee of
borrowings under the credit facility constitutes
senior indebtedness. See "Risk
Factors -- Leverage."
Basic Covenants of the
Indenture.................. The terms of the outstanding notes do, and of
the exchange notes will, restrict our ability
to, among other things:
- borrow money;
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- pay dividends or make distributions of our
stock;
- make investments;
- create liens;
- enter into transactions with affiliates;
- sell assets; and
- merge, consolidate or sell substantially all
of our assets.
RISK FACTORS
See "Risk Factors" for a discussion of factors that should be considered
with respect to an investment in the exchange notes.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
You should read the following selected historical and pro forma financial
and operating information in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes included elsewhere in this prospectus. The income
statement data for each of the five years ended December 31, 1998 and the
balance sheet data as of December 31, 1998 are derived from our financial
statements which have been audited by PricewaterhouseCoopers. The income
statement data for the three months ended March 31, 1998 and 1999 and the
balance sheet data as of March 31, 1999 have been derived from our unaudited
financial statements. In the opinion of management, the unaudited financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the information contained in those
financial statements. The results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for any other
interim period or for the full year.
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ------------------
1994 1995 1996(1) 1997 1998 1998 1999
-------- -------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT RATIO DATA)
STATEMENTS OF INCOME DATA:
Net revenues.......................................... $172,573 $174,756 $195,987 $293,883 $332,363 $81,014 $ 90,066
Departmental operating expenses(2).................... 118,697 118,534 121,628 197,200 209,104 50,785 52,832
General and administrative expenses................... 29,271 30,405 37,992 54,351 55,879 13,148 14,315
Guaranteed payments to former partners(3)............. 2,672 858 -- -- -- -- --
Land leases........................................... -- -- -- 2,100 3,190 525 1,110
Deferred (non-cash) rent.............................. -- -- -- 2,378 3,198 594 964
Pre-opening expenses.................................. -- -- 7,125 -- -- -- --
Depreciation and amortization......................... 6,766 7,280 7,883 18,278 20,607 4,881 5,210
-------- -------- -------- -------- -------- ------- --------
Operating income...................................... 15,167 17,679 21,359 19,576 40,385 11,081 15,635
Interest expense, net(4).............................. (227) (3,545) (9,981) (25,228) (26,570) (6,663) (6,299)
Other income.......................................... 23 92 58 919 168 25 --
-------- -------- -------- -------- -------- ------- --------
Net income (loss) before income taxes and
extraordinary item.................................. 14,963 14,226 11,436 (4,733) 13,983 4,443 9,336
Provision (benefit) for income taxes(5)............... -- -- 6,617 (1,401) 5,225 1,625 3,013
-------- -------- -------- -------- -------- ------- --------
Net income (loss) before extraordinary item........... 14,963 14,226 4,819 (3,332) 8,758 2,818 6,323
Extraordinary item -- loss on early retirement of
debt, net of applicable income tax benefit
($14,543)........................................... -- -- -- -- -- -- (27,007)
-------- -------- -------- -------- -------- ------- --------
Net income (loss)..................................... $ 14,963 $ 14,226 $ 4,819 $ (3,332) $ 8,758 $ 2,818 $(20,684)
======== ======== ======== ======== ======== ======= ========
OTHER DATA:
EBITDA(6)............................................. $ 21,933 $ 24,959 $ 36,367 $ 40,232 $ 64,190 $16,556 $ 21,809
Capital expenditures.................................. 5,514 32,187 125,722 57,736 15,492 4,794 6,532
Cash provided by operating activities................. 22,572 22,841 27,033 16,046 39,258 13,661 12,627
Cash used in investing activities..................... (5,509) (31,968) (125,702) (56,666) (15,324) (4,769) (6,532)
Cash provided by (used in) financing activities....... (14,884) 6,699 145,685 8,491 (11,765) (2,076) (11,993)
Ratio of total debt to EBITDA......................... 0.7x 3.4x 5.6x 5.4x 3.2x 12.9x 11.1x
Ratio of EBITDA to interest expense................... 63.6x 6.4x 1.6x 1.5x 2.3x 2.4x 3.3x
Ratio of earnings to fixed charges(7)................. 33.4x 4.0x 1.1x -- 1.5x 1.6x 2.3x
PRO FORMA DATA(8):
Pro forma ratio of total debt to EBITDA............... 3.8x 11.1x
Pro forma ratio of EBITDA to interest expense......... 2.9x 4.2x
Pro forma ratio of earnings to fixed charges.......... 1.8x 2.8x
AS OF DECEMBER 31, AS OF MARCH 31,
1998 1999
------------------ ---------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 41,595 $ 35,697
Total assets.............................................. 367,034 372,314
Total debt................................................ 207,859 241,798
Stockholder's equity...................................... 102,918 82,234
See footnotes on following page
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OPERATING DATA:
AS OF MARCH 31, 1999
-------------------------------------------------------------
CASINO SLOTS AND
PROPERTY HOTEL ROOMS SQUARE FOOTAGE VIDEO POKER GAMING TABLES
-------- ----------- -------------- ----------- -------------
The Orleans............................................... 840 100,000 2,241 54
Gold Coast................................................ 712 70,000 2,050 48
Barbary Coast............................................. 197 30,000 600 50
- -------------------------
(1) The Orleans opened in December 1996.
(2) Includes casino, food and beverage, hotel and other expenses.
(3) Prior to our formation in 1995, the Gold Coast and the Barbary Coast were
operated by two affiliated partnerships which were consolidated into Coast
Hotels and Casinos and Coast Resorts effective January 1, 1996. The
partnership agreements for those partnerships required that guaranteed
payments be made to the partners.
(4) Includes interest income of $118,000 (1994), $106,000 (1995), $4,791,000
(1996), $98,000 (1997) and $695,000 (1998) and capitalized interest of $0
(1994), $235,000 (1995), $7,464,000 (1996), $1,016,000 (1997) and $58,000
(1998). Interest income for the three months ended March 31, 1998 and March
31, 1999 was $101,000 and $215,000, respectively. There was no capitalized
interest for the three months ended March 31, 1998 and March 31, 1999.
(5) The partnerships described in footnote 3 were not subject to federal income
taxes. We are a "C corporation" and, therefore, are subject to federal
income taxes. If these partnerships had been taxed as C corporations from
formation, they would have had combined income tax expense of $5,251,000
(1994), $4,979,000 (1995) and $4,117,000 (1996).
(6) "EBITDA" means earnings before interest, taxes, depreciation, amortization,
deferred (non-cash) rent expense and certain non-recurring items, including
pre-opening expenses. EBITDA should not be construed as an alternative to
operating income or net income (as determined in accordance with generally
accepted accounting principles) as an indicator of our company's operating
performance, or as an alternative to cash flows generated by operating,
investing and financing activities (as determined in accordance with
generally accepted accounting principles) as an indicator of cash flows or a
measure of liquidity. EBITDA is presented solely as supplemental disclosure
because management believes that it is a widely used measure of operating
performance in the gaming industry. All companies do not calculate EBITDA in
the same manner. As a result, EBITDA as presented here may not be comparable
to the similarly titled measures presented by other companies. The
computation of EBITDA for each of the respective periods shown is as
follows:
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1994 1995 1996(1) 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
Income (loss) before income taxes and extraordinary
item............................................... $14,963 $14,226 $11,436 $(4,733) $13,983 $ 4,443 $ 9,336
Add back:
Interest expense, net................................ 227 3,545 9,981 25,228 26,570 6,663 6,299
Depreciation and amortization........................ 6,766 7,280 7,883 18,278 20,607 4,881 5,210
Deferred (non-cash) rent expense..................... -- -- -- 2,378 3,198 594 964
Pre-opening expenses................................. -- -- 7,125 -- -- -- --
Non-recurring items (gain on equipment disposals).... (23) (92) (58) (919) (168) (25) --
------- ------- ------- ------- ------- ------- -------
EBITDA............................................... $21,933 $24,959 $36,367 $40,232 $64,190 $16,556 $21,809
======= ======= ======= ======= ======= ======= =======
(7) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represent income before provision for income taxes and
extraordinary items, amortization of capitalized interest, and
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fixed charges less interest capitalized. "Fixed charges" consist of interest
expense, whether expensed or capitalized, amortization of debt financing
costs, and one-third of lease expense, which management believes is
representative of the interest component of lease expense (primarily
comprised of rent expense associated with The Orleans land lease). For
fiscal year 1997, earnings were insufficient to cover fixed charges by
$5,531,000. Accordingly, the ratio for that year has not been presented.
(8) The pro forma data for the year ended December 31, 1998 and the three months
ended March 31, 1999 give effect to the offering of the outstanding notes,
borrowings of $47 million under the credit facility, and the repurchase of
substantially all of the 13% first mortgage notes and all of the 10 7/8%
first mortgage notes. The pro forma data assume that these transactions
occurred on January 1, 1998 in the case of the year ended December 31, 1998,
and on January 1, 1999 in the case of the three months ended March 31, 1999,
and reflect a net reduction in interest expense and amortization of debt
issue costs.
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RISK FACTORS
You should carefully consider the following factors in addition to the
other information contained in this prospectus in connection with your
investment in the outstanding notes and exchange notes.
SUBSTANTIAL INDEBTEDNESS -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT
OUR FINANCIAL CONDITION AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE
EXCHANGE NOTES.
We have a substantial amount of indebtedness. The following table shows
important credit statistics. The amounts reflect our refinancing by repurchasing
our 10 7/8% first mortgage notes and substantially all of our 13% first mortgage
notes, borrowing $47.0 million under our credit facility and completing the
offering of the outstanding notes as of the date specified below:
AS OF
MARCH 31, 1999
------------------
(IN THOUSANDS,
EXCEPT RATIO DATA)
Total indebtedness.......................................... $241,798
Stockholder's equity........................................ 82,234
Debt to equity ratio........................................ 2.9x
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
-------------------- --------------------
ACTUAL AS ADJUSTED ACTUAL AS ADJUSTED
------ ----------- ------ -----------
Ratio of earnings to fixed charges......... 1.5x 1.8x 2.3x 2.8x
In addition, we expect to seek to increase the maximum borrowing
availability under the credit facility from $75.0 million to $200.0 million. We
plan to use the additional amount available to finance the construction of the
Suncoast and capital improvements and expansions to our existing properties and
to provide for other corporate purposes. See "Description of Our Indebtedness."
We may not be able to increase availability under the credit facility in this
manner because the increase is subject to a number of conditions, including
lender approval. Assuming that as of January 1, 1999 we had amended the credit
facility and had made borrowings of an additional $146.0 million in connection
with the construction of the Suncoast, the credit statistics set forth above as
of March 31, 1999 and for the three months ended March 31, 1999 would have been
as follows: Total indebtedness -- $387.8 million, Stockholder's equity -- $82.2
million, Debt to equity ratio -- 4.7x, and Ratio of earnings to fixed
charges -- 1.8x.
The indenture for the outstanding and exchange notes also allows us to
borrow a significant amount of additional money. See "Description of the
Exchange Notes -- Certain Covenants."
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to pay our debts, including these notes;
- increase our vulnerability to economic and industry conditions;
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- require us to dedicate a substantial portion of our cash flow to payments
on our indebtedness, thereby reducing amounts available for working
capital, capital expenditures, property development costs and other
general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit our ability to borrow additional funds.
See "Description of Our Other Indebtedness."
ADDITIONAL BORROWINGS AVAILABLE -- DESPITE OUR SIGNIFICANT INDEBTEDNESS, WE MAY
STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE
THE RISKS DESCRIBED ABOVE.
The terms of the indenture permit us to amend the credit facility to
increase the borrowing capacity available under the credit facility to up to
$200.0 million. This money may be used to provide for construction financing for
the Suncoast, capital improvements and expansions to existing properties,
working capital and general corporate purposes. The increase in availability is
subject to a number of contingencies including lender approval and the
negotiation of additional terms relating to the construction. All borrowings
under the credit facility will be senior to the exchange notes. In addition to
amounts that may be borrowed under the credit facility, the indenture also
allows us to borrow money for capital improvements and expansions to existing
properties. If new debt is added to our current debt levels, the related risks
that we now face could intensify.
See "Capitalization," "Selected Historical Financial Data," "Description of
Our Other Indebtedness" and "Description of the Exchange Notes."
ABILITY TO SERVICE DEBT AND LIQUIDITY -- WE WILL REQUIRE A SIGNIFICANT AMOUNT OF
CASH TO SERVICE OUR INDEBTEDNESS. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY
FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our debt, including the
exchange notes and the credit facility, and to fund planned capital expenditures
and possible expansions will depend on our ability to generate cash in the
future. This is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control.
We cannot assure you that our business will generate sufficient cash flow
or that future borrowings will be available to us in an amount sufficient to
enable us to pay our indebtedness, including the exchange notes, or to fund our
other liquidity needs. We may need to refinance all or a portion of our
indebtedness, including the exchange notes and the credit facility, on or before
maturity. We cannot assure you that we will be able to refinance any of our
indebtedness on commercially reasonable terms or at all.
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SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES WILL BE
JUNIOR TO THE CREDIT FACILITY AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. COAST
RESORTS' GUARANTEE OF THE EXCHANGE NOTES WILL BE JUNIOR TO ALL OF ITS
INDEBTEDNESS AND POSSIBLY TO ALL OF ITS FUTURE BORROWINGS.
The exchange notes will be junior to all of our existing and future
indebtedness, other than trade payables and any future indebtedness that
expressly provides that it ranks equal with, or subordinated in right of payment
to, the exchange notes. Coast Resorts' guarantee will be junior to all of its
existing and future indebtedness, other than trade payables and any future
indebtedness that expressly provides that it ranks equal with, or subordinated
in right of payment to, the guarantee. As a result, upon any distribution to our
creditors in a bankruptcy, liquidation, reorganization or similar proceeding,
the holders of senior debt of our company will be entitled to be paid in full
before any payment will be made on the exchange notes. In addition, upon any
distribution to the creditors of Coast Resorts in a bankruptcy, liquidation,
reorganization or similar proceeding, the holders of senior debt of Coast
Resorts will be entitled to be paid in full before any payment will be made on
the guarantee.
In addition, all payments on the exchange notes and the guarantee will be
blocked in the event of a payment default under the credit facility or other
senior debt with a principal amount of $20.0 million or more. Payments may also
be blocked for up to 179 of 360 consecutive days in the event of certain
non-payment defaults on such senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or Coast Resorts, holders of the exchange notes will
participate with trade creditors and all other holders of our or Coast Resorts'
subordinated indebtedness in the assets remaining after we and Coast Resorts
have paid all of the senior debt. However, because the indenture requires that
amounts otherwise payable to holders of the exchange notes in a bankruptcy or
similar proceeding be paid to holders of senior debt instead, holders of the
exchange notes may receive less, ratably, than holders of trade payables. In any
of these cases, holders of exchange notes may not be paid in full.
At March 31, 1999, the exchange notes were subordinated to $64.8 million of
our senior debt, and approximately $28.0 million was available for borrowing as
additional senior debt under our credit facility. Also, the Coast Resorts
guarantee was subordinated to Coast Resorts' guarantee of amounts outstanding
under the credit facility. The indenture allows us to borrow substantial
additional indebtedness in the future, including senior debt. As noted above, we
intend to fund substantially all the construction cost of the Suncoast and
capital improvements to existing properties with borrowings under the proposed
amended credit facility or otherwise, all of which will be senior debt.
ENCUMBRANCES ON ASSETS -- IN ADDITION TO THE EXCHANGE NOTES BEING JUNIOR TO THE
CREDIT FACILITY AND POSSIBLY ALL OF OUR FUTURE BORROWINGS, THE EXCHANGE NOTES
WILL NOT BE SECURED BY ANY OF OUR ASSETS. FURTHER, OUR ASSETS SECURE THE CREDIT
FACILITY AND MAY POSSIBLY SECURE OTHER DEBT.
In addition to being subordinated to all of our existing and future
indebtedness, other than trade payables and any future indebtedness that
expressly provides that it ranks equal with, or subordinated in right of payment
to, the exchange notes, the exchange notes will not be secured by any of our or
Coast Resorts' assets. Our obligations under the credit facility are secured by
liens on substantially all of our assets, and the Coast Resorts guarantee is
secured by a pledge of our common stock. If we become insolvent or are
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liquidated, or if payment under the credit facility or another secured
obligation is accelerated, the lenders under the credit facility or the obligees
with respect to the other secured obligations will be entitled to exercise the
remedies available to a secured lender under applicable law and the relevant
agreements and instruments. This means that these lenders will have a prior
claim on our assets and there may not be sufficient assets remaining to pay
amounts due on the exchange notes then outstanding.
RESTRICTIVE LOAN COVENANTS -- RESTRICTIVE COVENANTS IN THE CREDIT FACILITY AND
THE INDENTURE MAY RESTRICT OUR ABILITY TO PURSUE OUR BUSINESS STRATEGIES. OUR
ABILITY TO COMPLY WITH THESE RESTRICTIONS DEPENDS ON MANY FACTORS BEYOND OUR
CONTROL.
The credit facility and the indenture include certain covenants that, among
other things, restrict our ability to:
- borrow money, including a covenant in the indenture that restricts our
ability to borrow money to finance the Suncoast if the lenders under the
credit facility decline to increase the amount available under it from
$75.0 million to $200.0 million to cover construction costs;
- pay dividends or make distributions on our stock;
- make investments;
- create liens;
- enter into transactions with affiliates;
- sell assets;
- merge, consolidate and sell substantially all of our assets; and
- make capital expenditures.
We are also required by the credit facility to maintain specific financial
ratios, including maximum debt to EBITDA ratios and minimum fixed charge
coverage ratios. All of these restrictive covenants may restrict our ability to
expand or to pursue our business strategies, including building the Suncoast and
refurbishing or expanding our existing casinos.
Our ability to comply with these and other provisions of the indenture and
the credit facility may be affected by:
- changes in the estimated budget for the Suncoast;
- potential cost overruns on the Suncoast;
- changes in business conditions or results of operations;
- adverse regulatory developments; or
- other events beyond our control.
The breach of any of these covenants could result in a default under our
indebtedness, which could cause those obligations to become due and payable. If
we default, we could be prohibited from making payments with respect to the
exchange notes until the default is cured or all indebtedness under the credit
facility or other senior debt is paid in full. If our
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indebtedness were to be accelerated, we cannot assure you that we would be able
to repay it.
MANAGEMENT OF GROWTH -- WE MAY FACE UNFORESEEN DIFFICULTIES DURING THE
DEVELOPMENT, CONSTRUCTION AND OPENING OF THE SUNCOAST THAT MAY ADVERSELY AFFECT
OUR ABILITY TO MANAGE OUR GROWTH AND EXPECT TO FACE INTENSIFIED COMPETITION IN
HIRING AND RETAINING QUALIFIED PERSONNEL.
We may encounter unforeseen difficulties developing, constructing and
opening the Suncoast while simultaneously operating our three existing
hotel-casinos. Presently, a relatively small number of our executives are
responsible for many management duties. These difficulties may require
disproportionate amounts of their time and attention as well as the unexpected
allocation of financial and other resources. This could adversely affect
operating results at our existing hotel-casinos. In addition, if one or more
members of our group of executives, including Michael J. Gaughan, our Chairman
of the Board and Chief Executive Officer, cease to be our employees, the
management and performance of our company and our ability to make payments on
the exchange notes may be adversely affected.
To open the Suncoast, complete our scheduled capital improvements and
manage our future growth, we will need to, among other things, hire and train
new personnel and evaluate and possibly change our management structure.
Competition for new personnel in Las Vegas is intense and we cannot assure you
that in the future we will be able to attract and retain qualified personnel.
The explosive growth of mega-resorts on the Strip in Las Vegas has intensified
competition for qualified casino employees and made it more difficult for us to
retain trained, quality casino employees. We expect this difficulty to continue
with the opening of additional large hotel-casinos on the Strip over the next
several years.
DEVELOPMENT OF THE SUNCOAST -- WE FACE SIGNIFICANT RISKS AND UNCERTAINTIES IN
FINANCING AND DEVELOPING THE SUNCOAST, WHICH COULD SIGNIFICANTLY AFFECT OUR
BUSINESS STRATEGY AND OUR ABILITY TO MEET OUR FINANCIAL OBLIGATIONS.
Risks of Inability to Finance the Suncoast. We do not yet have financing in
place to fund the construction of the Suncoast. Our credit facility and the
indenture allow us to increase, with lender approval, the available borrowing
capacity under the facility to up to $200.0 million. We intend to use this
increased capacity to finance the construction of the Suncoast. The increase in
the facility remains subject to a number of contingencies, including lender
consent and the negotiation of additional terms relating to the construction. We
cannot assure you that we will be able to obtain the increase in the credit
facility or that it will be available on acceptable terms. If we cannot amend
the credit facility or obtain timely alternative financing on acceptable terms,
we may not be able to develop, construct and open the Suncoast, which could
adversely impact our future operating results. See "Description of Our Other
Indebtedness."
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Risks of Delays and Cost Overruns. A key element of our business strategy
is the development and construction of the Suncoast. Subject to obtaining
financing, we currently anticipate beginning construction of the Suncoast in
mid-1999. Based on current construction schedules, we expect that the Suncoast
will be completed and be open for business in the second half of 2000. In
building and developing the Suncoast, we face significant risks and
uncertainties, including:
- general construction risks, including cost overruns, shortages of
materials or skilled labor, labor disputes, unforeseen environmental or
engineering problems, work stoppages, fire and other natural disasters,
construction scheduling problems and weather interferences;
- change orders and plan or specification modifications;
- changes and concessions required by governmental or regulatory
authorities; and
- delays in obtaining or inability to obtain all licenses, permits and
authorizations required to open the Suncoast.
Costs and delays due to any of the above factors, or any other factor,
could significantly affect our business strategy, operating results and ability
to fulfill our financial obligations, including our obligations under the
exchange notes. We cannot assure you that the Suncoast will ever become
operational or become operational within time frames and budgets currently
contemplated. See "Business -- The Suncoast."
Risk that Suncoast Budget will be Exceeded. Our estimated budget for the
Suncoast is approximately $150.0 million, including contingencies of
approximately $4.5 million, but excluding pre-opening costs, opening bankroll
and capitalized interest costs of approximately $8.1 million. We cannot
guarantee that the Suncoast can be developed within our current estimated budget
or that our plans to develop the Suncoast will not change significantly.
We expect that, prior to beginning construction of the Suncoast, we will
enter into a guaranteed maximum price construction contract with the general
contractor of the Suncoast, J.A. Tiberti Construction Co., Inc.. We cannot
assure you that Tiberti Construction will have the financial resources to fund
any significant cost overruns in excess of the guaranteed maximum contract
price. J. Tito Tiberti, a director and stockholder of Coast Resorts and a
director of Coast Hotels and Casinos, is the president, a director and
stockholder of Tiberti Construction. Mr. Tiberti, together with his immediate
family, control Tiberti Construction. Mr. Tiberti could have a potential
conflict of interest with us with respect to construction issues. See
"-- Control of Coast Resorts by Principal Stockholder" and "Certain
Transactions."
COMPETITION -- COMPETITION IN THE GAMING INDUSTRY MAY INTENSIFY FURTHER AS
GAMING CAPACITY IN THE MARKETPLACE IS INCREASED AND NEW COMPETITORS EMERGE. THIS
INCREASED COMPETITION COULD ADVERSELY AFFECT OUR BUSINESS AND OUR ABILITY TO
MEET OUR OBLIGATIONS UNDER THE EXCHANGE NOTES.
There is intense competition among companies in the gaming industry. The
Orleans and the Gold Coast compete, and when completed the Suncoast will
compete, primarily with Las Vegas hotel-casinos and non-hotel gaming facilities
which target local residents. Some of these competitors have recently completed
expansions or new projects. In addition, there are currently gaming facilities
that have been announced or are under
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construction in the immediate vicinity of our casinos. A hotel-casino has been
proposed for a location adjacent to the Gold Coast. Additionally, adjacent to
the Suncoast site, a luxury hotel-casino and spa called The Resort at Summerlin
is expected to open in the third quarter of 1999 and is anticipated to include a
50,000 square foot gaming facility and over 500 hotel rooms. Furthermore, there
are several undeveloped properties in the immediate vicinity of The Orleans, the
Gold Coast and the location of the Suncoast on which new gaming facilities could
be built. The construction of new properties and the expansion or enhancement of
existing properties near our casinos could have a negative impact on our
business.
In contrast to our other casinos, the Barbary Coast competes for customers
primarily with the hotel-casinos located on the Strip. Several large
hotel-casinos have either recently opened or are under construction on the
Strip, including Bellagio, Mandalay Bay, The Venetian, Paris and Aladdin. The
construction of new properties and the expansion or enhancement of existing
properties on the Strip by competitors could materially adversely affect the
Barbary Coast.
In addition, each of our properties competes, and when completed, the
Suncoast will compete, to a lesser extent with all other casinos and hotels in
the Las Vegas area. In addition to those mentioned above, several new
hotel-casino projects and expansions have been announced or are under
construction in Las Vegas. These projects and expansions will add substantial
additional gaming capacity and approximately 8,400 rooms to the Las Vegas area
by December 2000. This additional gaming and room capacity may have a negative
impact on our business.
We also compete with other legalized forms of gaming and gaming operations
in other parts of the state of Nevada and elsewhere. Some states have recently
legalized, and several other states are currently considering legalizing, casino
gaming in designated areas. We also face competition from casinos located on
Native American reservations. We believe that the development by Native
Americans and others of casino properties similar to those in Las Vegas in areas
close to Nevada, particularly California and Arizona, could have a material
adverse impact on our business and results of operations.
Gaming competition from Native American ventures in California may
intensify due to Proposition 5, a California ballot initiative passed by voters
in California on November 3, 1998. Proposition 5 permits Native American tribes
that enter into agreements with the State of California to conduct gaming
activities including operating gaming devices such as slot machines, banked card
games, horse race wagering and lotteries. Proposition 5 is subject to a legal
challenge and its enforcement has been blocked pending a decision by the
California Supreme Court. We are not certain when, or if, Proposition 5 will
become effective or how it will affect us. However, because visitors from
California make up Nevada's largest visitor market, if Proposition 5 is
implemented, increased competition from Native American gaming may cause a
decline in our revenues and may have a negative impact on our business.
DEPENDENCE ON CERTAIN MARKETS -- OUR HOTEL-CASINOS ARE HIGHLY DEPENDENT ON LOCAL
RESIDENTS OF THE LAS VEGAS AREA AND ON CUSTOMERS FROM OTHER PARTS OF NEVADA AND
SOUTHERN CALIFORNIA. WEAKER ECONOMIES IN THESE KEY AREAS COULD ADVERSELY AFFECT
OUR BUSINESS AND OUR ABILITY TO MEET OUR OBLIGATIONS UNDER THE EXCHANGE NOTES.
All of our hotel-casinos are located in Las Vegas and we believe that a
significant portion of our customers are Las Vegas residents. Although the
economy and population of
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Las Vegas have grown substantially, we cannot assure you that it will continue
to do so or that any growth will be at the same rate experienced in recent years
or will result in improved financial performance for us. We also depend upon and
draw a significant number of our customers from the rest of Nevada and Southern
California. Any economic downturn in the areas from which we draw our customers
could materially adversely affect our business and results of operations and our
ability to pay interest and principal on the exchange notes.
NEIGHBORHOOD CASINO ACT -- NEVADA LAW MAY RESTRICT OUR ABILITY TO DEVELOP AND
OPERATE THE SUNCOAST AND ANY FUTURE GAMING PROJECTS IN CLARK COUNTY.
Nevada's Senate Bill 208, also known as SB 208 and the Neighborhood Casino
Act, was enacted in 1997 and affects the development of our Suncoast location as
well as other potential locations for casinos targeting Las Vegas residents. The
Neighborhood Casino Act, among other things, imposes more stringent requirements
for approval of new hotel-casinos in Clark County that are not located in the
vicinity of the Strip or downtown Las Vegas. Sites that were designated a gaming
overlay or gaming enterprise district prior to December 31, 1998 and that
receive approval from the Nevada Gaming Commission for a nonrestricted gaming
license no later than December 31, 2002 will not be subject to the more
stringent requirements of the Neighborhood Casino Act.
The site on which the Suncoast will be constructed has been designated as a
gaming overlay or gaming enterprise district by the City of Las Vegas, which is
the zoning designation necessary to construct and operate a hotel-casino. We
must receive approval for a nonrestricted gaming license, which is generally not
available until immediately prior to beginning gaming operations, by December
31, 2002, or we will be required to successfully petition the City of Las Vegas
to designate the Suncoast site as a gaming overlay or gaming enterprise district
in order to obtain a nonrestricted gaming license pursuant to the more stringent
standards of SB 208. These and other restrictions may limit our ability to
develop and operate the Suncoast and any future development projects in Clark
County, including the land we own in North Las Vegas. See "Business --
Properties."
GUARANTEE -- COAST RESORTS' GUARANTEE OF THE EXCHANGE NOTES DOES NOT PROVIDE
SIGNIFICANT ADDITIONAL ASSURANCE OF PAYMENT TO THE HOLDERS OF THE EXCHANGE
NOTES.
The exchange notes are guaranteed on a senior subordinated basis by Coast
Resorts. Coast Resorts does not have any income from operations. Coast Resorts
has no material assets other than our stock. Coast Resorts is not expected to
generate income from operations or acquire additional assets in the near future
and no assurance can be given that it will ever do so. Accordingly, the
guarantee does not provide any significant additional assurance of payment to
the holders of the exchange notes.
Enforcement of the guarantee against Coast Resorts or any future guarantors
would be subject to certain defenses available to guarantors generally, and
would also be subject to defenses available to us regarding enforcement of the
exchange notes. These defenses include, without limitation, the right to force
the Trustee to exercise its remedies prior to commencement of any action on the
guarantee. Coast Resorts will waive, with respect to the exchange notes, all
defenses to the extent it may legally do so. See "Description of the Exchange
Notes -- Parent Guarantee and Subsidiary Guarantees."
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FRAUDULENT CONVEYANCE MATTERS -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN
PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, the guarantee could be voided, or claims in respect of
the guarantee could be subordinated to all other debts of the guarantor if,
among other things, the guarantor, at the time it incurred the indebtedness
evidenced by the guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of the guarantee and was insolvent or rendered insolvent
by reason of such incurrence;
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by the guarantor pursuant to the guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, the guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair salable value of all of its assets;
- if the present fair salable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
The indenture may require that future subsidiaries guarantee the exchange
notes. These considerations will also apply to these guarantees.
RISK ASSOCIATED WITH LEASED PROPERTY -- MOST OF OUR HOTEL-CASINOS ARE LOCATED ON
LEASED PROPERTY. IF WE DEFAULT ON ANY OF THESE LEASES, THE LESSOR COULD
TERMINATE THE LEASE AND WE MAY LOSE POSSESSION OF THE HOTEL-CASINO.
We lease the land on which The Orleans and the Barbary Coast are located
and the land on which the Suncoast will be developed. If we were to default on
any lease, the lessor could terminate the lease and we could lose possession of
the affected land and any improvements on the land, including the hotel-casinos.
This would have a significant negative impact on us as we would then be unable
to operate The Orleans, the Barbary Coast or the Suncoast. The land leases for
the Barbary Coast and the Suncoast are with non-related third parties. The land
lease for The Orleans is with The Tiberti Company, a related party. For a
description of the leases, see "Business -- Properties."
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GAMING REGULATION -- GAMING AUTHORITIES REQUIRE THAT WE RECEIVE AND CONTINUE TO
RECEIVE GAMING LICENSES AND OTHER APPROVALS IN ORDER TO CONDUCT GAMING
OPERATIONS. IN ORDER TO COMPLY WITH GAMING REGULATIONS, WE MAY REQUIRE CERTAIN
HOLDERS TO DISPOSE OF THEIR EXCHANGE NOTES BEFORE MATURITY.
Our gaming operations are subject to the licensing and regulatory control
of the Nevada Gaming Commission, the Nevada State Gaming Control Board and the
Clark County Liquor and Gaming Licensing Board. The Nevada Commission, the
Nevada Board and the Clark County Board are collectively referred to as the
Nevada gaming authorities. The Nevada gaming authorities have broad authority
regarding licensing and registration of entities and individuals involved in
gaming operations, including certain of our voting security holders. The Nevada
gaming authorities may, among other things, revoke the license of any entity
licensed as a gaming corporation or the registration of any entity registered as
a holding company of a gaming corporation, and they may also revoke the license
of any individual licensed as an officer, director, control person or
stockholder of a licensed or registered entity. If our gaming licenses were
revoked for any reason, the Nevada gaming authorities could require the closing
of any or all of our casinos, which would materially adversely affect our
business and results of operations. We and some of our officers, directors and
key employees have been licensed by the Nevada gaming authorities.
Prior to beginning gaming activities at the Suncoast, we must apply for and
obtain gaming licenses from the Nevada gaming authorities, in addition to
approvals from other applicable governmental or administrative state or local
agencies involved in the regulation of gaming and gaming activities in the State
of Nevada through the establishment of standards for construction, design, and
operational features of the casinos. We intend to apply for gaming licenses for
the Suncoast at the appropriate time before we begin operating the Suncoast.
We need not obtain any additional orders and approvals of the Nevada Gaming
Commission to complete this exchange offer because we obtained prior approval
from the Nevada Gaming Commission. However, if we intend to use the proceeds
from any future public offering of debt or equity securities to pay for
construction of, or to acquire an interest in, any gaming facilities in Nevada,
to finance the gaming operations of an affiliated company or to retire or extend
obligations incurred for any such purposes, we may be required to obtain prior
approval from the Nevada Gaming Commission.
Each holder of the exchange notes will be deemed to have agreed, to the
extent permitted by law, that if a relevant gaming authority determines that a
holder or beneficial owner of exchange notes must be found suitable under
applicable law, whether as a result of a foreclosure of our casinos or for any
other reason, and if such holder or beneficial owner is not found suitable, such
holder shall, upon our request, dispose of such holder's exchange notes within
30 days after receipt of such request or such earlier date as may be ordered by
the relevant gaming authority. We also will have the right to call for the
redemption of exchange notes held by any holder who is not found suitable at a
price equal to 100% of the principal amount thereof, plus accrued and unpaid
interest and additional interest, if any, thereon to the date of redemption or
such earlier date as may be required by the relevant gaming authority or
applicable law. See "Description of the Exchange Notes -- Gaming Redemption."
There is no established trading market for the exchange notes. Therefore,
the price at which a holder of exchange notes may be required to dispose of such
holder's exchange
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notes cannot be predicted. See "-- Absence of Public Market," "Nevada Regulation
and Licensing" and "Description of the Exchange Notes -- Gaming Redemption."
POTENTIAL INABILITY TO FUND A CHANGE OF CONTROL OFFER -- THE CREDIT FACILITY
PROHIBITS US FROM PURCHASING ANY EXCHANGE NOTES. FURTHER, WE MAY NOT HAVE
SUFFICIENT ASSETS TO SATISFY OUR OBLIGATIONS.
The indenture requires us to offer to repurchase the exchange notes upon
the occurrence of specific kinds of change of control events. Some important
corporate events that would increase the level of our indebtedness, such as
leveraged recapitalizations, would not constitute a change of control under the
indenture. The credit facility generally prohibits us from purchasing any
exchange notes and also provides that specific change of control events will be
a default under that agreement. Any future credit or other debt agreements to
which we become a party may contain similar restrictions and provisions. If a
change of control occurs at a time when we are prohibited from purchasing
exchange notes, we could seek the consent of our lenders to purchase the
exchange notes or we could attempt to refinance the debt that contains that
prohibition. However, we cannot assure you that we will be able to obtain lender
consent or refinance those borrowings. Even if such a consent were obtained or
the debt is refinanced, we cannot assure you that we would have the funds
necessary to repurchase the exchange notes. Our failure to purchase the exchange
notes would be a default under the indenture which would, in turn, be a default
under the credit facility and, potentially, other senior debt. If the senior
debt were to be accelerated, we may be unable to repay these amounts and make
the required repurchase of exchange notes.
CONTROL OF COAST RESORTS BY PRINCIPAL STOCKHOLDERS -- OUR PARENT COMPANY, COAST
RESORTS, IS CONTROLLED BY A SMALL GROUP OF INDIVIDUALS WHO HAVE THE ABILITY TO
CONTROL THE OUTCOME OF STOCKHOLDER VOTES.
Coast Resorts is the sole stockholder of our company. Michael J. Gaughan,
the Chairman of the Board and Chief Executive Officer of Coast Resorts and our
company, is the beneficial owner of approximately 30.4% of the outstanding
shares of Coast Resorts common stock. Mr. Gaughan, together with Jerry Herbst,
J. Tito Tiberti and Franklin Toti, each of whom is a director and/or officer of
Coast Resorts and our company, own in the aggregate approximately 62.1% of the
outstanding shares of Coast Resorts common stock. These individuals, if acting
together, would have the collective ability to elect all of the directors of
Coast Resorts and approve or disapprove any other matter submitted to a vote of
the stockholders of Coast Resorts. See "Certain Transactions" and "Principal
Stockholders."
Tiberti Construction is the general contractor for the Suncoast. Mr.
Tiberti is a stockholder, a director and the president of, and together with his
immediate family members controls Tiberti Construction. Potential conflicts of
interest between us and Tiberti Construction could arise as a result of Tiberti
Construction serving as the general contractor for the construction of the
Suncoast. Additionally, we lease the land on which The Orleans is located from
The Tiberti Company, a Nevada general partnership of which Mr. Tiberti is
managing partner. See "Business -- The Orleans" and "Certain Transactions."
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POSSIBLE FEDERAL LEGISLATION -- FUTURE FEDERAL LEGISLATION MAY ADVERSELY AFFECT
OUR BUSINESS AND THE OVERALL GAMING INDUSTRY.
The U.S. Congress created the National Gambling Impact and Policy
Commission to conduct a comprehensive study of all matters relating to the
economic and social impact of gaming in the United States. This commission
released a report on its findings on June 18, 1999, stating that gambling is not
a subject for national regulation, but is more appropriately addressed at the
state, tribal and local levels. Any additional recommendations or actions, if
enacted into law, could adversely impact the gaming industry and have a material
adverse effect on our business, financial condition or results of operations.
From time to time, certain legislators have proposed the imposition of a
federal tax on gross gaming revenues. In March 1996, tax legislation was
introduced in Congress which included a proposal to impose a 15 percent federal
tax on taxable gaming services which is defined as gross gaming receipts less
total gaming payoffs. The tax, if enacted, would be applicable to us. Although
no action has been taken on such legislation, we cannot assure you that such tax
or any similar tax will not be imposed in the future. Any such tax or similar
tax could have a material adverse effect on our business or results of
operations.
ABSENCE OF PUBLIC MARKET -- NO PUBLIC MARKET EXISTS FOR THE EXCHANGE NOTES. THE
OFFERING OR SALE OF THE EXCHANGE NOTES IS SUBJECT TO SIGNIFICANT LEGAL
RESTRICTIONS AS WELL AS UNCERTAINTIES REGARDING THE LIQUIDITY OF THE TRADING
MARKET FOR THE EXCHANGE NOTES.
No public market exists for the exchange notes, and a market offering
liquidity may not develop. The exchange notes will not be listed on any
securities exchange, but are expected to be eligible for trading in the PORTAL
market. If the exchange notes are traded after their initial issuance, they may
trade at a discount from their price at the time the exchange offer is
consummated, depending upon prevailing interest rates, the market for similar
securities, our performance and other factors. We have been advised by the
Placement Agents that they intend to make a market in the exchange notes after
consummation of the exchange offer, as permitted by applicable laws and
regulations. However, the Placement Agents are not obligated to do so and these
market making activities may be discontinued at any time without notice.
General declines in the market for similar securities may also adversely
affect the liquidity of, and trading market for, the exchange notes. These a
declines may adversely affect liquidity and trading markets independent of our
financial performance and prospects.
RISKS ASSOCIATED WITH YEAR 2000 COMPUTER COMPLIANCE -- OUR BUSINESS AND OUR
SUPPLIERS' BUSINESSES ARE HIGHLY DEPENDENT ON COMPUTER SYSTEMS. ANY COMPUTER
PROBLEMS DUE TO THE YEAR 2000 MAY ADVERSELY AFFECT OUR BUSINESS.
We use computer systems in virtually all areas of our operations. Should we
or one or more of our vendors not be Y2K compliant, the operations of our
hotel-casinos could be disrupted for an indeterminate period of time,
potentially having a material adverse impact on results of operations. Possible
consequences of our not being Y2K compliant include, but are not limited to,
problems with:
- hotel reservations operations;
- hotel check-in/check-out procedures;
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- point-of-sale transactions in food, beverage and retail areas;
- race and sports book wagering; or
- updating and accumulation of slot machine player marketing information.
Additionally, disruptions could occur to the compiling of financial
information in our back-office accounting, purchasing, inventory and payroll
systems. Embedded microchips in certain systems such as elevators, escalators
and the heating, ventilation and air conditioning could lead to interruptions in
service. All of these problems could inconvenience hotel and casino customers,
resulting in a loss of business.
We could also be exposed to Y2K problems if our suppliers have disruptions
to their operations due to Year 2000 problems. We do not consider these problems
to be as significant as those with our own systems because in most instances we
believe we could find alternate vendors for our supplies. However, Y2K problems
for some suppliers, such as utility providers, could result in disruptions to
our hotel-casino operations for an indeterminate period of time. Additionally,
should providers of financial services such as ATM's, credit card processing and
credit card cash advance experience Y2K problems, our operations could be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Impact of the Year 2000 Issue."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On March 23, 1999 we sold $175.0 million in principal amount at maturity of
the outstanding notes in a private placement through Morgan Stanley & Co.
Incorporated and NationsBanc Montgomery Securities LLC to a limited number of
"Qualified Institutional Buyers," as defined under the Securities Act of 1933,
and to limited persons outside the United States. In connection with the sale of
the outstanding notes, we, Morgan Stanley & Co. Incorporated and NationsBanc
Montgomery Securities LLC entered into a registration rights agreement, dated as
of March 23, 1999. Under that agreement, we must, among other things, use our
best efforts to file with the Commission a registration statement under the
Securities Act of 1933 covering the exchange offer and to cause that
registration statement to become effective under the Securities Act of 1933.
Upon the effectiveness of that registration statement, we must also offer each
holder of the outstanding notes the opportunity to exchange its securities for
an equal principal amount of exchange notes. You are a holder with respect to
the exchange offer if you are a person in whose name any outstanding notes are
registered on our books or any other person who has obtained a properly
completed assignment of outstanding notes from the registered holder.
We are making the exchange offer to comply with our obligations under the
registration rights agreement. A copy of the registration rights agreement has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
In order to participate in the exchange offer, you must represent to Coast
Hotels and Casinos, among other things, that:
- you are not a broker-dealer;
- you are not participating in a distribution of the exchange notes; and
- you are not an "affiliate" of Coast Hotels and Casinos, Inc., as the term
is defined in Rule 144A under the Securities Act of 1933.
RESALE OF THE EXCHANGE NOTES
Based on previous interpretations by the staff of the Commission set forth
in no-action letters issued to third parties, we believe that the exchange notes
issued in the exchange offer may be offered for resale, resold and otherwise
transferred by you, except if you are our affiliate, without compliance with the
registration and prospectus delivery provisions of the Securities Act of 1933,
provided that the representations set forth in "Purpose and Effect of the
Exchange Offer" apply to you.
If you tender in the exchange offer with the intention of participating in
a distribution of the exchange notes, you cannot rely on the interpretation by
the staff of the Commission as set forth in the no-action letters and you must
comply with the registration and prospectus delivery requirements of the
Securities Act of 1933 in connection with a secondary resale transaction. In the
event that our belief regarding resale is inaccurate, those who transfer
exchange notes in violation of the prospectus delivery provisions of the
Securities Act of 1933 and without an exemption from registration under the
federal securities laws may incur liability under these laws. We do not assume,
nor will we indemnify you against, this liability.
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The exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of outstanding notes in any jurisdiction in which the
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of the particular jurisdiction. Each broker-dealer
that receives exchange notes for its own account in exchange for outstanding
notes, where the outstanding notes were acquired by that broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of the exchange
notes. In order to facilitate the disposition of exchange notes by
broker-dealers participating in the exchange offer, we have agreed, subject to
specific conditions, to make this prospectus, as it may be amended or
supplemented from time to time, available for delivery by those broker-dealers
to satisfy their prospectus delivery obligations under the Securities Act of
1933.
TERMS OF THE EXCHANGE OFFER
Upon the terms and conditions in this prospectus, and in the accompanying
letter of transmittal, we will accept all outstanding notes validly tendered
prior to 5:00 p.m., New York City time, on the expiration date. We will issue
$1,000 in principal amount of exchange notes in exchange for an equal principal
amount of outstanding notes tendered and accepted in the exchange offer. You may
tender some or all of your outstanding notes pursuant to the exchange offer in
any denomination of $1,000 or in integral multiples thereof.
In addition, in connection with any resales of exchange notes, any
broker-dealer who acquired outstanding notes for its own account as a result of
market-making activities or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
the exchange notes. The Commission has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements for the
exchange notes, other than a resale of an unsold allotment from the original
sales of outstanding notes, with the prospectus contained in the exchange offer
registration statement. Under the registration rights agreement, we are required
to allow participating broker-dealers, and other persons, if any, subject to
similar prospectus delivery requirements, to use the prospectus contained in the
exchange offer registration statement in connection with the resale of exchange
notes. However, we are not required to amend or supplement this prospectus for a
period exceeding 90 days after the date of the last expiration date. "Expiration
Date" means 5:00 p.m., New York City time, on July 21, 1999 unless we, in our
sole discretion, extended the exchange offer. If we do, the "expiration date"
will be 5:00 p.m., New York City time on the latest date to which the exchange
offer is extended. The expiration date will be at least 20 business days from
the date that this prospectus is mailed to the holders of the outstanding notes.
We have also agreed that in the event that either we do not consummate the
exchange offer or a shelf registration statement is not declared effective on or
prior to September 23, 1999, the interest rate of the outstanding notes will be
increased by one-half of one percent (.5%) per annum until the earlier of the
consummation of the exchange offer or the effectiveness of the shelf
registration statement.
If we consummate the exchange offer on or before September 23, 1999, we
will not be required to file a shelf registration statement to register any
outstanding notes, and the interest rate on any outstanding notes will remain at
the initial level of 9 1/2% per annum. The exchange offer will be deemed to have
been consummated upon our having exchanged, pursuant to the exchange offer,
exchange notes for all outstanding notes that
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have been properly tendered and not withdrawn by the expiration date. In this
event, holders of outstanding notes not participating in the exchange offer who
are seeking liquidity in their investment would have to rely on exemptions to
registration requirements under the securities laws, including the Securities
Act.
The form and terms of the exchange notes will be the same as the form and
terms of the outstanding notes except that the exchange notes will not bear
legends restricting the transfer thereof. The exchange notes will evidence the
same debt as the outstanding notes. The exchange notes will be issued under and
entitled to the benefits of the indenture.
As of the date of this prospectus, $175,000,000 aggregate principal amount
of the outstanding notes are outstanding and there is one registered holder
thereof. In connection with the issuance of the outstanding notes, we arranged
for the outstanding notes to be eligible for trading in the Private Offering,
Resale and Trading through Automated Linkages Market. The PORTAL market is the
National Association of Securities Dealers' screen based, automated market
trading of securities eligible for resale under Rule 144A. The exchange notes
will also be issuable and transferable in book-entry form through The Depository
Trust Company, or DTC.
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice of acceptance to the exchange
agent. See "-- Exchange Agent." The exchange agent will act as agent for the
tendering holders of outstanding notes for the purpose of receiving exchange
notes from us and delivering exchange notes to the holders.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender or the occurrence of certain other events described in this
prospectus, certificates for the unaccepted outstanding notes will be returned,
without expense, to the tendering holder as promptly as practicable after the
expiration date.
Holders of outstanding notes who tender in the exchange offer will not be
required to pay:
- brokerage commissions or fees; or
- transfer taxes with respect to the exchange of outstanding notes pursuant
to the exchange offer, subject to the instructions in the accompanying
letter of transmittal.
We will pay all charges and expenses, other than specified taxes, in
connection with the exchange offer. See "-- Fees and Expenses."
Holders of outstanding notes do not have any appraisal or dissenters'
rights in connection with the exchange offer. We intend to conduct the exchange
offer in accordance with the provisions of the registration rights agreement and
the applicable requirements of the Exchange Act and the rules and regulations of
the Commission interpreting the Exchange Act. Outstanding notes that are not
tendered for exchange in the exchange offer will remain outstanding and be
entitled and continue to accrue interest, but will not be entitled to any rights
or benefits under the registration rights agreement.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" means 5:00 p.m. New York City time, on July 21,
1999 unless we, in our sole discretion, extend the exchange offer. If we do, the
"expiration date"
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will be 5:00 p.m. New York City time on the latest date to which the exchange
offer is extended.
If we extend the expiration date, we will:
- notify the exchange agent of any extension by oral or written notice; and
- mail an announcement of the extension to the record holders of
outstanding notes prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
Any announcement may state that we are extending the exchange offer for a
specified period of time.
If any of the conditions listed under "Conditions to the Offer" occur and
are not waived by us, by giving oral or written notice to the exchange agent, we
reserve the right:
- to delay acceptance of any outstanding notes;
- to extend the exchange offer;
- to terminate the exchange offer;
- to refuse to accept outstanding notes not previously accepted, and
- to amend the terms of the exchange offer in any manner we deem to be
advantageous to the holders of the outstanding notes.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as possible by oral or written notice to the exchange
agent. If the exchange offer is amended in a manner we determine constitutes a
material change, we will promptly disclose the amendment in a way reasonably
calculated to inform you of the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we have no obligation to publish, advertise, or otherwise
communicate any public announcement, other than by making a timely release to
the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from the last interest payment date
on which interest was paid on the outstanding notes. If interest has not yet
been paid, the outstanding notes will bear interest from March 23, 1999.
Interest will be paid with the first interest payment on the exchange notes.
Interest on the outstanding notes accepted for exchange will cease to accrue
upon issuance of the exchange notes.
The exchange notes will bear interest at a rate of 9 1/2% per annum.
Interest on the exchange notes will be payable semi-annually, in arrears, on
each April 1 and October 1 following the consummation of the exchange offer.
Untendered outstanding notes that are not exchanged for exchange notes pursuant
to the exchange offer will bear interest at a rate of 9 1/2% per annum after the
expiration date.
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37
PROCEDURES FOR TENDERING OUTSTANDING NOTES
If you are not tendering through book-entry transfer and you desire to
tender in the exchange offer, you must do the following:
- complete, sign and date the letter of transmittal, or a facsimile of it;
- have the signatures guaranteed, if required by the letter of transmittal;
and
- mail or deliver the letter of transmittal, or the facsimile, together
with the outstanding notes and any other required documents, to the
exchange agent.
The exchange agent must receive these documents by 5:00 p.m., New York City
time, on the expiration date.
Within two business days after the date of this prospectus, the exchange
agent will establish an account with respect to the outstanding notes at DTC for
the purposes of the exchange offer. Such account is referred to in this
prospectus as the "book-entry transfer facility." Any financial institution that
is a participant in DTC's book-entry transfer facility system may make
book-entry delivery of the outstanding notes by causing DTC to transfer the
outstanding notes into the exchange agent's account via the ATOP system in
accordance with DTC's transfer procedure. An Agent's Message in connection with
the book-entry transfer must be received by the exchange agent prior to 5:00
p.m., New York City time, on the expiration date. The term "Agent's Message"
means a message transmitted by the book-entry transfer facility to, and received
by, the exchange agent, and forming a part of a book-entry confirmation, which
states that such book-entry transfer facility has received an express
acknowledgement from the participant in such book-entry transfer facility
tendering the outstanding notes that such participant has received and agrees to
be bound by the terms of the letter of transmittal and that we may enforce the
agreement against the participant. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE
WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Your tender of outstanding notes will constitute an agreement between you
and us in accordance with the terms and subject to the conditions in this
prospectus and in the letter of transmittal.
Delivery of all documents must be made to the exchange agent at its address
listed in this prospectus. Holders may also request that their respective
brokers, dealers, commercial banks, trust companies or nominees effect tender
for them.
The method of delivery of outstanding notes and the letter of transmittal
and all other required documents to the exchange agent is up to you. However,
you also bear the risks of non-delivery. Instead of delivery by mail, we
recommend that you use an overnight or hand delivery service. In all cases, you
should allow sufficient time to assure timely delivery. No letter of transmittal
should be sent to us.
Only a holder of outstanding notes may tender outstanding notes in the
exchange offer. The term "holder" with respect to the exchange offer means any
person in whose name outstanding notes are registered on our books or any other
person who has obtained a properly completed bond power from the registered
holder or any person whose outstanding notes are held of record by DTC who
desires to deliver the outstanding notes by book-entry transfer at DTC.
Any beneficial holder whose outstanding notes are registered in the name of
the beneficial holder's broker, dealer, commercial bank, trust company or other
nominee and
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who wishes to tender should contact the registered holder promptly and instruct
the registered holder to tender on the beneficial holder's behalf. If the
beneficial holder wishes to tender on its own behalf, the beneficial holder
must, prior to completing and executing the letter of transmittal and delivering
the outstanding notes, either make appropriate arrangements to register
ownership of the outstanding notes in the beneficial holder's name or obtain a
properly completed bond power from the registered holder. The transfer of record
ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an "eligible institution" unless the
outstanding notes tendered are:
- tendered by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
- tendered for the account of an "eligible institution."
An eligible institution is:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
- a commercial bank or trust company having an office or correspondent in
the United States;
- an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act; or
- a participant in a recognized medallion signature guarantee program.
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes listed therein, the outstanding notes
tendered must be endorsed or accompanied by appropriate bond powers which
authorize that person to tender the outstanding notes on behalf of the
registered holder, in either case signed as the name of the registered holder or
holders appears on the outstanding notes.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, the person should indicate this when signing, and unless waived by us,
submit evidence satisfactory to us of that person's authority to so act with the
letter of transmittal.
We will determine, in our sole discretion, all questions as to the
validity, form, and eligibility, including time of receipt, acceptance and
withdrawal of the tendered outstanding notes. Our determination will be final
and binding. We reserve the absolute right to reject any and all outstanding
notes not properly tendered or any outstanding notes of which our acceptance
would, in the opinion of our counsel, be unlawful. We also reserve the absolute
right to waive any irregularities or conditions of tender as to particular
outstanding notes. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of outstanding notes must be cured within the time as
we determine. Neither we, the exchange agent nor any other person is under any
duty to give notification of defects or irregularities with respect to tenders
of outstanding notes. Additionally, none of them will incur any liability for
failure to give this notification. Tenders of outstanding notes will not be
deemed to have been made until these irregularities have been cured or waived.
Any outstanding notes received
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by the exchange agent that have defects or irregularities not cured or waived by
us will be returned to you without cost by the exchange agent, unless otherwise
provided in the letter of transmittal as soon as practicable after the
expiration date.
In addition, we reserve the right in our sole discretion to:
- purchase or make offers for any outstanding notes that remain outstanding
subsequent to the expiration date;
- terminate the exchange offer according to the terms in "-- Conditions to
the Offer"; and
- to the extent permitted by applicable law, purchase outstanding notes in
the open market, in privately negotiated transactions or otherwise.
The terms of any of these purchases or offers may differ from the terms of
the exchange offer.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes and either your outstanding
notes are not immediately available, or you cannot deliver your outstanding
notes, the letter of transmittal or any other required documents to the exchange
agent prior to the expiration date, or if you cannot complete the procedure for
book-entry transfer on a timely basis, you may effect a tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from an
eligible institution a properly completed and duly executed notice of
guaranteed delivery, by facsimile transmission, mail or hand delivery,
stating the name and address of the registered holder of the outstanding
notes, the certificate number or numbers of such outstanding notes and
the principal amount of outstanding notes tendered, stating that the
tender is being made, and guaranteeing that, within three business days
after the expiration date, the letter of transmittal, or facsimile
thereof, together with the certificate(s) representing the outstanding
notes, to be tendered in proper form for transfer, or confirmation of a
book-entry transfer into the exchange agent's account at DTC of
outstanding notes to be delivered electronically and any other documents
required by the letter of transmittal, will be deposited by the eligible
institution with the exchange agent; and
- the properly completed and executed letter of transmittal, or facsimile
thereof, together with the certificates representing all tendered
outstanding notes in proper form for transfer, or confirmation of a
book-entry transfer into the exchange agent's account at DTC of
outstanding notes delivered electronically, and all other documents
required by the letter of transmittal are received by the exchange agent
within three business days after the expiration date.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of outstanding
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date.
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40
To withdraw a tender of outstanding notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at the address given in this prospectus prior to 5:00 p.m., New York City
time, on the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn, including the certificate
number or numbers and principal amount of the outstanding notes;
- be signed by the depositor in the same manner as the original signature
on the letter of transmittal by tendering the outstanding notes,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to permit the trustee of the outstanding
notes to register the transfer of the outstanding notes into the name of
the depositor withdrawing the tender; and
- specify the name in which any outstanding notes are to be registered, if
different from that of the depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of any withdrawal notices will be determined by us, and will be final
and binding on all parties. Any outstanding notes so withdrawn will be deemed
not to have been validly tendered for purposes of the exchange offer, and no
exchange notes will be issued unless the outstanding notes previously withdrawn
are validly retendered. Any outstanding notes that have been tendered but which
are not accepted for exchange will be returned to the holder without cost to the
holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn outstanding notes may be
retendered by following one of the procedures described above under "Procedures
for Tendering Outstanding Notes" at any time prior to the expiration date.
CONDITIONS TO THE OFFER
Regardless of any other term of the exchange offer, we are not required to
accept for exchange or to exchange any outstanding notes that are not accepted
for exchange according to the terms of the exchange offer. Additionally, we may
terminate or amend the exchange offer as provided in this prospectus before
accepting the outstanding notes if:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer,
which, in our judgment, might materially impair our ability to proceed
with the exchange offer; or
- any law, statute, rule or regulation is proposed, adopted or enacted, or
any existing law, statute, rule or regulation is interpreted by the staff
of the Commission in a manner, which, in our judgment, might materially
impair our ability to proceed with the exchange offer.
These conditions are for our sole benefit. We may assert them in whole or
in part at any time and from time to time, in our sole discretion. Our failure
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any right and the right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
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41
In addition, we will not accept for exchange any outstanding notes
tendered, and no exchange notes will be issued in exchange for any outstanding
notes, if at the time of tender:
- a stop order is threatened by the Commission or is in effect for the
registration statement that this prospectus is a part of, or
- a stop order is threatened or in effect regarding qualification of the
indenture under the Trust Indenture Act of 1939, as amended.
If we determine that we may terminate or amend the exchange offer, we may:
- refuse to accept any outstanding notes and return any tendered
outstanding notes to the holder;
- extend the exchange offer and retain all outstanding notes tendered prior
to the expiration of the exchange offer, subject to the rights of the
holders of tendered outstanding notes to withdraw their tendered
outstanding notes;
- waive the termination event with respect to the exchange offer and accept
all properly tendered outstanding notes that have not been withdrawn; or
- amend the exchange offer at any time prior to 5:00 p.m. New York City
time on the expiration.
If the waiver or amendment constitutes a material change in the exchange
offer, we will disclose the change by means of a supplement to this prospectus
that will be distributed to each registered holder of outstanding notes, and we
will extend the exchange offer for a period of five to ten business days, if the
exchange offer would otherwise expire during that period, depending on the
significance of the waiver or amendment and the manner of disclosure to the
registered holders of the outstanding notes.
The exchange offer is not conditioned on any minimum principal amount of
outstanding notes being tendered for exchange.
EXCHANGE AGENT
Firstar Bank of Minnesota, N.A. has been appointed as exchange agent for
the exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent addressed as follows:
BY MAIL, OVERNIGHT COURIER OR HAND DELIVERY:
Firstar Bank of Minnesota, N.A.
101 East 5th Street
12th Floor
St. Paul, Minnesota 55101
Attn: Frank P. Leslie
Telephone number: (651) 229-2600
Facsimile transmission: (651) 229-6415
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FEES AND EXPENSES
We will bear the expenses of soliciting tenders pursuant to the exchange
offer. The principal solicitation for tenders pursuant to the exchange offer is
being made by mail. Additional solicitations may be made by our officers and
regular employees and our affiliates in person, by telegraph or by telephone.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable customary fees for its services and will reimburse the exchange
agent for its reasonable out-of-pocket expenses in connection with this exchange
offer. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses they incur in forwarding
copies of this prospectus, letters of transmittal and related documents to the
beneficial owners of the outstanding notes and in handling or forwarding tenders
for exchange.
We will pay the fees and expenses incurred in connection with the exchange
offer, for the following:
- the exchange agent;
- the trustee;
- accounting; and
- legal services.
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes pursuant to the exchange offer. The amount of these transfer
taxes, whether imposed on the registered holder or any other persons, will be
payable by the tendering holder if:
- certificates representing exchange notes or outstanding notes not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered
holder of the outstanding notes tendered;
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes pursuant to the exchange offer.
If satisfactory evidence of payment of, or exemption from, these taxes is
not submitted with the letter of transmittal, the amount of these transfer taxes
will be billed directly to the tendering holder.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding notes, which is face value, as reflected in our accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by us upon the consummation of the exchange offer.
The expenses of the exchange offer will be amortized by us over the term of the
exchange notes under generally accepted accounting principles.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999.
Please read this table in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes included in this prospectus.
AS OF MARCH 31, 1999
--------------------
(IN THOUSANDS)
Cash and cash equivalents........................... $ 35,697
========
Current maturities of long-term debt................ $ 7,817
========
Long-term debt:
Credit facility(1)................................ 47,000
Notes............................................. 175,000
13% first mortgage notes (net of original issue
discount of $45)............................... 1,960
Subordinated notes payable to related parties..... 1,975
Other note payable, less current portion.......... 8,046
--------
Total long-term debt...................... 233,981
--------
Stockholder's equity:
Common stock, $1.00 par value; 25,000 shares
authorized, 1,000 shares issued and
outstanding.................................... 1
Additional paid-in capital........................ 86,903
Retained earnings (deficit)(2).................... (4,670)
--------
Total stockholder's equity................ 82,234
--------
Total capitalization...................... $316,215
========
- -------------------------
(1) We made initial borrowings of approximately $47.0 million under the credit
facility in part to fund the refinancing of our 10 7/8% first mortgage notes
and our 13% first mortgage notes. Amounts available for future borrowing
under the credit facility are approximately $28.0 million, subject to
certain borrowing conditions, for a total availability of $75.0 million. See
"Description of Our Other Indebtedness."
(2) Retained earnings (deficit) reflects the following extraordinary charges
associated with the early retirement of our 13% first mortgage notes and our
10 7/8% first mortgage notes: (a) a $4.5 million write-off of deferred
financing costs, (b) a $3.8 million write-off of the remaining original
issue discount on the 13% first mortgage notes and (c) the $33.1 million of
repurchase premiums for the 13% first mortgage notes and the 10 7/8% first
mortgage notes. These amounts are reflected net of a 35% tax benefit.
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SELECTED HISTORICAL FINANCIAL DATA
You should read the following Selected Historical Financial Data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
included elsewhere in this prospectus. The income statement data for each of the
five years ended December 31, 1998 and the balance sheet data as of December 31,
1994, 1995, 1996, 1997 and 1998 are derived from our financial statements, which
have been audited by PricewaterhouseCoopers LLP. The income statement data for
the three months ended March 31, 1998 and 1999 and the balance sheet data as of
March 31, 1998 and 1999 have been derived from our unaudited financial
statements. In the opinion of management, the unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the information contained in those financial
statements. The results for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for any other interim
period or for the full year.
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1994 1995 1996(1) 1997 1998 1998 1999
-------- -------- -------- -------- -------- ------- --------
(IN THOUSANDS)
STATEMENTS OF INCOME DATA:
Operating Revenues:
Casino....................................... $129,086 $129,675 $148,509 $211,026 $242,992 $59,179 $ 66,057
Food and beverage............................ 36,824 38,468 39,517 61,724 66,503 16,578 17,775
Hotel........................................ 12,232 13,233 14,700 28,095 28,443 6,937 7,877
Other........................................ 9,386 9,968 10,635 19,994 26,421 6,093 7,046
-------- -------- -------- -------- -------- ------- --------
Gross Operating Revenues....................... 187,528 191,344 213,361 320,839 364,359 88,787 98,755
Less: promotional allowances................. (14,955) (16,588) (17,374) (26,956) (31,996) (7,773) (8,689)
-------- -------- -------- -------- -------- ------- --------
Net revenues................................... 172,573 174,756 195,987 293,883 332,363 81,014 90,066
-------- -------- -------- -------- -------- ------- --------
Operating Expenses:
Casino....................................... 65,376 67,782 74,169 114,932 127,512 31,512 32,046
Food and beverage............................ 34,461 31,242 31,680 50,129 47,278 11,734 11,776
Hotel........................................ 6,934 6,692 7,428 12,623 11,856 2,712 3,041
Other........................................ 8,257 8,537 8,351 19,516 22,458 4,827 5,969
General and administrative expenses.......... 32,940 34,686 37,992 54,351 55,879 13,148 14,315
Guaranteed payments to former partners(2).... 2,672 858 -- -- -- -- --
Land leases.................................. -- -- -- 2,100 3,190 525 1,110
Deferred (non-cash) rent..................... -- -- -- 2,378 3,198 594 964
Pre-opening expenses......................... -- -- 7,125 -- -- -- --
Depreciation and amortization.................. 6,766 7,280 7,883 18,278 20,607 4,881 5,210
-------- -------- -------- -------- -------- ------- --------
Operating income............................... 15,167 17,679 21,359 19,576 40,385 11,081 15,635
-------- -------- -------- -------- -------- ------- --------
Interest expense, net(3)..................... (227) (3,545) (9,981) (25,228) (26,570) (6,663) (6,299)
Other income................................... 23 92 58 919 168 25 --
-------- -------- -------- -------- -------- ------- --------
Net income (loss) before income taxes and
extraordinary item........................... 14,963 14,226 11,436 (4,733) 13,983 4,443 9,336
Provision (benefit) for income taxes(4)...... -- -- 6,617 (1,401) 5,225 1,625 3,013
-------- -------- -------- -------- -------- ------- --------
Net income (loss) before extraordinary item.... 14,963 14,226 4,819 (3,332) 8,758 2,818 6,323
Extraordinary item -- loss on early retirement
of debt, net of applicable income tax benefit
($14,543).................................... -- -- -- -- -- -- (27,007)
-------- -------- -------- -------- -------- ------- --------
Net income (loss).............................. $ 14,963 $ 14,226 $ 4,819 $ (3,332) $ 8,758 $ 2,818 $(20,684)
======== ======== ======== ======== ======== ======= ========
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AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------------------------------- --------------------
1994 1995 1996(1) 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 16,967 $ 14,539 $ 61,555 $ 29,426 $ 41,595 $ 36,242 $ 35,697
Total assets.................................. 134,295 152,216 374,122 366,861 367,034 372,045 372,314
Total debt.................................... 14,876 84,948 202,545 215,249 207,859 213,371 241,798
Stockholder's equity.......................... 87,781 43,334 100,678 97,346 102,918 100,164 82,234
- -------------------------
(1) The Orleans opened in December 1996.
(2) Prior to our formation in 1995, the Gold Coast and the Barbary Coast were
operated by two affiliated partnerships, which were consolidated into us and
Coast Resorts, Inc. effective January 1, 1996. The partnership agreements
for those partnerships required that guaranteed payments be made to the
partners.
(3) Includes interest income of $118,000 (1994), $106,000 (1995), $4,791,000
(1996), $98,000 (1997) and $695,000 (1998) and capitalized interest of $0
(1994), $235,000 (1995), $7,464,000 (1996), $1,016,000 (1997) and $58,000
(1998). Interest income for the three months ended March 31, 1998 and 1999
was $101,000 and $215,000, respectively. There was no capitalized interest
for the three months ended March 31, 1998 and 1999.
(4) The partnerships described in footnote 2 were not subject to federal income
taxes. We are a "C corporation" and, therefore, are subject to federal
income taxes. If these partnerships had been taxed as C corporations from
formation, they would have had combined income tax expense of $5,251,000
(1994), $4,979,000 (1995) and $4,117,000 (1996).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial information regarding our results of operations:
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------ ------------------
1996(1) 1997 1998 1998 1999
-------- -------- -------- ------- -------
(IN THOUSANDS)
Hotel-casino operations:
Net operating revenues....... $195,987 $293,883 $332,363 $81,014 $90,066
Operating expenses........... 168,716 267,148 283,839 68,216 71,774
-------- -------- -------- ------- -------
Operating income from hotel-
casino operations............ 27,271 26,735 48,524 12,798 18,292
Corporate expenses(3).......... 5,912 7,159 8,139 1,717 2,657
-------- -------- -------- ------- -------
Total operating income......... $ 21,359 $ 19,576 $ 40,385 $11,081 $15,635
======== ======== ======== ======= =======
EBITDA, hotel-casino
operations(2)................ $ 41,078 $ 45,976 $ 70,000 $17,897 $23,739
======== ======== ======== ======= =======
EBITDA, total (including
corporate)(2)................ $ 36,367 $ 40,232 $ 64,190 $16,556 $21,809
======== ======== ======== ======= =======
- -------------------------
(1) The Orleans opened in December 1996.
(2) "EBITDA" means earnings before interest, taxes, depreciation, amortization,
certain non-cash items including deferred, non-cash, rent expense and
pre-opening expenses. EBITDA should not be construed as an alternative to
operating income or net income, as determined in accordance with generally
accepted accounting principles, as an indicator of our operating
performance, or as an alternative to cash provided by operating activities,
as determined in accordance with generally accepted accounting principles,
as an indicator of cash flows or a measure of liquidity. EBITDA is presented
solely as supplemental disclosure because management believes that it is a
widely used measure of operating performance in the gaming industry. All
companies do not calculate EBITDA in the same manner. As a result, EBITDA as
presented here may not be comparable to similarly titled measures presented
by other companies.
(3) Corporate expenses include corporate general and administrative expenses,
depreciation and amortization and land lease expenses, both cash and
deferred, on the Suncoast land.
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
Net revenues in the quarter ended March 31, 1999 were $90.1 million
compared to $81.0 million in the same quarter in 1998, an increase of $9.1
million, or 11.2%. Revenues were higher at all three of our hotel-casino
properties. First quarter operating income was $15.6 million compared to 1998
first quarter operating income of $11.1 million, an increase of $4.5 million, or
40.5%. Our operating margins, which reflect operating income as a
40
47
percentage of revenues, improved at all three of our hotel-casino properties.
Due to a one-time, net of income tax benefit charge of $27.0 million as a result
of the early retirement of $189.9 million in first mortgage notes, there was a
net loss of $20.7 million in the first quarter of 1999 compared to net income of
$2.8 million in the first quarter of 1998.
Casino. Casino revenues in the quarter ended March 31, 1999 were $66.1
million, an increase of $6.9 million, or 11.6% compared to the same quarter in
1998. The increase was primarily due to the continued improvement in slot
revenues at The Orleans, up 28.1% over the first quarter in 1998 as a result of
increased customer volume. Casino revenues also improved at the Gold Coast and
the Barbary Coast, increasing by 5.8% and 9.3%, respectively, due primarily to
increases in customer volume in both slots and table games areas. Casino
expenses in the quarter ended March 31, 1999 increased by 1.7% over the same
quarter in 1998. This modest increase, coupled with the 11.6% increase in casino
revenues discussed above, resulted in a casino operating margin of 51.5%
compared to 46.8% in the first quarter of 1998.
Food and Beverage. Food and beverage revenues were $17.8 million in the
first quarter of 1999 compared to $16.6 million in 1998, an increase of 7.2%.
Each of our hotel-casino properties showed increases that were consistent with
overall increases in customer volume. Food and beverage expenses were $11.8
million in the first quarter of 1999 compared to $11.7 million in the first
quarter of 1998, an increase of 0.4%. The food and beverage operating margin
improved to 33.7% from 29.2% in the prior year, primarily as a result of a
continued focus on food cost control.
Hotel. Hotel room revenues were $7.9 million in the three months ended
March 31, 1999, an increase of 13.6% over 1998 revenues of $6.9 million. Each of
our three hotel properties experienced increases in room occupancy percentages
as well as average daily room rates. For the first quarter, our combined room
occupancy was 95.7% compared to 88.7% in the first quarter of 1998. The average
daily room rate increased to $53 from $51 in 1998.
Other. Other revenues were $7.0 million for the three months ended March
31, 1999, an increase of 15.6% over 1998 other revenues of $6.1 million. The
increase was primarily due to improved showroom and special events revenues at
The Orleans. Costs related to those increased revenues caused a 23.7% increase
in other expenses to $6.0 million in 1999, compared to $4.8 million in 1998.
General and Administrative. General and administrative expenses were $15.4
million in the first quarter of 1999, an increase of 12.8% over 1998 expenses of
$13.7 million. The increase was primarily due to wage and benefit increases at
our three hotel-casinos and higher property taxes.
Deferred Rent. Deferred rent increased from $594,000 in 1998 to $964,000 in
1999 due to the Coast West lease expenses being included in Coast Hotels'
consolidated financial statements as a result of Coast West becoming a
subsidiary of Coast Hotels in July 1998.
Depreciation and Amortization. Depreciation and amortization expense was
$5.2 million in the first quarter of 1999 compared to $4.9 million in 1998. The
increase was due primarily to the addition of new equipment at each of our
hotel-casino properties.
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FISCAL 1998 COMPARED TO 1997
Net revenues, operating income and net income all improved in the year
ended December 31, 1998, primarily due to improved revenues at The Orleans. Net
revenues in 1998 were $332.4 million compared to $293.9 million in the year
ended December 31, 1997, an increase of 13.1%. Operating income in the year
ended December 31, 1998 was $40.4 million compared to $19.6 million in the prior
year, an increase of 106.1% primarily due to the increased revenues. Operating
expenses increased $17.7 million, mainly as a result of higher casino expenses
due to increased business at our hotel-casinos. Additionally, land lease and
deferred non-cash rent expenses increased due to the Coast West lease expenses,
which became consolidated expenses of Coast Hotels and Casinos in July 1998 as a
result of Coast West becoming a subsidiary. Despite an increase in interest
expense due to the issuance of the 10 7/8% first mortgage notes in November 1997
and an increase in income tax expense, net income increased $12.1 million to
$8.8 million in 1998 compared to a net loss of $3.3 million in 1997.
The Orleans. The Orleans opened in December 1996 and generated lower than
expected revenues in the first half of 1997. During the second half of 1997, the
property expanded its customer base through increased promotional activities,
featuring headliner entertainment in its showroom and, in December 1997, the
opening of 12 new movie theaters. For the year ended December 31, 1998, net
revenues were $160.2 million compared to $122.8 million in 1997, an increase of
30.5%. Casino revenues increased 34.3% for the year, primarily as a result of
increased slot machine play. Growth in customer volume led to an increase in
food and beverage revenues of 22.9%. Hotel revenues increased 4.6% for the year
due to increased occupancy and other revenues increased 63.2% in 1998, due
primarily to higher showroom revenues. Operating expenses increased 15.8% in
1998, primarily due to increased casino promotional activities. Other expenses
were up 47.6% for the year due principally to the higher-priced headliner
entertainers in the showroom. Depreciation and amortization expense increased by
$1.9 million due to the opening in December 1997 of the movie theaters, video
arcade, child care facility and additional gaming space. Despite the increase in
operating expenses, operating income increased to $21.6 million in 1998 compared
to $3.1 million in 1997.
Gold Coast. For the year ended December 31, 1998, net revenues were $128.5
million, an increase of $2.0 million, or 1.6% over 1997 revenues of $126.5
million. Casino revenues accounted for most of the increase, up 4.8% over 1997
casino revenues, primarily due to increased slot machine play. Operating income
in the year ended December 31, 1998 was $24.9 million, an increase of $2.3
million, or 10.4%, over 1997 operating income, as operating expenses were
relatively flat, increasing by 0.3% over the previous year.
Barbary Coast. Net revenues for the year ended December 31, 1998 decreased
2.2% to $43.6 million compared to $44.6 million in the year ended December 31,
1997, primarily as a result of a decrease in table game wagering volume, a lower
table games win percentage, the removal of live keno and lower wagering volume
in the race book. Despite the lower revenues in 1998, operating income increased
to $2.0 million compared to $1.0 million in 1997, primarily due to lower casino
promotional expenses.
FISCAL 1997 COMPARED TO 1996
Net revenues were $293.9 million for the year ended December 31, 1997, an
increase of 50.0% over 1996 net revenues of $196.0 million. The increase was due
primarily to the
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opening of The Orleans on December 18, 1996. Operating income declined $1.8
million, or 8.4%, to $19.6 million in 1997 compared to $21.4 million in 1996.
The decline was primarily due to lower than expected revenues in 1997 at our
newest property, The Orleans, as well as decreased revenues at our other two
hotel-casinos, the Gold Coast and the Barbary Coast (discussed below). The lower
operating income as well as increased interest expense contributed to a net loss
of $3.3 million in 1997 compared to net income of $4.8 million in 1996.
The Orleans. The year ended December 31, 1997 was the first full year of
operations for The Orleans, which opened on December 18, 1996. Net revenues for
the fourteen days in 1996 were $6.0 million. Operating income before pre-opening
expenses of $7.1 million was $1.3 million in 1996.
For 1997, net revenues for The Orleans were $122.8 million. Net revenues
were $27.4 million for the quarter ended March 31, 1997, the first full quarter
of operations. Net revenues were $30.7 million in the second quarter, $29.6
million in the third quarter and $35.1 million in the quarter ended December 31,
1997. Operating income for 1997 was $3.1 million, including a first-quarter
operating loss of $2.5 million, operating income of $1.3 million in the second
quarter, operating income of $245,000 in the third quarter and operating income
of $4.1 million in the fourth quarter ended December 31, 1997. The increase in
revenues and operating income since the first quarter is due primarily to
increased casino activity, which management attributes to successful promotions
and an increasing target market familiarity with the property. Table games
customer wagering volume was 9.2% higher in the fourth quarter than in the first
quarter and slot machine customer wagering volume was 31.0% higher in the fourth
quarter than in the first.
In the first quarter of 1997, we began construction on a series of
improvements at The Orleans which included twelve movie theaters, a child care
facility, arcade and additional slot machines. The related construction traffic
reduced access to the property, adversely affecting operating results at The
Orleans. Management believes that, upon completion in December 1997, the
improvements and lack of disruption from construction positively affected
operating results in the fourth quarter.
Gold Coast. Net revenues for the year ended December 31, 1997 decreased 10%
to $126.5 million compared to $140.5 million in 1996. Management attributes the
decrease primarily to competition from the opening of The Orleans approximately
one mile from the Gold Coast. Casino revenues declined 10.6% to $93.1 million in
1997 compared to $104.2 million in 1996, due to lower customer wagering volume.
Food and beverage business decreased as a result of the reduced customer
traffic, causing revenues to decline 12.1% to $25.1 million in 1997 compared to
$28.6 million in 1996. In 1997 an increased number of rooms in the Las Vegas
market led to a total room occupancy rate at the Gold Coast of 81.7% compared to
92.3% in 1996, contributing to a $239,000, or 2.3%, decline in hotel revenues.
Gold Coast operating expenses were $103.9 million in 1997, down $7.7 million, or
6.9%, from $111.6 million in 1996 primarily due to a $9.8 million, or 16.5%,
reduction in salaries and related costs as management reacted to the reduced
customer volume. Food and beverage expenses declined $3.2 million (13.3%) and
general and administrative expenses declined $3.0 million, or 11.6%. Despite
lower operating expenses, the reduced revenues contributed to a 22.0% decrease
in operating income to $22.6 million in 1997 compared to $29.0 million in 1996.
Barbary Coast. Net revenues for the year ended December 31, 1997 decreased
9.7% to $44.6 million compared to $49.4 million in 1996. Casino revenues
declined 13.1% to
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$34.6 million in 1997 compared to $39.8 million in 1996, primarily as a result
of decreased customer wagering volume and a lower-than-expected win percentage
on table games and decreased wagering volume in the race book. We attribute the
decline to a reduction in foot traffic since January 1997 due to the opening of
New York-New York Hotel and Casino one mile south of the Barbary Coast on the
Las Vegas Strip as well as to increased competition from other recently opened
or expanded hotel-casinos, including The Orleans. Food and beverage revenues
increased $837,000, or 8.6%, in 1997 primarily as a result of higher drink
prices in the bars. The increase in food and beverage revenues was partially
offset by an increase of $664,000, or 11.3%, in food and beverage expenses.
Hotel room revenues declined $367,000, or 9.1%, due primarily to lower average
room rates as management reacted to increasing competition. Operating income at
the Barbary Coast declined 75.1% to $1.0 million in 1997 compared to $4.2
million in 1996, primarily as a result of the decreased revenues discussed
above.
Depreciation and amortization expense increased by 132.0% in 1997 compared
to 1996, principally due to the opening of The Orleans in December 1996. Net
interest expense increased 152.8% in 1997 primarily due to decreases in
capitalized interest and interest income. Capitalized interest was $7.5 million
in 1996 during the construction of The Orleans, but was only $1.0 million in
1997 during the construction of phase two of The Orleans. Additionally, the
proceeds from the sale of $175 million in 13% first mortgage notes earned
interest income of $4.8 million in 1996, but were substantially utilized by the
end of 1996.
Gain on disposal of equipment was approximately $919,000 in 1997 compared
to $58,000 in 1996, primarily due to a crash of our Beechcraft Super King Air
aircraft which, after receipt of insurance proceeds, resulted in a gain of
$785,000.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity have consisted of cash provided by
operating activities and debt financing. Cash provided by operating activities
was $12.6 million in the three months ended March 31, 1999, compared to $13.7
million in the same period in 1998.
Our cash requirements for 1999, in addition to interest payments on
outstanding indebtedness, include principal payments of approximately $7.8
million on equipment notes payable, land lease payments of approximately $4.4
million, capital expenditures of approximately $10.2 million in connection with
an expansion of The Orleans and ongoing maintenance capital expenditures of
approximately $11.0 million. For 1998, maintenance capital expenditures were
approximately $13.0 million. We believe that existing cash balances, operating
cash flow and borrowings from our new $75.0 million credit facility will provide
sufficient resources to meet our debt and lease payment obligations and
foreseeable capital expenditure requirements at our existing properties.
In January 1996, we issued $175.0 million principal amount of the 13% first
mortgage notes. Additionally, in November 1997, we issued $16.8 million
principal amount of the 10 7/8% first mortgage notes. In March 1999, we issued
$175.0 million principal amount of outstanding notes and entered into the credit
facility to facilitate our March 1999 refinancing. The credit facility can be
increased to $200 million with lender approval. Borrowings under the credit
facility bear interest, at our option, at a premium over the one-, two-, three-
or six-month London Interbank Offered Rate ("LIBOR"). As of
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March 31, 1999 the interest rate was 6.93%. We incur an annual commitment fee on
the unused portion of the credit facility.
With the proceeds from those notes and borrowings under the credit
facility, we repurchased substantially all of the outstanding 13% first mortgage
notes and all of the 10 7/8% first mortgage notes and amended the indenture
under which the 13% first mortgage notes were issued to eliminate substantially
all of its restrictive covenants. Approximately $2.0 million in principal amount
of the 13% first mortgage notes remain outstanding and are governed by the terms
of the amended indenture. In connection with the repurchase of the 13% first
mortgage notes and the 10 7/8% first mortgage notes, we incurred repurchase
premiums of $31.0 million and $2.1 million, respectively. The repurchase
premiums and the write-offs of unamortized debt issuance costs and original
issue discount resulted in an extraordinary loss of $27.0 million, net of the
applicable income tax benefit of $14.5 million.
The availability under the credit facility will be reduced in quarterly
amounts beginning in the fiscal quarter ending June 30, 2001. The initial
advance of $47.0 million under the new credit facility was used in connection
with the repurchase of the 13% first mortgage notes and the 10 7/8% first
mortgage notes. Subsequent advances under the new credit facility may be used
for working capital, general corporate purposes, construction of our new
property (the Suncoast) and certain improvements to our existing properties.
We are currently developing and intend to construct and open the Suncoast
Hotel and Casino. We do not yet have adequate financing in place to fund the
complete construction of the Suncoast. Subject to obtaining adequate financing,
we currently anticipate that construction of the Suncoast will begin in
mid-1999. Our new credit facility contains a provision that would allow us to
increase, with lender approval, the available borrowing capacity under the
facility to up to $200.0 million. We intend to use this increased capacity to
finance construction costs. The availability of the additional $125.0 million
will be reduced in quarterly amounts beginning the fiscal quarter ending June
30, 2001. The increase in the facility remains subject to a number of
contingencies, including lender approval and the negotiation of additional terms
relating to the construction. We cannot assure you that we will be able to
obtain the increase in the new credit facility or that it will be available on
acceptable terms.
Except as described in this prospectus, we have no agreements, arrangements
or understandings with respect to financing the future development of additional
properties or capital improvements to existing properties. Any future
development or capital improvements would be subject to, among other things, our
ability to obtain necessary financing.
IMPACT OF INFLATION
Absent changes in competitive and economic conditions or in specific prices
affecting the industry, we do not expect that inflation will have a significant
impact on our operations. Change in specific prices, such as fuel and
transportation prices, relative to the general rate of inflation may have a
material adverse effect on the hotel and casino industry.
REGULATION AND TAXES
We are subject to extensive regulation by the Nevada gaming authorities.
Changes in applicable laws or regulations could have a significant impact on our
operations. In 1996,
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legislation was enacted which established a federal commission to study the
gaming industry. See "Risk Factors -- Possible Federal Legislation."
The gaming industry represents a significant source of tax revenues,
particularly to the State of Nevada and its counties and municipalities. From
time to time, various state and federal legislators and officials have proposed
changes in tax law, or in the administration of these laws, affecting the gaming
industry. See "Risk Factors -- Possible Federal Legislation." Proposals in
recent years that have not been enacted included a federal gaming tax and
increases in state or local taxes.
Management believes that our recorded tax balances are adequate. However,
it is not possible to determine with certainty the likelihood of possible
changes in tax law or in the administration of these laws. These changes, if
adopted, could have a material adverse effect on our operating results.
During 1997, we recorded a tax benefit of $1.4 million in relation to our
loss before income taxes of $4.7 million. This benefit represents the amount to
be carried-back to prior taxable income.
IMPACT OF THE YEAR 2000 ISSUE
Many currently installed computer systems and other equipment with embedded
computer chips cannot recognize dates after December 31, 1999. Beginning in the
year 2000, companies with these systems, software or equipment may experience
difficulties due to their reliance on them. This situation involving the year
2000 is commonly referred to as the "Y2K" problem.
We utilize computer systems in virtually all areas of our hotel-casino
operations. Should we or certain of our vendors not be "Y2K compliant" the
operations of our hotel-casinos could be disrupted for an indeterminate period
of time, potentially having a material adverse impact on our results of
operations. Possible consequences of our not being Y2K compliant include, but
are not limited to, problems with the compiling of financial information in our
back-office accounting, purchasing, inventory and payroll systems. Additionally,
disruptions could occur to hotel reservations operations, hotel
check-in/check-out procedures, point-of-sale transactions in food, beverage and
retail areas, race and sports book wagering and the updating and accumulation of
slot machine player marketing information. Additionally, embedded microchips in
certain systems such as elevators, escalators and the heating, ventilation and
air conditioning could lead to interruptions in service. All of these problems
could inconvenience hotel and casino customers, resulting in a loss of business.
We could also be exposed to Y2K problems should certain of our suppliers
have disruptions to their operations due to Y2K problems. We do not consider
these problems to be as significant as those with our own systems because in
most instances we could find alternate vendors for our supplies, but Y2K
problems for certain suppliers, such as utility providers, could result in
disruptions to hotel-casino operations for an indeterminate period of time.
Additionally, should providers of financial services such as ATM's, credit card
processing and credit card cash advance experience Y2K problems, our operations
could be adversely affected.
We recognize the need to ensure our operations will not be adversely
affected by Y2K and have taken steps to update our systems, where necessary,
including replacing or updating software and equipment. Since 1997, our
Management Information Systems
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department has attempted to identify all areas where Y2K could pose a problem.
To assist them in their effort and to further help identify potential problem
areas, in October 1998 we retained the services of an advisor to review our Y2K
program.
As of March 31, 1999, we have identified and updated or are in the process
of updating those systems and programs that we deem most critical to the
day-to-day operations of our hotel-casinos. We currently use Year 2000 compliant
software for our accounting, human resources, payroll, inventory and purchasing
systems. Based on representations from our vendors, we anticipate that our other
essential computer systems, including our hotel front desk and reservations,
retail point of sale, bowling center, race and sports wagering and casino player
tracking and marketing systems, will be Y2K compliant by July 1999, although no
assurances can be made to that effect. We estimate that the total cost to
identify and correct potential Y2K problems will be approximately $1.6 million,
approximately $400,000 of which had been spent as of March 31, 1999. All costs
related to software modification, as well as all costs associated with our Y2K
project, are being expensed as incurred and are included in the cost estimate
referred to above. We are currently developing contingency plans for specific
areas of our operations. These plans include the training of employees in the
implementation of manual procedures for gaming operations, the selection of
alternative vendors and the testing of back-up electrical power generators. We
will continue to assess Y2K risk and develop contingency plans.
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BUSINESS
We own and operate three Las Vegas hotel-casinos, The Orleans, the Gold
Coast and the Barbary Coast. Our primary target customers for The Orleans and
the Gold Coast are local Las Vegas residents. The Barbary Coast benefits from
foot traffic at its prime location on the Las Vegas Strip. Our growth strategy
includes expanding our existing facilities, as well as identifying and
developing new gaming opportunities, primarily in Las Vegas. We are currently
developing and intend to construct, a fourth hotel-casino, the Suncoast, on a 50
acre site in west Las Vegas near Summerlin, a rapidly-growing master-planned
community. We also own an approximately 29 acre gaming site adjacent to the
Texas Station Hotel and Casino and the Fiesta Hotel and Casino in North Las
Vegas that we may develop in the future.
BUSINESS AND MARKETING STRATEGY
Our business and marketing strategy is to attract gaming customers to our
casinos by offering consistently high quality gaming, hotel, entertainment and
dining experiences at affordable prices. We emphasize attracting and retaining
repeat customers. Our primary target market for The Orleans and Gold Coast
consists of value-oriented local middle-market gaming patrons who gamble
frequently. We believe that our target customers return to our hotel-casinos
because of their convenient locations, friendly employees, higher slot machine
and video poker payout rates than are offered at casinos on the Las Vegas Strip
and high quality entertainment and amenities. Additionally, visitors to Las
Vegas find that our guest rooms are spacious, well-appointed and competitively
priced.
Our operating strategy with respect to gaming revenue focuses on slot and
video poker machines because these games account for approximately 70% of our
gaming revenues and approximately 48% of our total revenues. It is customary in
the gaming industry to include video poker and other gaming machines when using
the term "slots" or "slot machines." Our marketing efforts include many high
profile programs, including slot clubs and frequent prize drawings for slot
players. Other promotions include the original "Pick the Pros" $1,000,000
football contest, check cashing promotions and direct mail campaigns.
Las Vegas Locals Market. The Orleans and Gold Coast are designed to
capitalize on the large and rapidly growing Las Vegas local resident market. We
believe that a significant portion of our customers are Las Vegas residents.
While the mega-resorts on the Strip draw visitors from around the world, the Las
Vegas locals gaming market is growing as a result of the rapid population growth
in the Las Vegas metropolitan area. According to the Bureau of Business and
Economic Research at the University of Nevada, Reno, the Las Vegas metropolitan
area has a population of approximately 1.2 million residents. From 1990 to 1998,
the population of the Las Vegas metropolitan area grew 61.8%, an average annual
growth rate of 6.2%. The growth was driven primarily by Nevada's favorable
climate and tax structure, a strong economy and a well-developed infrastructure.
For example, the opening of new Las Vegas Strip mega-resorts has created
thousands of jobs which, together with the increasing popularity of Las Vegas as
a retirement community, have contributed to population growth and enlarged the
locals market. Because the locals market depends to a lesser extent on
attracting tourists or competing with other destination leisure activities, it
is less susceptible to market swings and cycles that affect the Strip casinos,
although a significant downturn in the Strip market could reduce Las Vegas area
employment and therefore negatively impact the locals market. In addition,
Nevada law imposes more stringent requirements for approval of new hotel-casinos
in Clark County
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that are not located in the vicinity of the Strip or downtown Las Vegas. We
believe that this barrier to entry into the market will enable The Orleans and
the Gold Coast, along with our proposed Suncoast property, to benefit from the
increasing Las Vegas locals market.
The Clark County Residents Study prepared by the Las Vegas Convention and
Visitors Authority, or the "LVCVA," in 1997 - 1998 found that gambling ranked
third among all activities in which residents said they participated most often.
Residents mentioned only "eating out" and "movies" as more frequent activities.
Approximately 73% of Clark County adult residents said they gamble at least
occasionally. Of those residents, 47% said they do so at least once a week and
44% of whom budget $25 or more per visit. In addition, over 72% of Las Vegas
resident gamblers prefer locations that are off the Strip and away from
downtown. Based on the results of the LVCVA study, researchers estimate the
total amount budgeted annually for gambling by all adult Las Vegas residents to
be over $1.33 billion.
We believe that the most important factors in successfully operating our
casinos are convenient locations with easy access, a friendly atmosphere, a
value-oriented approach and high quality entertainment and amenities. We believe
that our casinos strongly appeal to Las Vegas residents who gamble.
Additionally, we offer Las Vegas visitors spacious, well-appointed and
competitively price guest rooms.
- CONVENIENT, STRATEGIC LOCATIONS. We believe that our two locals-oriented
properties, The Orleans and the Gold Coast offer our target customers
easily accessible, convenient locations for gaming and entertainment.
According to the LVCVA study, approximately 72% of wagering Las Vegas
resident gamblers prefer locations that are away from both the Strip and
downtown Las Vegas. The Orleans and the Gold Coast are both located one
to two miles west of the Strip in high traffic areas close to
fast-growing segments of the western Las Vegas valley. According to the
Nevada Department of Transportation, approximately 68,000 vehicles travel
by The Orleans and approximately 77,500 vehicles pass the Gold Coast each
day. The Suncoast will have a suburban location conveniently located
adjacent to the fast-growing Summerlin master-planned community with
strong demographics, approximately nine miles from the Strip. The Orleans
and Gold Coast are easily accessible and offer ample parking, providing
our customers with convenient alternatives to the congestion on the
Strip. As described under "Risk Factors -- Neighborhood Casino Act,"
recent legislation passed by the Nevada legislature will make the
construction of new, competing locals casinos in Las Vegas more
difficult.
- FRIENDLY ATMOSPHERE. A key element of our strategy is to provide patrons
with friendly personal service that is designed to foster customer
loyalty and generate repeat business. Locals appreciate a friendly,
casual gaming environment where employees make them feel at home.
- VALUE. We offer value to our gaming patrons by providing video poker and
slot machines with better odds than those traditionally found at Strip
casinos due to lower hold percentages on our slot machines. Locals'
perception of value is also influenced by such things as slot clubs that
reward frequent gamblers. The Orleans and Gold Coast slot clubs offer
customers an opportunity to earn cash and prizes based on their winnings.
Because locals and repeat visitors demand variety and quality in their
slot machine play, our casinos offer the latest slot and video poker
technology, including several games designed exclusively for us. In
addition, in
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order to appeal to our value-conscious customers, our many restaurants
and bars serve generous portions of quality food and beverages at
attractive prices.
- ENTERTAINMENT, MOVIE THEATERS AND AMENITIES. We believe we compete
effectively with other locals-oriented casinos by offering amenities and
entertainment that our customers demand and that accentuate the
perception of value for our customers. Our properties offer a number of
amenities that generate significant foot traffic through our casinos,
including movie theaters, bowling centers, quality restaurants and a
variety of musical entertainment.
- Entertainment. The Orleans features headliner entertainers in its
850-seat theater, attracting both local customers and tourists alike.
Among the entertainers who have appeared are Willie Nelson, Ray Charles
and the Righteous Brothers. The entertainment lounges at our
hotel-casinos feature many popular lounge acts.
- Movie Theaters. The Gold Coast was the first hotel-casino in Las Vegas
to offer first-run movies in its twin theaters. In the 1999 Las Vegas
Review-Journal readers' poll, The Orleans' twelve "stadium-seating" movie
theaters were selected as the best theaters in Las Vegas. Our theaters
are operated through a long-term joint venture with Century Theaters, one
of Las Vegas' leading theater operators, allowing us to offer a wide
variety of first-run movies in our state-of-the-art facilities.
- Restaurants. We believe that the value offered by the many restaurants
at our casino properties is a major factor in attracting local gaming
customers, as we believe dining is a primary motivation for casino visits
by many locals. All of the restaurants located in our casino properties
offer generous portions of quality food at reasonable prices. In
addition, the Barbary Coast features two award-winning gourmet
restaurants, Michael's and Drai's on the Strip.
- Other Amenities. In addition to the restaurants and theaters mentioned
above, we offer a variety of amenities directed to the locals market,
including our bowling centers at the Gold Coast and The Orleans, which
are among the most popular in Las Vegas. In the 1999 Las Vegas
Review-Journal readers' poll, the bowling center at The Orleans was voted
the "Best of Las Vegas." Other amenities include banquet and meeting
rooms, wedding chapels and child care facilities.
Tourist Customers. While a significant portion of our customers at The
Orleans and the Gold Coast are local residents, the same factors that appeal to
local residents also appeal to visitors to Las Vegas, including better odds than
those traditionally found at Strip casinos and lower minimum wager limits on our
table games than Strip casinos. Additionally, our casinos are strategically
situated to benefit from a growing visitor market, with the Gold Coast and The
Orleans each located within two miles of the Strip and the Barbary Coast located
at one of the busiest corners on the Strip. In addition to the growing local
resident market, Las Vegas is one of the fastest growing entertainment markets
in the United States. The number of visitors traveling to Las Vegas has
increased from 12.8 million in 1984 to 30.6 million in 1998, representing a
compound annual growth rate of 6.4%, while aggregate expenditures by visitors
increased 10.2% annually during the same period.
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THE ORLEANS
We designed The Orleans to differentiate it in the Las Vegas market by
combining an upscale, off-Strip experience in an exciting themed environment
reflecting the architectural heritage of the New Orleans French Quarter with a
wide variety of non-gaming amenities. The Orleans primarily targets middle to
upper-middle income gaming customers, both local residents and visitors to Las
Vegas. We believe that The Orleans is an attractive alternative for local
residents and Las Vegas visitors, offering a full-service hotel-casino and
entertainment experience complemented with a value-oriented pricing strategy.
The Orleans is strategically located on Tropicana Avenue, a short distance from
the Las Vegas Strip and McCarran International Airport. According to the Nevada
Department of Transportation 1997 Annual Traffic Report, approximately 68,000
vehicles travel by The Orleans each day. With easy access and ample parking, The
Orleans has quickly become a popular destination for locals.
The Orleans features an approximately 105,000 square foot casino, a
22-story tower with 840 hotel rooms, 12 "stadium seating" first-run movie
theaters, a 70-lane bowling center, approximately 40,000 square feet of banquet
and meeting facilities, including an approximately 17,000 square foot grand
ballroom, a wedding chapel, five full-service restaurants, specialty themed
bars, a barber shop, a child care facility, a video arcade, a beauty salon and
approximately 4,000 parking spaces. The casino includes 2,424 slot machines, 58
table games, a keno lounge, a poker parlor and race and sports books. The
Orleans also includes an 850-seat theater that features headliner entertainment
and other special events. Among the performers at The Orleans' theater during
the past year have been Willie Nelson, Ray Charles and the Righteous Brothers.
We believe that the high-quality entertainment at the theater distinguishes us
from most other locals casinos in Las Vegas and allows us to attract more
tourists who would otherwise gamble at Strip casinos.
The Orleans features five restaurants including the Canal Street Grille,
serving steaks and seafood in a gourmet atmosphere, Vito's Ristorante, an
Italian restaurant, Don Miguel's, a Mexican restaurant, the Courtyard Cafe, a
coffee shop featuring New Orleans favorites as well as Chinese and American
fare, and the French Market Buffet, a 750-seat multi-station buffet. Each of our
restaurants serves generous portions of quality food and beverage at competitive
prices. For customers desiring a quick meal or snack, we offer Terrible Mike's,
a hamburger and sandwich restaurant, Kate's Korner, an ice cream parlor, and a
snack bar in our bowling center.
The Orleans employs a number of marketing programs, including a slot club
with over 200,000 members, football contests and grand prize drawings. The
bowling center and twelve-plex movie theaters were chosen by the Las Vegas
Review-Journal as the "Best of Las Vegas" in 1999, adding to The Orleans'
reputation as a multi-faceted entertainment facility.
In the second quarter of 1999 we completed the expansion of The Orleans by
approximately 65,000 square feet at a cost of approximately $13 million, which
we funded with cash on hand. The expansion includes a new multi-station action
buffet restaurant and additional casino gaming space with approximately 200 more
slot machines and 14 table games.
In order to capitalize on our strong presence in the locals market, we are
considering further expansion of The Orleans by adding additional movie
theaters, a restaurant, a new hotel tower and a parking garage. No definitive
plans for an expansion of this type have
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been made, nor have we arranged for the financing of such a project. Because the
proposed expansion is subject to a number of factors, including financing
capacity and continued growth of revenues at The Orleans, we cannot assure you
that all or any aspects of this expansion will be commenced or completed.
THE GOLD COAST
The Gold Coast, which opened in 1986, is located on West Flamingo Road
approximately one mile west of the Las Vegas Strip near Interstate 15, the major
highway linking Las Vegas and Southern California, offering easy access from all
four directions in the Las Vegas Valley. The Gold Coast is located in a
high-traffic area and, according to the Nevada Department of Transportation, an
average of approximately 77,500 vehicles travel by the Gold Coast each day. The
Gold Coast features an approximately 70,000 square foot casino, including
approximately 2,050 slot machines, 48 table games, a keno lounge, a 160-seat
race and sports book and a 700-seat bingo parlor which was voted "Best of Las
Vegas" in 1999 by the readers of the Las Vegas Review-Journal. The Gold Coast
also features an 11-story tower with 712 hotel rooms and suites and a swimming
pool with a covered bar.
The Gold Coast features three full-service restaurants, a 380-seat buffet
restaurant, a fast-food restaurant, a snack bar and ice cream parlor.
Entertainment amenities include a 72-lane bowling center, two movie theaters,
approximately 10,000 square feet of banquet and meeting facilities, four bars,
two entertainment lounges and a showroom/dance hall featuring live musical
entertainment. Other amenities include a gift shop, a liquor store, a travel
agency, an American Express office, a Western Union office, a beauty salon, a
barber shop, a child care facility and over 3,000 parking spaces.
The Gold Coast primarily targets middle-market gaming customers, catering
to local residents as well as repeat visitors to Las Vegas who desire an
alternative to the hotel-casino properties located on the Strip. Our operating
strategy is to maximize customer visitation and thereby increase casino revenues
at the Gold Coast by offering value-conscious customers a combination of
friendly service, generous portions of quality food at competitive prices and
clean, comfortable and inexpensive hotel rooms. We believe this value-oriented
approach generates a high level of customer satisfaction, fostering customer
loyalty and repeat business. We have periodically renovated and upgraded the
Gold Coast in order to maintain its appeal to our target customers.
The Gold Coast has developed a number of innovative campaigns designed to
promote its business and attract local residents. The Gold Coast's slot club has
issued nearly 500,000 club cards to its members since inception and currently
has over 100,000 active members. We established the slot club in 1987 to
encourage repeat business by rewarding frequent slot players with cash and
prizes. Our other Gold Coast marketing programs have included the original "Pick
the Pros" football contest, a $250,000 paycheck cashing contest and live
entertainment in the showroom/dance hall. In addition, the Gold Coast is a
sponsor of the annual National Finals Rodeo, which attracts thousands of
visitors to Las Vegas each December. The awards ceremonies for the Rodeo are
held nightly at the Gold Coast during the 10-day event.
THE BARBARY COAST
The Barbary Coast, which opened in 1979, is located at the intersection of
Flamingo Road and Las Vegas Boulevard. The Barbary Coast is located on one of
the busiest
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intersections on the Strip, along with Caesars Palace, Bally's Las Vegas and
Bellagio. Historically, the Barbary Coast has relied on foot traffic on the Las
Vegas Strip for a significant amount of its revenues. As a result, the Barbary
Coast's customer base is primarily visitors to the Las Vegas area. In addition
to its favorable location on the Strip, the Barbary Coast has also benefited
from its more intimate gaming atmosphere, allowing it to develop a loyal base of
table games and slot customers. Our marketing efforts toward table games
customers include complimentary rooms, food and beverage, as well as programs
such as blackjack tournaments and golf outings. Slot players may also receive
complimentary rooms, food and beverage, as well as cash and prizes as members of
our slot club. The slot players' "Fun Club" has over 100,000 members who are
rewarded for their frequent play.
The Barbary Coast features an approximately 30,000 square foot casino,
including approximately 600 slot machines, 50 table games, race and sports books
and other amenities. Our eight-story tower includes 197 spacious rooms and
suites. The Barbary Coast is furnished and decorated in an elegant turn-of-the-
century Victorian theme and includes three bars and three restaurants: Michael's
gourmet restaurant, Drai's on the Strip, leased to and operated by a third
party, and the Victorian Room. Michael's has received an award from the
Distinguished Restaurants of North America for the past six consecutive years
and in 1998, received an "Extraordinary" rating from the Zagat Survey of
America's Top Restaurants. Drai's specializes in French and California cuisine
served in an elegant setting. The Victorian Room features both American and
Chinese cuisine served in an atmosphere of stained glass and turn-of-the-century
decor.
At the Barbary Coast, we have historically generated most of our gaming
revenue from the table games operations. In 1998, we reconfigured the gaming
floor of the Barbary Coast to enhance its appeal to gaming customers walking on
the Strip and to provide more focus on our slot operations. Approximately 100
machines were added and approximately 40% of the existing machines were replaced
by many of the newest innovations in slot technology. Additionally, as part of
the reconfiguration of the casino, we added live music in our new entertainment
lounge.
THE SUNCOAST
We are currently designing and developing the Suncoast to expand our
presence in the growing Las Vegas locals market. The Suncoast will serve one of
the fastest growing areas of the Las Vegas valley and will be located on
approximately 50 acres in Peccole Ranch, a master-planned community adjacent to
Summerlin.
According to the Bureau of Business and Economic Research at the University
of Nevada, Reno, the population within five miles of the Suncoast site was
approximately 272,000 in April 1998. Our new hotel-casino will be strategically
located at the intersection of Rampart Boulevard and Alta Drive, readily
accessible from most major points in the city, including downtown Las Vegas,
approximately eight miles, and the Strip, approximately nine miles.
Accessibility will be further enhanced by the expected connection of the Las
Vegas beltway to Summerlin Parkway in 2000. The site will be approximately 1/4
mile from the Resort at Summerlin, a new luxury resort that is currently under
construction and expected to open in the third quarter of 1999. We believe that
the Suncoast site is a prime location for a locals casino, with the nearest
other locals-oriented casino approximately five miles away.
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We are designing the Suncoast with a Mediterranean theme and it is expected
to include an approximately 78,000 square foot casino, 232 hotel rooms, with an
average size of approximately 550 square feet, approximately 15,000 square feet
of banquet and meeting facilities, 16 "stadium seating" movie theaters, four
full-service restaurants and approximately 3,400 parking spaces. We expect the
casino to include approximately 2,000 slot machines, 34 table games, a keno
lounge, a poker parlor, race and sports books and a 60 lane bowling alley. The
Suncoast is master-planned to double the number of hotel rooms, when necessary,
by adding an additional wing.
We have an estimated construction and development budget of approximately
$150.0 million, including contingencies, but excluding pre-opening expenditures,
opening bankroll and capitalized interest costs. Construction is expected to
cost approximately $105.0 million, including contingencies, and, subject to
obtaining financing, we expect construction to begin in mid-1999. The budget
also includes $40.0 million for equipment and $5.0 million for architecture and
design fees. We have assembled a construction team with substantial experience
in the development and construction of hotel-casinos in Las Vegas and with whom
we have worked successfully in the past, including Tiberti Construction and
Yates-Silverman, Inc. Tiberti Construction served as general contractor for the
construction of The Orleans and the Gold Coast, as well as several other
successful hotel-casinos in Las Vegas. Yates-Silverman, Inc., a leading designer
of hotels and casinos, specializes in developing theme-oriented interiors and
exteriors, and is known for creating imaginative and elaborate hotel, resort and
gaming property interiors. Yates-Silverman's completed projects include The
Orleans, New York-New York, Excalibur, Circus Circus, Luxor, the Trump Taj
Mahal, Trump Castle and Atlantic City Showboat. We cannot assure you that we
will obtain the financing necessary to develop the Suncoast or will, in fact,
develop the Suncoast.
COMPETITION
There is intense competition among companies in the gaming industry. The
Orleans and the Gold Coast compete, and, when completed, the Suncoast will
compete, primarily with Las Vegas hotel-casinos and non-hotel gaming facilities
which target local residents. Some of these competitors have recently completed
expansions or new projects. In addition, there are currently gaming facilities
that have been announced or are under construction in the immediate vicinity of
our casinos. A hotel-casino has been proposed for a location adjacent to the
Gold Coast. Additionally, adjacent to the Suncoast site, a luxury hotel-casino
and spa called The Resort at Summerlin is expected to open in the third quarter
of 1999 and is anticipated to include a 50,000 square foot gaming facility and
over 500 hotel rooms. Furthermore, there are several undeveloped properties in
the immediate vicinity of The Orleans, the Gold Coast and the location of the
Suncoast on which new gaming facilities could be built. The construction of new
properties and the expansion or enhancement of existing properties near our
casinos could have a negative impact on our business.
In contrast to our other casinos, the Barbary Coast competes for customers
primarily with the hotel-casinos located on the Strip. Several large
hotel-casinos have either recently opened or are under construction on the
Strip, including Bellagio, Mandalay Bay, The Venetian, Paris and Aladdin. The
construction of new properties and the expansion or enhancement of existing
properties on the Strip by competitors could materially adversely affect the
Barbary Coast.
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In addition, each of our properties compete, and, when completed, the
Suncoast will compete, to a lesser extent with all other casinos and hotels in
the Las Vegas area. In addition to those mentioned above, several new
hotel-casino projects and expansions have been announced or are under
construction in Las Vegas. These projects and expansions will add substantial
additional gaming capacity and approximately 8,400 rooms to the Las Vegas area
by December 2000. This additional gaming and room capacity may have a negative
impact on our business.
Furthermore, we compete with other legalized forms of gaming and gaming
operations in other parts of the state of Nevada and elsewhere. Certain states
have recently legalized, and several other states are currently considering
legalizing, casino gaming in designated areas. We also face competition from
casinos located on Native American reservations. We believe that the development
by Native Americans and others of casino properties similar to those in Las
Vegas in areas close to Nevada, particularly California and Arizona, could have
a material adverse effect on our business and results of operations.
Gaming competition from Native American ventures in California may
intensify due to Proposition 5, a California ballot initiative passed by voters
in California on November 3, 1998. Proposition 5 permits Native American tribes
that enter into agreements with the State of California to conduct gaming
activities including operating gaming devices, including slot machines, banked
card games, horse race wagering and lotteries. Proposition 5 is subject to a
legal challenge, and its enforcement has been blocked pending a decision by the
California Supreme Court. We are not certain when, or if, Proposition 5 will
become effective or how it will affect us. However, because visitors from
California make up Nevada's largest visitor market, if Proposition 5 is
implemented, increased competition from Native American gaming may cause a
decline in our revenues and may have a negative impact on our business.
POTENTIAL FUTURE DEVELOPMENTS
From time to time in our ordinary course of business we review proposals
for new developments, joint ventures and other strategic transactions. We cannot
assure you that any new developments, ventures or transactions will be pursued
or, if pursued, will be successful.
EMPLOYEES
At March 31, 1999, we had approximately 4,900 employees. We have not
experienced any significant work stoppages and believe our labor relations are
good. The Las Vegas job market for qualified employees is very competitive.
Except for approximately 350 employees at the Barbary Coast who are covered by a
collective bargaining agreement, none of our other employees are covered by a
collective bargaining agreement.
PROPERTIES
The Orleans occupies a portion of an approximately 80 acre site located on
West Tropicana Avenue, approximately one mile south of the Gold Coast. We lease
the real property under a ground lease entered into by the Company and the
Tiberti Company, a Nevada general partnership of which J. Tito Tiberti, a
director of the Company, is managing partner. See "Certain Transactions." The
lease had an effective commencement date of October 1, 1995, an initial term of
50 years, and includes an option, exercisable by
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us, to extend the initial term for an additional 25 years. The lease provides
for monthly rental payments of $175,000 per month through February 1999,
$200,000 per month during the 36-month period thereafter, $225,000 per month
during the 48-month period thereafter and $250,000 per month during the 60-month
period thereafter. In March 2011, annual rental payments will increase on a
compounding basis at a rate of 3.0% per annum. In addition, we have been granted
an option to purchase the real property during the two-year period commencing in
February 2016. The lease provides that the purchase price will be the fair
market value of the real property at the time we exercise the option, provided
that the purchase price will not be less than 10 times, nor more than 12 times,
annual rent at that time.
We own the approximately 26 acres that the Gold Coast occupies on West
Flamingo Road. We also own an 8.33 acre site across the street from the Gold
Coast that contains an approximately 100,000 square foot warehouse. The
warehouse is used by the Gold Coast, the Barbary Coast and The Orleans primarily
as a storage facility.
The Barbary Coast occupies approximately 1.8 acres at the intersection of
Flamingo Road and the Strip and occupies real property that we lease pursuant to
a lease that expires on May 1, 2003. The lease provides for rental payments of
$175,000 per year. The lease contains two options, exercisable by us, to extend
the term of the lease for 30-years each, with the rent to be readjusted as
provided in the lease during those renewal periods. We have an option to
purchase the leased property at any time during the six month period prior to
the expiration of the lease, provided that certain conditions are met, at a
purchase price equal to the greater of $3.5 million or the then appraised value
of the real property. We also have a right of first refusal in the event the
landlord desires to sell the real property during the initial term of the lease.
We also lease approximately 2.5 additional acres of real property located
adjacent to the Barbary Coast. The lease expires on December 31, 2003. The lease
provides for rental payments of $125,000 per annum. We use the 2.5 acre property
as a parking lot for our employees and for valet parking. The landlord has the
right to terminate the lease upon six months prior notice to us if it requires
the use of the property for its own business purposes, which excludes leaving
the property vacant or leasing it to third parties prior to January 1, 2003.
We lease the approximately 50 acre Suncoast site located at the corner of
Rampart Boulevard and Alta Drive in the west Las Vegas valley pursuant to a
Ground Lease Agreement dated as of October 28, 1994. The initial term of the
lease expires on December 31, 2055. The lease contains three options,
exercisable by us, to extend term of the lease for 10 years each. The lease
provided for monthly rental payments of $166,667 for the year ended December 31,
1995. Thereafter, the monthly rent increases by the amount of $5,000 in January
of each year. The landlord has the option to require us to purchase the property
at the end of 2014, 2015, 2016, 2017 and 2018, at the fair market value of the
real property at the time the landlord exercises the option, provided that the
purchase price will not be less than 10 times nor more than 15 times the annual
rent at that time. Based on the terms of the lease, the potential purchase price
commitment ranges from approximately $31.0 million to approximately $51.0
million in the years 2014 through 2018. We have a right of first refusal in the
event the landlord desires to sell the property at any time during the lease
term.
We own an approximately 29 acre parcel of undeveloped land that is zoned
for gaming located at the corner of Rancho Drive and Carey Avenue in North Las
Vegas, close to the Fiesta Hotel and Casino and the Texas Station Hotel and
Casino. Any future development on this site would be subject to, among other
things, our ability to obtain
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necessary financing and compliance with SB 208 as discussed in "Risk Factors --
Neighborhood Casino Act."
LEGAL PROCEEDINGS
We are currently, and are from time to time, involved in litigation arising
in the ordinary course of our business. We are currently subject to three
lawsuits in which the plaintiffs have sought punitive damages. We intend to
continue to defend the lawsuits vigorously. We do not believe that this
litigation, including the foregoing proceedings, will, individually or in the
aggregate, have a material adverse effect on our financial position or results
of operations.
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NEVADA REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in Nevada are
subject to:
- the Nevada Gaming Control Act and the regulations promulgated under the
Nevada Act, and
- various local regulations.
Our gaming operations are subject to the licensing and regulatory control
of the Nevada Gaming Commission, the Nevada State Gaming Control Board and the
Clark County Liquor and Gaming Licensing Board. The Nevada Commission, the
Nevada Board and the Clark County Board are collectively referred to as the
Nevada gaming authorities.
The laws, regulations and supervisory procedures of the Nevada gaming
authorities are based upon declarations of public policy which, among other
things, seek to:
- prevent unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any capacity,
- establish and maintain responsible accounting practices and procedures,
- maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and
the safeguarding of assets and revenues, providing reliable record
keeping and requiring the filing of periodic reports with the Nevada
gaming authorities,
- prevent cheating and fraudulent practices, and
- provide a source of state and local revenues through taxation and
licensing fees.
Changes in these laws, regulations and procedures could have an adverse effect
on our gaming operations.
Coast Hotels and Casinos, which operates the Gold Coast, the Barbary Coast
and The Orleans, is licensed by the Nevada gaming authorities and is a corporate
licensee under the terms of the Nevada Act. The gaming licenses require the
periodic payment of fees and taxes and are not transferable. We are registered
with the Nevada Commission as a publicly traded corporation and has been found
suitable to own the stock of Coast Hotels. As a Registered Corporation, we are
required periodically to submit detailed financial and operating reports to the
Nevada Commission and furnish any other information that the Nevada Commission
may request. No person may become a stockholder of, or receive any percentage of
the profits from, Coast Hotels without first obtaining licenses and approvals
from the Nevada gaming authorities. Coast Hotels and Casinos and Coast Resorts
have obtained the various registrations, approvals, permits and licenses from
the Nevada gaming authorities that are required in order to engage in gaming
activities at our hotel-casinos.
The Nevada gaming authorities may investigate any individual who has a
material relationship to, or material involvement with, us or Coast Resorts in
order to determine whether the individual is suitable or should be licensed as a
business associate of a Corporate Licensee or a Registered Corporation. Our
officers, directors and certain key employees must file applications with the
Nevada gaming authorities and may be required to be licensed or found suitable
by the Nevada gaming authorities. Our officers, directors and key employees who
are actively and directly involved in our gaming activities may be required to
be licensed or found suitable by the Nevada gaming authorities. The Nevada
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gaming authorities may deny an application for licensing for any cause which
they deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information followed
by a thorough investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada gaming authorities and, in addition to
their authority to deny an application for a finding of suitability or
licensure, the Nevada gaming authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada gaming authorities were to find any of our or Coast Resorts'
officers, directors or key employees unsuitable for licensing or unsuitable to
continue having a relationship with us or Coast Resorts, we and Coast Resorts
would have to sever all relationships with this person. In addition, the Nevada
Commission may require us and Coast Resorts 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.
We and Coast Resorts are required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all our material
loans, leases, sales of securities and similar financing transactions must be
reported to, or approved by, the Nevada Commission.
If it were determined that we violated the Nevada Act, the gaming licenses
we hold could be limited, conditioned, suspended or revoked, subject to
compliance with certain statutory and regulatory procedures. In addition, we,
Coast Resorts 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 our gaming properties and, under certain circumstances, earnings
generated during the supervisor's appointment, except for the reasonable rental
value of our gaming properties, could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of any gaming license or the appointment
of a supervisor, and revocation of any gaming license would, could materially
adversely affect our gaming operations.
Any beneficial holder of a Registered Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have his suitability as a beneficial holder of
a Registered Corporation's voting securities determined if the Nevada Commission
has reason to believe that this 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
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 30 days after the
Chairman of the Nevada Board mails the written notice requiring a 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 a finding of suitability if the institutional investor holds the voting
securities for investment purposes only. An institutional investor will not be
deemed to hold voting securities for
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investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of a Registered Corporation, any change in a
Registered Corporation's corporate charter, bylaws, management, policies or
operations, 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:
- voting on all matters voted on by stockholders;
- making financial and other inquiries of management of the type normally
made by securities analysts for informational purposes and not to cause a
change in its management policies or operations; and
- such other activities as the Nevada Commission may determine to be
consistent with the 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 owner, after request, fails to identify the
beneficial owner. Any stockholder found unsuitable and who holds, directly or
indirectly, any beneficial ownership of the voting securities of a Registered
Corporation beyond that period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. We are subject to disciplinary
action if, after we receive notice that a person is unsuitable to be a
stockholder or to have any other relationship with us or Coast Resorts, we:
- pay that person any dividend or interest upon voting securities of the
Company,
- allow that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person,
- pay remuneration in any form to that person for services rendered or
otherwise, or
- fail to pursue all lawful efforts to require the unsuitable person to
relinquish his voting securities, including, if necessary, the immediate
purchase of those voting securities for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Corporate Licensee or a Registered Corporation to file
applications, be investigated and be found suitable to own the debt security. If
the Nevada Commission determines that a person is unsuitable to own the
security, then pursuant to the Nevada Act, the Corporate Licensee or the
Registered Corporation can be sanctioned, including the loss of its licenses, if
without the prior approval of the Nevada Commission, it:
- pays to the unsuitable person any dividend, interest or any distribution
whatsoever;
- recognizes any voting right by an unsuitable person in connection with
these securities;
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- pays the unsuitable person remuneration in any form; or
- makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar transaction.
We are 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 this disclosure may be grounds for finding the record holder
unsuitable. We are also required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the power to require
our stock certificates to bear a legend indicating that the securities are
subject to the Nevada Act.
Licensed Corporations and Registered Corporations such as our company and
Coast Resorts may not make public offerings of their 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 require or extend obligations incurred for these purposes. The
exchange offer described under "Description of the Notes -- Registration Rights"
will qualify as a public offering, as the term is defined in the Nevada Act. The
Nevada Commission has previously granted exemptions from this prior approval
process to the Company and Coast Resorts which will apply to the exchange offer.
However, the pledge of the Company's equity securities by Coast Resorts in
connection with the credit facility, and the placement of restrictions upon the
transfer of, and the agreement not to encumber, the equity securities of the
Company as security for the exchange notes will require the approval of the
Nevada Commission in connection with the approval of the exchange offer in order
to remain effective. Approval of a public offering, if given, will 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 with respect to a variety of stringent standards prior to assuming
control of the 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 a part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
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Approvals are, in certain circumstances, required from the Nevada Commission
before a Registered Corporation can make exceptional repurchases of voting
securities above the current market price 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 a 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:
- a percentage of the gross revenues received;
- the number of gaming devices operated; or
- the number of table games operated.
A casino entertainment tax is also paid by casino operations where entertainment
is furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
Any person who is a Licensee, and who proposes to become involved in a
gaming venture outside of Nevada is required to deposit with the Nevada Board,
and thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada Board of their participation in the
foreign gaming. "A Licensee" is any person who is licensed, required to be
licensed, registered, required to be registered, or is under common control with
these persons. The revolving fund is subject to increase or decrease at the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with the reporting requirements imposed by the Nevada Act. Licensees are
also subject to disciplinary action by the Nevada Commission if they knowingly:
- violate any laws of the foreign jurisdiction pertaining to the foreign
gaming operation,
- fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations,
- engage in activities that are harmful to the State of Nevada or its
ability to collect gaming taxes and fees, or
- employ a person in the foreign operation who has been denied a license or
finding of suitability in Nevada on the ground of personal unsuitability.
We may pursue development opportunities in other jurisdictions and expect
that if it we do so we will be subject to similar rigorous regulatory standards
in each other jurisdiction in which we seek to conduct gaming operations. There
can be no assurance that regulations adopted, permits required or taxes imposed,
by other jurisdictions will permit profitable operations by our company in those
jurisdictions.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the directors and
executive officers of our company and their respective positions as of June 15,
1999.
NAME AGE POSITIONS HELD
---- --- --------------
Michael J. Gaughan................. 56 Director, Chairman of the Board and
Chief Executive Officer
Harlan D. Braaten.................. 48 Director, President and Chief
Operating Officer
Jerry Herbst....................... 61 Director, Vice President, Treasurer
and Assistant Secretary
J. Tito Tiberti.................... 54 Director, Vice President and
Secretary
Gage Parrish....................... 45 Director, Vice President, Chief
Financial Officer and Assistant
Secretary
Franklin Toti...................... 60 Director and Vice President of
Casino Operations
F. Michael Corrigan................ 63 Director
Charles Silverman.................. 66 Director
Joseph A. Blasco................... 55 Director
MICHAEL J. GAUGHAN. Mr. Gaughan has been a director of our company since
its formation in September 1995 and is the Chairman of the Board and Chief
Executive Officer. His current term as a director expires in 2000. He is also a
director and Chairman of the Board and Chief Executive Officer of Coast Resorts,
Inc. Mr. Gaughan was a general partner of the Barbary Coast Partnership from its
inception in 1979 until January 1, 1996, the effective date of the
reorganization in which the Barbary Coast Partnership and the Gold Coast
Partnership consolidated with Coast Resorts and our company. Mr. Gaughan served
as the managing general partner of the Gold Coast Partnership from its inception
in December 1986 until the effective date of the Reorganization. Mr. Gaughan and
Mr. Herbst were the sole stockholders of Gaughan-Herbst, Inc., which was the
sole corporate general partner of the Gold Coast Partnership prior to the
Reorganization. Mr. Gaughan has been involved in the gaming industry since 1960
and has been licensed as a casino operator since 1967.
HARLAN D. BRAATEN. Mr. Braaten joined our company as the President, Chief
Financial Officer and a director in October 1995, and was appointed Chief
Operating Officer in February 1996. His current term as a director expires in
2000. Mr. Braaten is also the President and Chief Operating Officer of Coast
Resorts. Prior to joining our company, Mr. Braaten was employed in various
capacities, including the general manager and, most recently, senior vice
president, treasurer and chief financial officer of Rio Hotel and Casino, Inc.
in Las Vegas. From March 1989 to February 1991, Mr. Braaten was vice president,
finance of MGM/Marina Hotel and Casino in Las Vegas, Nevada. Prior thereto, from
November 1983 to March 1989, Mr. Braaten was property controller for Harrah's in
Reno, Nevada. Mr. Braaten has over 20 years of experience in the Nevada gaming
industry.
JERRY HERBST. Mr. Herbst has been a director, Vice President, Treasurer and
Assistant Secretary of our company since its formation in September 1995. His
current
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term as a director expires in 1999. Mr. Herbst has been the president of
Terrible Herbst Oil Company, an owner and operator of gas stations and car
washes, since 1959. Mr. Herbst and Mr. Gaughan were the sole stockholders of
Gaughan-Herbst, Inc., which was the sole corporate general partner of the Gold
Coast Partnership prior to the formation of our company. Mr. Herbst has served
as a member of the board of directors of Bank of America -- Nevada since 1977
and of Nevada Power Company since 1990 and of Edelbrook Corporation since 1994.
J. TITO TIBERTI. Mr. Tiberti has been a director, Vice President and
Secretary of our company since its formation in September 1995. His current term
as a director expires in 1999. He is also a director and Vice President and
Secretary of Coast Resorts. Mr. Tiberti is the president, a director and a
stockholder of, and together with his immediate family, controls Tiberti
Construction, a construction company which served as the general contractor for
the construction of The Orleans and is also serving as general contractor for
the Suncoast. He has also served as managing general partner of The Tiberti
Company, a real estate rental and development company, since 1971. The Tiberti
Company is the lessor of the real property site for The Orleans. Mr. Tiberti has
been involved in the gaming industry for 19 years and was a general partner of
the Barbary Coast Partnership prior to the formation of our company.
GAGE PARRISH. Mr. Parrish was named Vice President, Finance, Assistant
Secretary and a director of our company and Coast Resorts in October 1995 and
was promoted to Chief Financial Officer in February 1996. His current term as a
director expires in 2000. Since 1986, he had been the Controller and Chief
Financial Officer of the Gold Coast Partnership prior to the formation of our
company. From 1981 to 1986, Mr. Parrish served as Assistant Controller of the
Barbary Coast Partnership. Mr. Parrish is a certified public accountant and has
approximately 20 years of experience in the gaming industry.
FRANKLIN TOTI. Mr. Toti has been a director of our company and Coast
Resorts since October 5, 1998. His current term expires in 1999. He has been
Vice President of Casino Operations for our company since January 1, 1996. Mr.
Toti was a general partner and Casino Manager of the Barbary Coast Partnership
from its inception in 1979 until January 1, 1996, the effective date of the
reorganization. Mr. Toti has 38 years of experience in the gaming industry.
F. MICHAEL CORRIGAN. Mr. Corrigan was elected as a director of our company
and Coast Resorts effective as of March 1, 1996. His current term as a director
expires in 2001. Since July 1989, Mr. Corrigan has served as the chief executive
officer of Corrigan Investments, Inc., which owns and manages real estate in
Nevada and Arizona. In addition, Mr. Corrigan is the Chief Executive Officer of
Corstan, Inc., a mortgage banking company, and was previously the owner,
President and Chief Operating Officer of Stanwell Mortgage, a Las Vegas mortgage
company.
CHARLES SILVERMAN. Mr. Silverman was elected as a director of our company
and Coast Resorts effective as of March 1, 1996. His current term as a director
expires in 2001. Mr. Silverman is the President and sole stockholder of
Yates-Silverman, Inc., which specializes in developing theme-oriented interiors
and exteriors and is a leading designer of hotels and casinos. Completed
projects of Yates-Silverman, Inc. include New York-New York, Excalibur, Circus
Circus, Luxor, the Trump Taj Mahal, Trump Castle and Atlantic City Showboat.
Yates-Silverman, Inc. also served as the primary designer for The Orleans and is
serving in the same capacity for the Suncoast. Mr. Silverman has served as the
president of Yates-Silverman, Inc. since its inception in 1971.
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JOSEPH A. BLASCO. Mr. Blasco was elected as a director of our company and
Coast Resorts effective as of December 16, 1996. His current term as a director
expires in 2001. Since 1984, Mr. Blasco has been a partner in the real estate
development partnership which developed the Spanish Trail community in Las
Vegas, a project which includes over 1,200 homes, a 27-hole golf course and a
country club. Mr. Blasco is currently the managing General Partner of United
Realty Investments, a real estate development and management company in Las
Vegas. He is also general partner in two real estate development partnerships,
Summer Trail LLC and Trop-Edmond Ltd.
Directors of our company who are also employees of our company or Coast
Resorts receive no compensation for service on our company's Board of Directors
or its committees. All other directors receive an annual director's fee of
$24,000, payable quarterly in arrears. Directors may also be reimbursed for
out-of-pocket expenses incurred in connection with attending Board of Director
or committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned by or paid by the
Predecessor Partnerships and the Company during 1996, 1997 and 1998 to each
named executive officer whose compensation exceeded $100,000 in all capacities
in which they served.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ---- -------- -------- ---------------
Michael J. Gaughan.................... 1998 $300,000 $ -- $5,000
Chairman of the Board and Chief 1997 300,000 -- 4,750
Executive Officer of our company; 1996 300,000 195,000 4,750
Harlan D. Braaten..................... 1998 250,000 125,000 5,000
President and Chief Operating Officer
of 1997 250,000 250,000(3) 4,750
our company(2) 1996 250,000 162,500 --
Gage Parrish.......................... 1998 200,000 -- 5,000
Vice President, Chief Financial
Officer 1997 200,000 -- 4,750
and Assistant Secretary of our
company(4).......................... 1996 150,000 52,500 3,040
- -------------------------
(1) The amounts reflect matching contributions paid to our 401(k) Profit Sharing
Plan and Trust.
(2) Mr. Braaten joined us in October 1995 as President and Chief Financial
Officer of our company and Coast Resorts. Mr. Braaten was appointed as Chief
Operating Officer of our company and Coast Resorts in February 1996.
(3) Pursuant to his previous employment agreement, Mr. Braaten received a bonus
of $250,000 because Coast Resorts had not made a public offering of its
common stock by December 31, 1997. Mr. Braaten entered into a new employment
agreement effective as of January 1, 1999.
(4) Mr. Parrish served as Vice President, Finance and Controller of our company
and Coast Resorts from September 1995 to February 1996, when Mr. Parrish was
named Chief Financial Officer of our company and Coast Resorts.
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EMPLOYMENT AGREEMENT
Effective as of January 1, 1999, we entered into an employment agreement
with Harlan Braaten, President and Chief Operating Officer. The agreement has a
term of three years and provides for Mr. Braaten to receive a base annual salary
of $250,000 during 1999. The base annual salary increases to $300,000 on January
1, 2000. In addition, the agreement provides for a bonus of at least 50% of the
base annual salary if a specified earnings target is met for each year of the
agreement. The agreement may be terminated upon 30 days notice by Mr. Braaten
and at any time by us. In addition, in the event of a termination of Mr.
Braaten's employment other than for failure to comply with Nevada gaming
regulations, failure to perform his duties, medical incapacity or his arrest on
a felony offense, Mr. Braaten will be entitled to receive a severance payment in
the amount of $300,000 plus any pro rata bonus payment and unvested stock
options to which he is entitled. Pursuant to the arrangement, we granted Mr.
Braaten options to purchase 30,415 shares of Coast Resorts, Inc. for $100 per
share. The options vested as to one-third of the shares on the grant date,
January 1, 1999, and will vest with respect to half of the remaining shares, on
each of the first and second anniversaries of the grant date.
BONUS PLAN
In 1996, we established a bonus plan designed to reward executive officers
and other key employees for their contributions to our company's business
objectives and operating results. Bonuses may be awarded in the discretion of
the Board of Directors based upon achievement of financial targets established
by the Board of Directors on an annual basis, and generally will be equal to a
percentage of the recipient's base salary, depending on the target achieved.
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CERTAIN TRANSACTIONS
We maintain numerous racetrack dissemination contracts with Las Vegas
Dissemination Company, Inc. Michael J. Gaughan's son is the president and sole
stockholder of LVD. LVD provides certain dissemination and pari-mutuel services
to The Orleans, the Gold Coast and Barbary Coast. LVD has been granted a license
by the Nevada Gaming Authorities to disseminate live racing for those events and
tracks for which it contracts and has been granted the exclusive right to
disseminate all pari-mutuel services and race wire services in the State of
Nevada. Under these dissemination contracts, we pay to LVD an average of 3% of
the wagers accepted for races held at the racetracks covered by the respective
contracts. We also pay to LVD a monthly fee for race wire services. For the
fiscal years ended December 31, 1996, 1997 and 1998 and for the three months
ended March 31, 1999, we incurred expenses payable to LVD of approximately
$889,000, $1.1 million, $3.1 million and $361,000, respectively. The terms on
which these services are provided are regulated by the Nevada gaming
authorities.
Tiberti Construction served as the general contractor for the original
construction of the Gold Coast and for certain expansions thereof, and for the
original construction of the Barbary Coast and all expansions thereof. Tiberti
Construction was also the general contractor for the original construction of
The Orleans and for the expansions in 1997 and 1999. J. Tito Tiberti owns
approximately 6.4% of the outstanding common stock of Coast Resorts, and is a
director, Vice President and Secretary of Coast Hotels and Casinos and Coast
Resorts. Mr. Tiberti is the president, a director and stockholder of, and
together with his immediate family members, controls Tiberti Construction. For
the years ended December 31, 1996, 1997 and 1998 and for the three months ended
March 31, 1999, we incurred expenses payable to Tiberti Construction of
approximately $80.3 million, $26.2 million, $3.7 million and $2.3 million,
respectively.
We have entered into a ground lease with The Tiberti Company, a Nevada
general partnership, with respect to the real property on which The Orleans is
located. Mr. Tiberti, a director of our company and a director and stockholder
of Coast Resorts, is the managing partner of The Tiberti Company. For the fiscal
years ended December 31, 1996, 1997 and 1998 and for the three months ended
March 31, 1999, we paid rental expenses to The Tiberti Company of approximately
$3.0 million, $2.1 million, $2.4 million and $550,000, respectively.
Michael J. Gaughan, Franklin Toti and Leo Lewis are the owners of LGT
Advertising, which serves as our advertising agency. LGT Advertising purchases
advertising for our casinos from third parties and passes any discounts directly
through to us. LGT Advertising receives no compensation or profit for these
activities, and invoices us for actual costs incurred. LGT Advertising uses our
facilities and employees in rendering its services, but does not pay any
compensation to us for their use. None of Messrs. Gaughan, Toti or Lewis
receives any compensation from LGT Advertising. Advertising expenses amounted to
approximately $3.8 million, $7.5 million, $6.0 million and $1.5 million for the
years ended December 31, 1996, 1997 and 1998 and for the three months ended
March 31, 1999, respectively.
We have purchased certain of our equipment and inventory for our respective
operations from RJS Inc., a Nevada corporation, that is owned by Michael J.
Gaughan's father and Steven Delmont, our restaurant manager. RJS invoices us for
actual costs incurred. For the fiscal years ended December 31, 1996, 1997 and
1998 and for the
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three months ended March 31, 1999, we incurred expenses payable to RJS of
approximately $4.1 million, $1.4 million, $829,000 and $982,000, respectively.
Michael J. Gaughan is the majority stockholder of Nevada Wallboards, Inc.,
a Nevada corporation, which prints wallboards and parlay cards for use in our
race and sports books. Mr. Gaughan receives no compensation from Nevada
Wallboards. We expect to continue to purchase wallboards and parlay cards from
Nevada Wallboards. For the fiscal years ended December 31, 1996, 1997 and 1998
and for the three months ended March 31, 1999, we incurred expenses payable to
Nevada Wallboards of approximately $145,000, $198,000, $186,000 and $40,000,
respectively.
Charles Silverman, a director of our company and Coast Resorts, is the
president of Yates-Silverman, Inc., which served as the designer of The Orleans
and is serving as the designer for the Suncoast. For the fiscal years ended
December 31, 1996, 1997 and 1998 and for the three months ended March 31, 1999,
we incurred expenses payable to Yates-Silverman of $508,000, $177,000, $500,000
and $230,000, respectively.
The partnership that owned the Barbary Coast prior to 1997 had from time to
time borrowed funds from Exber, Inc., a Nevada corporation, which owns the El
Cortez Hotel & Casino. Exber is controlled by Jackie Gaughan, Michael J.
Gaughan's father. Jackie Gaughan, Jr., Michael J. Gaughan's brother, serves on
the Board of Directors of Exber. Irving Kenneth Epstein, a stockholder of Coast
Resorts and Vice President of the Company, is a stockholder of Exber. Michael J.
Gaughan has no ownership interest in Exber.
In February 1991, the Barbary Coast Partnership borrowed $7.5 million from
Exber, the proceeds of which were used to purchase slot machines and for working
capital purposes. The Barbary Coast Partnership repaid all outstanding principal
and interest on this indebtedness in January 1995. Also in January 1995, the
Barbary Coast Partnership borrowed an additional $3.0 million from Exber. The
proceeds from the 1995 Exber Loan were used to purchase slot machines, to
refinance approximately $465,000 outstanding under the 1991 indebtedness and for
working capital purposes. As of December 31, 1996, nothing was owed to Exber,
Inc. During the fiscal year ended December 31, 1996, we paid to Exber total
principal of $1.3 million and interest of $37,000.
In addition, Exber provided laundry services to the Gold Coast and the
Barbary Coast. We terminated our laundry services contract with Exber effective
October 31, 1996. During the fiscal year ended December 31, 1996, we incurred
total expenses payable to Exber of approximately $864,000.
In July 1995, the Barbary Coast Partnership borrowed an aggregate amount of
$1.5 million from Michael J. Gaughan which is evidenced by demand promissory
notes. The proceeds of the demand notes were used by the Barbary Coast
Partnership for working capital purposes. The demand notes accrued interest at
6% per annum, commencing August 1, 1995, and were payable on demand. In the
Reorganization, Coast Resorts assumed the demand notes in exchange for 14,118
shares of Coast Resorts common stock.
From July 1991 through December 1996, we leased the main sign at the
Barbary Coast from Desert Ltd., a Nevada general partnership. Michael J.
Gaughan, J. Tito Tiberti and Franklin Toti own 50%, 25% and 25%, respectively,
of Desert Ltd. The lease provided for monthly rental payments of $13,700 through
July 1998. The lease also provided us with an option to purchase the sign at any
time prior to the end of the lease term or within
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thirty days thereafter for a purchase price equal to its fair market value. We
exercised the option to purchase the sign in December 1996 for $233,000. For the
year ended December 31, 1996, we made rental payments to Desert Ltd. of
approximately $164,000.
We expect to promote The Orleans by advertising The Orleans name on a
NASCAR race car operated by Brendan Gaughan on the Winston West Circuit. We
expect to spend approximately $300,000 in connection with this promotion.
Brendan Gaughan is the son of Michael Gaughan.
We believe these transactions are on terms no less favorable to us than we
could have been from unaffiliated third parties. Each of the transactions was
approved by a majority of our disinterested directors. Any future transactions
between us and our officers, directors, principal stockholders or affiliates
will be on terms no less favorable to us than we could obtain from unaffiliated
third parties, and will be approved by a majority of our disinterested
directors.
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PRINCIPAL STOCKHOLDERS
All of our common stock is owned by Coast Resorts. The following table sets
forth certain information regarding the beneficial ownership of Coast Resorts
common stock as of June 15, 1999 by:
- each person who, to the knowledge of Coast Resorts, owns more than 5% of
the outstanding Coast Resorts common stock,
- each director of our company,
- named executive officers, and
- all directors and executive officers of our company as a group.
NAME(1) NUMBER OF SHARES PERCENT
------- ---------------- -------
Michael J. Gaughan..................................... 452,103.97 30.4%
Jerry Herbst........................................... 265,388.08 17.8
Jimma Lee Beam......................................... 104,529.41 7.0
Franklin Toti.......................................... 99,776.47 6.7
J. Tito Tiberti........................................ 95,151.47 6.4
Harlan D. Braaten(2)................................... 10,138.33 *
F. Michael Corrigan.................................... 5,263.24 *
Joseph A. Blasco....................................... 500 *
Charles Silverman...................................... 500 *
Gage Parrish........................................... -- --
All directors and executive officers as a group (nine
persons)............................................. 928,821.56 62.1
- -------------------------
* Less than one percent.
(1) The address of Messrs. Gaughan and Herbst is 4500 West Tropicana Avenue, Las
Vegas, Nevada 89103. The address of Mr. Toti is 3595 Las Vegas Boulevard
South, Las Vegas, Nevada 89109. The address of Mr. Tiberti is 1806 South
Industrial Road, Las Vegas, Nevada 89102. The address of Ms. Beam is 2409
Windjammer Way, Las Vegas, Nevada 89107.
(2) Reflects shares that may be purchased upon exercise of a stock option.
Pursuant to his employment agreement, Mr. Braaten was granted an option to
purchase 30,415 shares of Coast Resorts, Inc. for $100 per share. One third
of the options vested on the grant date, January 1, 1999, one third vest
January 1, 2000 and the remaining third vest on January 1, 2001.
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DESCRIPTION OF OUR OTHER INDEBTEDNESS
The following is a summary of important terms of our material indebtedness.
CREDIT FACILITY
Credit Facility. As part of the refinancing transactions completed in
connection with the issuance of the outstanding notes, we entered into a senior
secured revolving bank credit facility with Bank of America National Trust and
Savings Association and certain other lenders. Under the credit facility, we may
borrow up to $75.0 million. The $75.0 million facility will be reduced in
quarterly amounts ranging from $2.1 million to $4.3 million per quarter,
beginning the fiscal quarter ending June 30, 2001. The credit facility has a
term of five years. The initial advances of $47 million under the credit
facility were used in connection with the repurchase of our 13% first mortgage
notes and our 10 7/8% first mortgage notes described below. Subsequent advances
under the credit facility may be used for working capital, general corporate
purposes, and certain improvements to our existing properties. We closed the
credit facility concurrently with the outstanding notes offering.
The credit facility is secured by liens on substantially all our assets and
is guaranteed by Coast Resorts and any of our future subsidiaries. The Coast
Resorts guarantee is secured by a pledge of all of our common stock and by liens
on substantially all its other assets. The credit facility also contains
customary representations and warranties and affirmative and negative covenants,
including, among others, covenants relating to financial and compliance
reporting, capital expenditures, restricted payments, maintenance of certain
financial ratios, incurrence of liens, sale or disposition of assets and
incurrence of other debt.
At our option, interest for advances under the credit facility will accrue
at either:
- the Interbank Offered Rate for 1, 2, 3 or 6 month dollar deposits as
offered by Bank of America NT&SA to prime international banks in the
offshore dollar market, LIBOR, plus a spread ranging from 1.25% to 2.75%;
or
- the higher of (1) the rate as publicly announced from time to time by
Bank of America NT&SA as its reference rate or (2) the Federal Funds Rate
plus one-half of one percent per annum, such base rate, plus a spread
ranging from 0% to 1.50%.
The credit facility provides that interest on LIBOR advances will be
payable at the end of each applicable interest period or quarterly, if earlier.
Interest on base rate advances will be payable quarterly. Upon default, interest
will accrue at the base rate plus 2.00%.
The credit facility contains a provision that, with lender approval, will
increase the maximum capacity under the credit facility to $200.0 million. The
$200.0 million commitment, if obtained, will be reduced in quarterly amounts
ranging from $6.0 million to $11.5 million per quarter, beginning the fiscal
quarter ending June 30, 2001. We anticipate using advances under the proposed
amended credit facility to fund the construction of the Suncoast, make capital
improvements to existing properties and to provide for other working capital and
general corporate purposes. The increase in the facility remains subject to a
number of contingencies, including lender approval and the negotiation of
additional terms relating to the construction. We cannot assure you that we will
be able to obtain the increase in the credit facility or that it will be
available on acceptable terms. If we cannot amend the credit facility or obtain
timely alternative
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financing on acceptable terms, we may not be able to develop, construct and open
the Suncoast, which could adversely impact our operating results.
At March 31, 1999, we had $47.0 million outstanding under the credit
facility.
FIRST MORTGAGE NOTES
13% First Mortgage Notes due 2002. In January 1996, we issued $175.0
million principal amount of 13% first mortgage notes due 2002. At March 31,
1999, $2.0 million principal amount of the 13% first mortgage notes remained
outstanding. The 13% first mortgage notes are unconditionally guaranteed by
Coast Resorts, and are secured by, among other things, a first priority security
interest in substantially all of our assets. The 13% first mortgage notes are
redeemable at our option any time on or after December 15, 2000, and we are
required by the terms of the outstanding notes and our credit facility to redeem
all outstanding 13% first mortgage notes on December 15, 2000.
In connection with our repurchase of 13% first mortgage notes, we amended
the indenture pursuant to which the 13% first mortgage notes were issued to
eliminate substantially all restrictive covenants pursuant to the consent of the
holders of approximately 99% of the outstanding principal amount of the 13%
first mortgage notes received in the consent solicitation.
DESCRIPTION OF THE EXCHANGE NOTES
Except as otherwise indicated below, the following summary applies to both
the outstanding notes and the exchange notes. For this section, the term "Notes"
means both the outstanding notes and the exchange notes unless otherwise
indicated.
The outstanding notes were, and the exchange notes will be, issued under
the indenture dated as of March 23, 1999 among ourself, as issuer, Coast
Resorts, as guarantor, and Firstar Bank of Minnesota, N.A., as trustee. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939.
The terms of the exchange notes are nearly identical to the outstanding
notes in all material respects, including interest rate and maturity, except
that the exchange notes will not be subject to:
- the restrictions on transfer; and
- the registration agreement covenants regarding registration.
The outstanding notes remain subject to all of these terms. The following
description is a summary of the material provisions of the Indenture. It does
not restate the Indenture in its entirety. You can find the definitions of some
capitalized terms used in this description under the subheading "Certain
Definitions" below. We urge you to read the Indenture because it, and not this
description, defines your rights as holders of the exchange notes.
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BRIEF DESCRIPTION OF THE EXCHANGE NOTES AND THE GUARANTEES
THE EXCHANGE NOTES
The exchange notes are:
- general, unsecured obligations;
- subordinated in right of payment to all of our existing and future Senior
Debt;
- ranked equally in right of payment with any of our future senior
subordinated Indebtedness, and with any of our other obligations that are
not Senior Debt and are not expressly subordinated to the exchange notes;
and
- unconditionally guaranteed by the Guarantor.
THE PARENT AND SUBSIDIARY GUARANTEE
The Guarantees of the exchange notes are:
- general unsecured obligations of each Guarantor;
- subordinated in right of payment to all existing and future Senior Debt
of each Guarantor; and
- ranked equally in right of payment with any future senior subordinated
Indebtedness of each Guarantor, and with any other obligations of such
Guarantor that are not Senior Debt and are not expressly subordinated to
the notes.
Assuming we had completed the refinancing transactions prior to December
31, 1998, including the outstanding note offering, we would have had total
Senior Indebtedness of approximately $65.0 million as of December 31, 1998. The
Indenture permits us to incur additional Indebtedness, including additional
Senior Indebtedness, in specific circumstances.
In connection with the refinancing transactions, we merged Coast West, Inc.
into our company. Presently, we do not have any subsidiaries. However, under
specific circumstances, we will be permitted to designate future subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the Indenture.
Our payment obligations under the Notes will be jointly and severally
guaranteed by our parent, Coast Resorts, and any future Restricted Subsidiaries
of our company that have at any time a Fair Market Value of more than $250,000;
provided that the aggregate Fair Market Value of Restricted Subsidiaries that
are not Subsidiary Guarantors will not at any time exceed $1.0 million. The
Parent Guarantee will be subordinated to the prior payment in full of all Senior
Indebtedness of Coast Resorts on the same basis as the Notes are subordinated to
Senior Indebtedness of our company. Each Subsidiary Guarantee will be
subordinated to the prior payment in full of all Senior Indebtedness of such
Subsidiary Guarantor on the same basis as the notes are subordinated to Senior
Indebtedness of our company. The obligations of Coast Resorts under its Parent
Guarantee and each Subsidiary Guarantor under its Subsidiary Guarantee will be
limited so as not to constitute a fraudulent conveyance under applicable law.
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No Guarantor is permitted to consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person), another Person whether
or not affiliated with such Guarantor unless:
- subject to the provisions of the following paragraph, the Person formed
by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor under the Parent
Guarantee or Subsidiary Guarantee, as applicable, and the Indenture
pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee; and
- immediately after giving effect to such transaction, no Default or Event
of Default exists.
The Indenture provides that in the event of a (a) sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, (b) a sale or other disposition of all of the capital stock of any
Guarantor or (c) the designation of any Subsidiary Guarantor as an Unrestricted
Subsidiary in accordance with the Indenture then the Guarantor (in the event of
a sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Guarantor or in the event of its
designation as an Unrestricted Subsidiary) or the corporation acquiring the
property (in the event of a sale or other disposition of all of the assets of
the Guarantor) will be released and relieved of any obligations under its Parent
Guarantee or Subsidiary Guarantee; provided that the Net Cash Proceeds of such
sale or other disposition are applied in accordance with the applicable
provisions of the Indenture. See "Covenants -- Asset Sales."
PRINCIPAL, MATURITY AND INTEREST
The exchange notes will be initially limited in aggregate principal amount
to $175.0 million and will mature on April 1, 2009. Subject to the covenants
described below and applicable law, we may issue additional notes under the
Indenture.
Interest on the exchange notes will accrue at the rate of 9 1/2% per annum
and will be payable semi-annually in arrears on April 1 and October 1,
commencing on October 1, 1999, to the Holders of record on the immediately
preceding March 15 and September 15.
Interest on the exchange notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. If a Holder has given wire transfer
instructions to us, we will make all principal, premium, interest and Additional
Interest payments on those exchange notes in accordance with those instructions.
All other payments on the exchange notes will be made at the office or agency of
the Trustee within the City and State of New York unless we elect to make
interest payments by check mailed to the Holders at their address set forth in
the register of Holders. The exchange notes will be issued in denominations of
$1,000 and integral multiples of $1,000.
SUBORDINATION
The payment of principal of and premium, interest and Additional Interest,
if any, on the exchange notes will be subordinated to the prior payment in full
in cash of all of our Senior Indebtedness. The payment of any amounts pursuant
to the Parent Guarantee or
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any Subsidiary Guarantee will be subordinated to the prior payment in full in
cash of all Senior Indebtedness.
The holders of Senior Indebtedness will be entitled to receive payment in
full in cash of all Obligations due in respect of Senior Indebtedness, including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Indebtedness whether or not allowed or allowable in such
proceeding, before the Holders will be entitled to receive any payment with
respect to the exchange notes, the Parent Guarantee or a Subsidiary Guarantee,
as applicable, upon any distribution to creditors of Coast Resorts, our company
or any Subsidiary Guarantor:
- in a liquidation or dissolution of such entity;
- in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the such entity or its property;
- in an assignment for the benefit of creditors of such entity; or
- in any marshaling of the assets and liabilities of such entity;
In addition, until all Obligations due with respect to Senior Indebtedness are
paid in full in cash, any distribution to which Holders would be entitled will
be made to the holders of such Senior Indebtedness, except that Holders may
receive Permitted Junior Securities and payments made from the trust described
under "-- Legal Defeasance and Covenant Defeasance".
We also may not make any payment in respect of the exchange notes nor may
Parent Guarantor or any Subsidiary Guarantor make any payment with respect to
the Parent Guarantee or a Subsidiary Guarantee, except in Permitted Junior
Securities or from the trust described under "-- Legal Defeasance and Covenant
Defeasance" if:
- a payment default on Designated Senior Indebtedness occurs and is
continuing beyond any applicable grace period, including any acceleration
of the Designated Senior Indebtedness; or
- any other default occurs and is continuing on Designated Senior
Indebtedness that permits holders of such Designated Senior Indebtedness
to accelerate its maturity and the Trustee receives a notice of such
default, a "Payment Blockage Notice," from us, a Representative for, or
the holders of a majority of the outstanding principal amount of, any
issue of Designated Senior Indebtedness.
Payments on the exchange notes, the Parent Guarantees and the Subsidiary
Guarantees may and will be resumed:
- in the case of a payment default, upon the date on which such default is
cured or waived; and
- in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity
of any Designated Senior Indebtedness has been accelerated.
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No new Payment Blockage Notice may be delivered unless and until:
- 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice; and
- all scheduled payments of principal, premium, interest and Additional
Interest, if any, on the exchange notes that have come due have been paid
in full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee will be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default will have
been cured or waived for a period of not less than 180 days.
We must promptly notify holders of Senior Indebtedness if payment of the
exchange notes is accelerated because of an Event of Default, but our failure to
provide such notice will not affect the subordination of the exchange notes.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of Coast Resorts, our company or a Subsidiary
Guarantor, Holders may recover less ratably than other creditors of such
entities, including creditors who are holders of Senior Indebtedness. See "Risk
Factors -- Subordination."
OPTIONAL REDEMPTION
Prior to April 1, 2002, we may on any one or more occasions redeem up to
35% of the aggregate principal amount of the exchange notes issued under the
Indenture at a redemption price of 109.5% of the principal amount thereof, plus
accrued and unpaid interest and Additional Interest, if any, to the redemption
date, with the Net Cash Proceeds to us of one or more Public Equity Offerings or
the capital contributions to us by Coast Resorts with the Net Cash Proceeds to
Coast Resorts of one or more Public Equity Offerings; provided that
- at least $113.75 million in aggregate principal amount of the exchange
notes remains outstanding immediately after the occurrence of such
redemption, excluding the exchange notes held by us and our Subsidiaries;
and
- the redemption occurs within 45 days of the date of the closing of the
Public Equity Offering.
Except pursuant to the preceding paragraph, the exchange notes will not be
redeemable at our option prior to April 1, 2004.
In addition, after April 1, 2004, we may redeem all or a part of the
exchange notes upon not less than 30 nor more than 60 days' notice, at the
redemption prices, expressed as percentages of principal amount, set forth below
plus accrued and unpaid interest and Additional Interest, if any, thereon to the
applicable redemption date, subject to the rights of Holders on the relevant
record date that is prior to the Redemption Date to receive
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interest due on an Interest Payment Date, if redeemed during the twelve-month
period beginning on April 1 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2004................................................ 104.750%
2005................................................ 103.167%
2006................................................ 101.583%
2007 and thereafter................................. 100.000%
GAMING REDEMPTION
If any Gaming Authority notifies a holder or beneficial owner of the
exchange notes that:
(1) the holder or beneficial owner must obtain a license,
qualification or finding of suitability under an applicable gaming law and
the holder or beneficial owner does not apply for such license,
qualification or finding of suitability within 30 days, or such shorter
period required by the Gaming Authority; or
(2) the holder or beneficial owner will not be licensed, qualified or
found suitable under an applicable gaming law;
then we may:
(1) require that the holder or beneficial owner dispose of the
holder's or beneficial owner's exchange notes within 30 days, or such
earlier date as required by the Gaming Authority, of (A) the termination of
the 30 day period described above for the holder or beneficial owner to
apply for a license, qualification or finding of suitability or (B) the
receipt of the notice from the Gaming Authority that the holder or
beneficial owner will not be licensed, qualified or found suitable; or
(2) redeem the holder's or beneficial owner's exchange notes at a
price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest and Additional Interest, if any, to the date of redemption,
or such earlier date as required by the Gaming Authority or applicable
gaming laws.
Immediately upon a determination that a holder or beneficial owner will not
be licensed, qualified or found suitable, the holder or beneficial owner will
have no further rights (1) to exercise any right conferred by the exchange
notes, directly or indirectly, through any trustee, nominee or any other Person
or entity, or (2) to receive any interest or other distribution or payment with
respect to the exchange notes or any remuneration in any form from us for
services rendered or otherwise, except the redemption price of the exchange
notes.
The holder or beneficial owner applying for a license, qualification or
finding of suitability must pay all related costs.
SELECTION AND NOTICE
If less than all of the exchange notes are to be redeemed at any time, the
Trustee will select the exchange notes for redemption as follows:
(1) if the exchange notes are listed, in compliance with the
requirements of the principal national securities exchange on which the
exchange notes are listed; or
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(2) if the exchange notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee will deem fair and appropriate.
No exchange notes of $1,000 or less will be redeemed in part. Notices of
redemption will be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of the exchange notes to be
redeemed at its registered address. Notices of redemption may not be
conditional.
If any exchange note is to be redeemed in part only, the notice of
redemption that relates to that exchange note will state the portion of the
principal amount thereof to be redeemed. A new exchange note in principal amount
equal to the unredeemed portion of the original exchange note will be issued in
the name of the Holder thereof upon cancellation of the original exchange note.
The exchange notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on
exchange notes or portions of them called for redemption.
CERTAIN DEFINITIONS
The following is a glossary of some defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all terms as well
as any other capitalized term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition from such Person by a Restricted Subsidiary and not Incurred
by such Person in connection with, or in anticipation of, such Person becoming a
Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of
such Person which is redeemed, defeased, retired or otherwise repaid at the time
of or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition will not be Acquired
Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income or loss of our company and its Restricted Subsidiaries and the net income
of any Unrestricted Subsidiary to the extent distributed to us or one of our
Restricted Subsidiaries for such period determined on a consolidated basis in
conformity with GAAP less, if and for as long as we are a Pass-through Entity,
the Tax Amount; provided that the following items will be excluded in computing
Adjusted Consolidated Net Income, without duplication:
(1) the net income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting, except to the extent of
the amount of dividends or other distributions actually paid to us or any
of our Restricted Subsidiaries by such Person during such period;
(2) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (3) of the first paragraph of
the "Limitation on Restricted Payments" covenant described below, and in
such case, except to the extent includable pursuant to clause (1) above,
the net income or loss of any Person accrued prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with us or any of
our Restricted Subsidiaries or all or substantially all of the property and
assets of such Person are acquired by us or any of our Restricted
Subsidiaries;
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(3) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income to us or any Restricted Subsidiary
is not at the time of such determination permitted by the operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Restricted
Subsidiary;
(4) any gains or losses, on an after-tax basis, attributable to Asset
Sales;
(5) all extraordinary gains and extraordinary losses;
(6) the cumulative effect of a change in accounting principles; and
(7) the fees, expenses and other costs incurred in connection with the
repurchase of the Old First Mortgage Notes (including premium paid upon,
original issue discount or accruals on, and deferred financing costs
written off in connection with the repurchase of the Old First Mortgage
Notes), the issuance of the Notes, the initial establishment of the
Indebtedness described under each of clauses (1) and (2) of the definition
of "Credit Facility" below.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control,"
including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with," as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise; provided that the beneficial ownership of
10% or more of the voting securities of a Person will be deemed to be control.
"Asset Acquisition" means (1) an investment by us or any of our Restricted
Subsidiaries in any other Person pursuant to which such Person will become a
Restricted Subsidiary or will be merged into or consolidated with us or any of
our Restricted Subsidiaries; provided that such Person's primary business is
related, ancillary or complementary to the businesses of our company and our
Restricted Subsidiaries on the date of such investment or (2) an acquisition by
our company or any of our Restricted Subsidiaries of the property and assets of
any Person other than us or any of our Restricted Subsidiaries that constitute
substantially all of a division or line of business, including any casino or
hotel facility, of such Person; provided that the property and assets acquired
are related, ancillary or complementary to the businesses of our company and our
Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition or discontinuation
of use by our company or any of our Restricted Subsidiaries, other than to us or
another Restricted Subsidiary, of (1) all or substantially all of the Capital
Stock of any Restricted Subsidiary of our company or (2) assets that constitute
a business or operation of our company or any of our Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition, including by
way of merger, consolidation or sale-leaseback transaction, in one transaction
or a series of related transactions by our company or any of our Restricted
Subsidiaries to any Person other than us or any of our Restricted Subsidiaries
of (1) all or any of the Capital Stock of any Restricted Subsidiary, (2) all or
substantially all of the property and assets of our company or any of our
Restricted Subsidiaries or (3) any other property and assets of our company
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or any of our Restricted Subsidiaries, other than the Capital Stock or other
Investment in an Unrestricted Subsidiary, outside the ordinary course of
business of our company or such Restricted Subsidiary and, in each case, that is
not governed by the provisions of the Indenture applicable to mergers,
consolidations and sales of assets of our company; provided that "Asset Sale"
will not include:
(1) sales or other dispositions of inventory, receivables and other
current assets;
(2) sales, transfers or other dispositions of assets with a Fair
Market Value not in excess of $1.0 million in any transaction or series of
related transactions;
(3) sales, transfers or other dispositions of (i) assets constituting
a Restricted Payment permitted to be made under the "Restricted Payments"
covenant or (ii) Investments permitted pursuant to clause (6) of the
definition of "Permitted Investments;"
(4) sales, transfers or other dispositions of property or equipment
that has become worn out, obsolete or damaged or otherwise unsuitable for
use in connection with the business of our company or our Restricted
Subsidiaries;
(5) the sale, transfer or other disposition of any property or assets
by any Restricted Subsidiary to us or any of our Restricted Subsidiary;
(6) the sale, transfer or other disposition of any Designated Asset;
and
(7) any exchange of property or assets, other than property or assets
comprising The Orleans, the Gold Coast or the New Casino, by us or a
Restricted Subsidiary in exchange for property or assets with a fair market
value at least equal to the fair market value of the property or assets
disposed of and which are to be used or are useful in any business in which
we are permitted to engage pursuant to the covenant described under
"-- Covenants -- Line of Business."
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (1) the sum of the products of (A)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (B) the amount
of such principal payment by (2) the sum of all such principal payments.
"Barbary Coast" means the Barbary Coast Hotel and Casino.
"Barbary EBITDA" means the earnings before interest, taxes, depreciation
and amortization of the Barbary Coast, calculated in the same manner as
Consolidated EBITDA is calculated for our company and our Restricted
Subsidiaries pursuant to the definition of "Consolidated EBITDA;" provided that
for such calculations, an appropriate allocation will be made for overhead that
is properly allocable to the Barbary Coast.
"Barbary Excess Net Cash Proceeds" means the Net Cash Proceeds of the
Barbary Sale minus an amount equal to the Barbary EBITDA for the then most
recent four fiscal quarters prior to the date of the Barbary Sale multiplied by
five.
"Barbary Sale" means a sale, transfer or disposition or the Barbary Coast.
"Borrowing Facilities" means one or more debt facilities or commercial
paper facilities, in each case with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing,
including through the sale of receivables to
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such lenders or to special purpose entities formed to borrow from such lenders
against such receivables, or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents, however designated, whether
voting or non-voting, in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property, whether real, personal or mixed, of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Casino" means any gaming establishment and other property or assets
directly ancillary thereto or used in connection therewith, including any
buildings, restaurants, hotels, theaters, parking facilities, retail shops,
land, golf courses and other recreation and entertainment facilities, vessels,
barges, ships and equipment.
"Change of Control" means such time as:
(1) Coast Resorts sells, transfers, conveys or otherwise disposes of,
other than by way of a merger or consolidation, in one or a series of
related transactions, of all or substantially all of its assets to any
"person," as such term is used in Section 13(d)(3) of the Exchange Act,
other than to (A) us or any of our wholly owned Subsidiaries or (B) Michael
J. Gaughan or his Related Parties;
(2) Coast Hotels and Casinos and our Subsidiaries, taken as a whole,
sell, transfer, convey or otherwise dispose of, other than by way of a
merger or consolidation, in one or a series of related transactions, of all
or substantially all of their assets to any "person," as such term is used
in Section 13(d)(3) of the Exchange Act, other than Coast Resorts or
Michael J. Gaughan or his Related Parties;
(3) a plan relating to the liquidation or dissolution of Coast Resorts
or Coast Hotels and Casinos is adopted;
(4) the liquidation or dissolution of Coast Resorts or Coast Hotels
and Casinos;
(5) individuals who on the Closing Date constituted the Board of
Directors of Coast Resorts or Coast Hotels and Casinos, together with any
new or replacement directors whose election by the Board of Directors or
whose nomination by the Board of Directors for election by Coast Resorts'
or our stockholders, as applicable, was approved by a vote of at least a
majority of the members of the Board of Directors then still in office who
either were members of the Board of Directors on the Closing Date or whose
election or nomination for election was so approved, cease for any reason
to constitute a majority of the members of the Board of Directors of Coast
Resorts or Coast Hotels and Casinos, as applicable, then in office;
(6) prior to the consummation of Coast Resorts' first Public Equity
Offering, (A) Michael J. Gaughan and his Related Parties cease to be the
"beneficial owners,"
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as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, in the aggregate at least 20% of the Voting Stock of Coast Resorts or
(B) any "person" as defined above or "group" as such term is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, including any
group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act,
becomes the "beneficial owner," as defined above, directly or indirectly,
more of the Voting Stock of Coast Resorts than is "beneficially owned" by
the Principals and their Related Parties;
(7) after the consummation of Coast Resorts' first Public Equity
Offering, a transaction is consummated, including, without limitation, any
merger or consolidation, which results in:
(A) any "person," as defined above, or "group," as such term is
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act, other than the Principals and their Related Parties,
becoming the "beneficial owner," as defined above, directly or
indirectly, of more than 40% of the Voting Stock of Coast Resorts; and
(B) any "person," as defined above, or "group," as defined above,
becoming the "beneficial owner," as defined above, directly or
indirectly, of more of the Voting Stock of Coast Resorts than is at the
time "beneficially owned," as defined above, by Principals and their
Related Parties in the aggregate;
but, in the case of both clauses (A) and (B) of this clause (7),
excluding from the percentage of Voting Stock held by any person
consisting of a group the Voting Stock owned by any Principal and his
Related Parties who are deemed to be members of the group; provided that
such Principal and his Related Parties beneficially own a majority of
the total Voting Stock of Coast Resorts held by such group; or
(8) Coast Resorts ceases to own 100% of the outstanding Capital Stock
of Coast Hotels and Casinos, other than pursuant to a merger of Coast
Hotels and Casinos into Coast Resorts.
For purposes of this definition, any transfer of an equity interest of an
entity that was formed for the purpose of acquiring our Voting Stock will be
deemed to be a transfer of such portion of such Voting Stock as corresponds to
the portion of the equity of such entity that has been so transferred.
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
"Coast Resorts" means Coast Resorts, Inc., a Nevada corporation.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents, however designated, whether
voting or non-voting, of such Person's common equity, whether outstanding on the
Closing Date or issued thereafter.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted
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Consolidated Net Income, (1) Consolidated Interest Expense, (2) income taxes
(other than income taxes (either positive or negative) attributable to
extraordinary gains or losses or sales of assets) or, so long as we are a
Pass-through Entity, the Tax Amount, (3) depreciation expense, (4) amortization
expense, (5) any preopening expenses to the extent that such preopening expenses
were deducted in computing Consolidated Net Income on a consolidated basis and
determined in accordance with GAAP, and (6) all other non-cash items including
deferred non-cash rent expense, reducing Adjusted Consolidated Net Income less
all non-cash items increasing Adjusted Consolidated Net Income; provided, that
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA will be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Restricted Subsidiary multiplied by
(B) the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by us or any of our
Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of
(1) interest, including capitalized interest, in respect of
Indebtedness, including, without limitation, amortization of original issue
discount on any Indebtedness and the interest portion of any deferred
payment obligation, calculated in accordance with the effective interest
method of accounting; all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing;
the net costs associated with Interest Rate Agreements; and Indebtedness
that is Guaranteed or secured by the assets of our company or any of our
Restricted Subsidiaries;
(2) all but the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to
be accrued by us and our Restricted Subsidiaries during such period; and
(3) the product of (a) all dividend payments, whether or not in cash,
on any series of Disqualified Stock of our company, other than dividend
payments on Capital Stock payable solely in Capital Stock of our company,
other than Disqualified Stock, or to one of our Restricted Subsidiaries,
times (b) a fraction, the numerator or which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate or such Person, expressed as a decimal, in each case, on
a consolidated basis and in accordance with GAAP;
excluding, however, (A) any amount of such interest of any Restricted Subsidiary
if the net income of such Restricted Subsidiary is excluded in the calculation
of Adjusted Consolidated Net Income pursuant to clause (3) of the definition
thereof, but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income
pursuant to clause (3) of the definition thereof, and (B) original issue
discount written off in connection with the repurchase of the Old First Mortgage
Notes.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of our company and our Restricted Subsidiaries which
will be as of a date not more than 135 days prior to the date of such
computation, and which will not take into account Unrestricted Subsidiaries
except as investments, less any amounts attributable to Disqualified Stock or
any equity security convertible into or exchangeable for Indebtedness,
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the cost of treasury stock and the principal amount of any promissory notes
receivable from the sale of the Capital Stock of our company or any of our
Restricted Subsidiaries, each item to be determined in conformity with GAAP,
excluding the effects of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 52.
"Construction and Design Contract" means any contract for the construction,
design, development or equipping, including any capital addition, improvement,
extension or repair, for any of our Casinos existing now or in the future, as
finalized, amended, supplemented or otherwise modified from time to time.
"Credit Agreement" means the Loan Agreement dated as of March 18, 1999,
among us, and Bank of America NT&SA, as administrative agent, and the lenders
referred to therein, together with any agreements, instruments and documents
executed or delivered pursuant to or in connection with such Loan Agreement,
including, without limitation, any Guarantees and security documents, in each
case as such Loan Agreement or such agreements, instruments or documents may be
amended, supplemented, extended, renewed, refinanced or otherwise modified from
time to time.
"Credit Facility" means:
(1) the Credit Agreement; provided that the aggregate principal amount
of all Indebtedness outstanding under the Credit Agreement, including all
Indebtedness incurred to refinance or replace any Indebtedness incurred
pursuant to this clause (1), does not exceed $75.0 million less permanent
reductions in the available Indebtedness under the Credit Agreement
resulting from the application of Asset Sale proceeds; and
(2) any other agreement evidencing Indebtedness; provided that:
(A) prior to the time that the New Casino is Operating, at least
75% of the proceeds of such Indebtedness are used exclusively to finance
the Project Costs for the New Casino;
(B) either (i) such Indebtedness is incurred under the Credit
Agreement or an amendment or supplement to the Credit Agreement, in
either case with the existing lenders under the Credit Agreement or
other Eligible Lenders or (ii) if we are unable to incur Indebtedness
pursuant to clause (i) above on terms reasonably acceptable to us, (a)
all of the initial lenders or purchasers of such Indebtedness are
Permitted Lenders, (b) after giving pro forma effect to the issuance of
all Indebtedness which is outstanding as of the date of determination
pursuant to the Credit Agreement and which may otherwise be incurred
under such Credit Facility, the Interest Coverage Ratio would be at
least 1.5 to 1 and (c) such Indebtedness is not issued with any equity
or cash flow participations;
(C) prior to the time that the New Casino is Operating, the
aggregate principal amount of such Indebtedness outstanding at any time,
including any refinancings or replacements thereof, will not exceed the
lesser of (A) $125.0 million and (B) 85% of the Project Costs for the
New Casino, less permanent reductions in such Indebtedness resulting
from the application of Asset Sale Proceeds; and
(D) after the New Casino is Operating, the aggregate principal
amount of such Indebtedness outstanding at any time, including any
refinancings or
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replacements thereof and including any Indebtedness which was previously
incurred and is outstanding under this clause (2), will not exceed
$125.0 million less permanent reductions in such Indebtedness resulting
from the application of Asset Sale proceeds; and
provided, further, that the lenders under the Credit Facility will be
conclusively entitled to rely on a certificate of our company as to
compliance with the requirements of this definition.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Asset" means the Rancho Road Property and the aircraft we owned
on the date of the Indenture.
"Designated Senior Indebtedness" means (1) any Indebtedness under the
Credit Agreement and any amendments, restatements, modifications, renewals or
replacements thereof and (2) any other Indebtedness constituting Senior
Indebtedness that, at the date of determination, has commitments for or an
aggregate principal amount outstanding of at least $20.0 million and that is
specifically designated by us, in the instrument creating or evidencing such
Senior Indebtedness, as "Designated Senior Indebtedness."
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (1) required to be redeemed or is
redeemable at the option of the holder of such class or series of Capital Stock
at any time on or prior to the date that is 91 days after the Stated Maturity of
the exchange notes or (2) convertible into or exchangeable for Capital Stock
referred to in clause (1) above or Indebtedness having a scheduled maturity on
or prior to the date that is 91 days after the Stated Maturity of the exchange
notes; provided that any Capital Stock that would not constitute Disqualified
Stock but for provisions thereof giving holders thereof the right to require
such Person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Stated Maturity of
the exchange notes will not constitute Disqualified Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions contained in
"Asset Sales" and "Repurchase of Exchange Notes Upon a Change of Control"
covenants described below and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such stock pursuant to such provision
prior to our repurchase of the exchange notes as are required to be repurchased
pursuant to the "Asset Sales" and "Repurchase of Exchange Notes upon a Change of
Control" covenants described below.
"Eligible Lenders" means (1) the lenders under the Credit Agreement, (2)
any affiliate of any lender under the Credit Agreement, (3) any commercial bank,
savings bank or loan association having a combined capital and surplus of at
least $100.0 million and (4) any other financial institution, including a mutual
fund or other fund, having total assets of at least $250.0 million.
"Existing Casino" means any of our casinos in existence on the Closing Date
and the New Casino.
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"Fair Market Value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, which in the case
of a transaction involving $5.0 million or more, will be as determined in good
faith by the Board of Directors, whose determination will be conclusive if
evidenced by a resolution of the Board of Directors.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture will be computed in conformity with GAAP applied on a consistent
basis.
"Gaming Authority" means any agency, authority, board, bureau, commission,
department, office or instrumentality of the United States or foreign
government, any state province or any city or other political subdivision, or
any officer of official thereof, including the Nevada Gaming Commission, the
Nevada State Gaming Control Board, the City of Las Vegas and any other agency
with authority to regulate any gaming operation, or proposed gaming operation,
owned, managed or operated by us or any of our Subsidiaries.
"Gaming License" means every license, franchise or other authorization
required to own, lease, operate or otherwise conduct the present and future
gaming activities of our company and our Subsidiaries.
"Gold Coast" means the Gold Coast Hotel and Casino.
"Government Securities" means direct obligations of, obligations fully
guaranteed by, or participations in pools consisting solely of obligations of or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at the option of the
issuer thereof.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person:
(1) to purchase or pay or advance or supply funds for the purchase or
payment of such Indebtedness of such other Person whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, unless such purchase arrangements
are on arm's-length terms and are entered into in the ordinary course of
business, to take-or-pay, or to maintain financial statement conditions or
otherwise; or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof, in whole or in part; provided that
the term "Guarantee" will not include endorsements for collection or
deposit in the ordinary course of business.
The term "Guarantee" used as a verb has a corresponding meaning.
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"Guarantors" means Coast Resorts together with any Subsidiary Guarantors.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; provided that the accrual of
interest or accretion of principal will not be considered an Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination, without duplication:
(1) all indebtedness of such Person for borrowed money;
(2) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all obligations of such Person in respect of letters of credit,
banker's acceptances or other similar instruments, including reimbursement
obligations with respect thereto, other than obligations with respect to
letters of credit securing obligations, other than obligations described in
this definition, entered into in the ordinary course of business of such
person to the extent such letters of credit are not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the
third business day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit;
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services,
except Trade Payables;
(5) all Capitalized Lease Obligations;
(6) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness will be the lesser of (A) the
Fair Market Value of such asset at such date of determination and (B) the
amount of such Indebtedness;
(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person; and
(8) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any Person at any date will be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation for the payment of
principal (with letters of credit being deemed to have a principal amount equal
to the maximum potential liability of our company and our Restricted
Subsidiaries thereunder), provided (A) that the amount outstanding at any time
of any Indebtedness issued with original issue discount is the face amount of
such Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP, (B) that money borrowed and set aside at the time of the Incurrence of any
Indebtedness in order to prefund the payment of the interest on such
Indebtedness will not be deemed
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to be "Indebtedness" so long as such money is held to secure the payment of such
interest and (C) that Indebtedness will not include (i) any liability for
federal, state, local or other taxes or the obligation to make payments pursuant
to a Tax Agreement or (ii) obligations arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently, except in the case of day-light overdrafts, drawn against
insufficient funds in the ordinary course of business; provided, however, that
such obligations are extinguished within three business days of incurrence.
"Independent Directors" means any members of our Board of Directors other
than (1) Michael J. Gaughan, J. Tito Tiberti, Jerry Herbst, Harlan D. Braaten,
Gage Parrish, (2) any spouses, siblings, parents or lineal descendants of any
person set forth in clause (1) above and any spouse of any such sibling or
lineal descendant and (3) any officer or other employee of Coast Resorts or any
Affiliate of Coast Resorts, including our company.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of (1)
the aggregate amount of Consolidated EBITDA for the then most recent four fiscal
quarters prior to such Transaction Date for which reports have been filed with
the Commission or provided to the Trustee pursuant to the "Commission Reports
and Reports to Holders" covenant (the "Four Quarter Period") to (2) the
aggregate Consolidated Interest Expense during such Four Quarter Period. In
making the foregoing calculation:
(A) pro forma effect will be given to any Indebtedness Incurred or
repaid during the period (the "Reference Period") commencing on the first
day of the Four Quarter Period and ending on the Transaction Date other
than Indebtedness Incurred under a revolving credit or similar arrangement
to the extent of the commitment thereunder, or under any predecessor
revolving credit or similar arrangement, in effect on the last day of such
Four Quarter Period except to the extent any portion of such Indebtedness
is projected, in the reasonable judgment of the senior management of the
Company, to remain outstanding for a period in excess of 12 months from the
date of the Incurrence thereof, in each case as if such Indebtedness had
been Incurred or repaid on the first day of such Reference Period and pro
forma effect will be given to the purchase of any U.S. government
securities required to be purchased with the proceeds of any such
Indebtedness and set aside to prefund the payment of interest on such
Indebtedness at the time such Indebtedness is Incurred;
(B) Consolidated Interest Expense attributable to interest on any
Indebtedness whether existing or being Incurred computed on a pro forma
basis and bearing a floating interest rate will be computed as if the rate
in effect on the Transaction Date taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months or, if shorter, at least equal
to the remaining term of such Indebtedness had been the applicable rate for
the entire period;
(C) pro forma effect will be given to Asset Dispositions and Asset
Acquisitions, including giving pro forma effect to the application of
proceeds of any Asset Disposition and to any discharge of or other relief
from Indebtedness to which our company and our continuing Restricted
Subsidiaries are not liable following any Asset Disposition and the
reduction of any associated Consolidated Interest Expense and the change in
Consolidated EBITDA resulting therefrom, and the designation of
Unrestricted Subsidiaries as Restricted Subsidiaries that occur during such
Reference Period as if they had occurred and such proceeds had been applied
and such discharge or relief had occurred on the first day of such
Reference Period; and
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(D) pro forma effect will be given to asset dispositions and asset
acquisitions, including giving pro forma effect to the application of
proceeds of any asset disposition and to any discharge of or other relief
from Indebtedness to which our company and our continuing Restricted
Subsidiaries are not liable following any asset disposition, that have been
made by any Person that has become a Restricted Subsidiary or has been
merged with or into us or any of our Restricted Subsidiaries during such
Reference Period and that would have constituted Asset Dispositions or
Asset Acquisitions had such transactions occurred when such Person was a
Restricted Subsidiary as if such asset dispositions or asset acquisitions
were Asset Dispositions or Asset Acquisitions that occurred on the first
day of such Reference Period;
provided that to the extent that clause (C) or (D) of this sentence requires
that pro forma effect be given to an Asset Acquisition or Asset Disposition,
such pro forma calculation will be based upon the four full fiscal quarters
immediately preceding the Transaction Date of the Person, or division or line of
business of the Person, that is acquired or disposed for which financial
information is available.
For purposes of this definition, whenever pro forma effect is given to a
transaction, the pro forma calculations will be made in good faith by a senior
financial or accounting officer of our company. Interest on a Capitalized Lease
Obligation will be deemed to accrue at an interest rate reasonably determined by
a senior financial or accounting officer of our company to be the rate of
interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit, including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers, suppliers or
contractors in the ordinary course of business that are, in conformity with
GAAP, recorded as accounts receivable, prepaid expenses or deposits on the
balance sheet of our company or our Restricted Subsidiaries, or capital
contribution to, by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others, or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and will include:
(1) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary; and
(2) the Fair Market Value of the Capital Stock, or any other
Investment, held by our company or any of our Restricted Subsidiaries of or
in any Person that has ceased to be a Restricted Subsidiary;
provided that the Fair Market Value of the Investment remaining in any Person
that has ceased to be a Restricted Subsidiary will not exceed the aggregate
amount of Investments previously made in such Person valued at the time such
Investments were made less the net reduction of such Investments. For purposes
of the definition of "Unrestricted Subsidiary" and the "Restricted Payments"
covenant described below:
(1) "Investment" will include the Fair Market Value of the assets, net
of liabilities other than liabilities to our company or any of our
Restricted Subsidiaries,
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of any Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary;
(2) the Fair Market Value of the assets, net of liabilities (other
than liabilities to our company or any of our Restricted Subsidiaries), of
any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary
is designated a Restricted Subsidiary will be considered a reduction in
outstanding Investments; and
(3) any property transferred to or from an Unrestricted Subsidiary
will be valued at its Fair Market Value at the time of such transfer.
Notwithstanding the foregoing, in no event will any issuance of Capital Stock,
other than Disqualified Stock, of our company in exchange for Capital Stock,
property or assets of another Person or any redemption or repurchase of the
exchange notes or other Indebtedness of our company or any Restricted Subsidiary
for cash constitute an Investment by our company in such other Person.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest in the future; provided that in no event will an
operating lease be deemed to constitute a Lien.
"Liquor License" means every license, franchise or other authorization
required to serve liquor at any of casinos owned or operated by our company or
any of our Restricted Subsidiaries.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means:
(1) with respect to any Asset Sale, the proceeds of such Asset Sale in
the form of cash or cash equivalents, including payments in respect of
deferred payment obligations, to the extent corresponding to the principal,
but not interest, component thereof, when received in the form of cash or
cash equivalents, except to the extent such obligations are financed or
sold by us or any of our Restricted Subsidiaries with recourse to us or any
of our Restricted Subsidiaries, and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net of:
(A) brokerage commissions and other fees and expenses, including
fees and expenses of counsel and investment bankers, related to such
Asset Sale;
(B) provisions for all taxes, whether or not such taxes will
actually be paid or are payable, including payments under any Tax
Agreement, as a result of such Asset Sale without regard to the
consolidated results of operations of our company and our Restricted
Subsidiaries, taken as a whole;
(C) payments made to repay Indebtedness other than Senior
Indebtedness or any other obligation outstanding at the time of such
Asset Sale that either (1) is secured by a Lien on the property or
assets sold or (II) is required to be paid as a result of such sale; and
(D) appropriate amounts to be provided by us or any of our
Restricted Subsidiaries as a reserve against any liabilities associated
with such Asset Sale, including, without limitation, pension and other
post-employment benefit liabili-
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ties, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP; and
(2) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations, to the
extent corresponding to the principal, but not interest, component thereof,
when received in the form of cash or cash equivalents, except to the extent
such obligations are financed or sold by us or any of our Restricted
Subsidiaries with recourse to our company or any Restricted Subsidiary, and
proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of attorney's fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
"New Casino" means the pending project to develop, construct and operate a
new hotel-casino to be located on approximately 50 acres at the intersection of
Rampart Boulevard and Alta Drive in Las Vegas, Nevada.
"Obligations" means any principal, interest, premium, if any, penalties,
fees, indemnifications, reimbursements, damages or other liabilities payable
under the documentation governing or otherwise in respect of any Indebtedness,
in each case whether now or hereafter existing, renewed or restructured, whether
or not from time to time decreased or extinguished and later increased, created
or incurred, whether or not arising on or after the commencement of a proceeding
under Title 11, U.S. Code or any similar federal or state law for the relief of
debtors, including post-petition interest, and whether or not allowed or
allowable as a claim in any such proceeding.
"Offer to Purchase" means an offer made by us to purchase Notes from the
Holders commenced by mailing a notice to the Trustee and each Holder stating:
(1) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata
basis;
(2) the purchase price and the date of purchase which will be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed (the "Payment Date");
(3) that any Note not tendered will continue to accrue interest
pursuant to its terms;
(4) that, unless we default in the payment of the purchase price, any
Note accepted for payment pursuant to the Offer to Purchase will cease to
accrue interest on and after the Payment Date;
(5) that Holders electing to have a Note purchased pursuant to the
Offer to Purchase will be required to surrender the Note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side
of the Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately
preceding the Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately
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preceding the Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and
(7) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered; provided that each Note purchased and each new Note
issued will be in a principal amount of $1,000 or integral multiples
thereof.
On the Payment Date, we will:
(1) accept for payment on a pro rata basis Notes or portions thereof
tendered pursuant to an Offer to Purchase;
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted; and
(3) deliver, or cause to be delivered, to the Trustee all Notes or
portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the
Company.
The Paying Agent will promptly mail to the Holders of Notes so accepted
payment in an amount equal to the purchase price, and the Trustee will promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued will be in a principal amount of $1,000 or
integral multiples thereof. We will publicly announce the results of an Offer to
Purchase as soon as practicable after the Payment Date. The Trustee will act as
the Paying Agent for an Offer to Purchase. We will comply with Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Company
is required to repurchase Notes pursuant to an Offer to Purchase. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions for such Offer to Purchase, we will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations with respect to such Offer to Purchase by virtue thereof.
"Old First Mortgage Notes" means our 13% First Mortgage Notes due 2002 and
our 10 7/8% First Mortgage Notes due 2001 of the Company.
"Operating" means, with respect to the New Casino, the first time that (i)
all Gaming Licenses necessary to commence operations at the New Casino have been
granted and have not been revoked or suspended, (ii) the project manager and the
architect of the New Casino have delivered a certificate to the Trustee
certifying that the New Casino is complete in all material respects in
accordance with the plans and specifications therefor and all applicable
building laws, ordinances and regulations, (iii) the New Casino is in a
condition, including installation of furnishings, fixtures and equipment, to
receive guests in the ordinary course of business, (iv) gaming and other
operations in accordance with applicable law are open to the general public and
are being conducted at the New Casino, (v) a permanent or temporary certificate
of occupancy has been issued for the New Casino by Clark County, Nevada and (vi)
a notice of completion of the New Casino has been duly recorded.
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"Pari Passu Indebtedness" means all of our Indebtedness that ranks equal in
right of payment with the exchange notes.
"Pass-through Entity" means any entity taxed as a partnership for federal
income tax purposes, any disregarded entity for federal income tax purposes,
including a qualified Subchapter S subsidiary, an S-Corporation, or any other
entity whose items of income and deductions are passed through to its
equityholders for federal income tax purposes and retain the same
characteristics in the hands of such equityholders.
"Permitted FF&E Financing" means Indebtedness of our company or any of our
Restricted Subsidiaries that is Incurred to finance the acquisition or lease
after the date of the Indenture of newly acquired or leased furniture, fixtures
or equipment ("FF&E") used directly in the operation of any of our Casinos and
secured by a Lien on such FF&E, which Indebtedness has a principal amount not to
exceed 100% of the cost of the FF&E so purchased or leased.
"Permitted Investment" means:
(1) an Investment in our company or a Restricted Subsidiary of our
company or a Person which will, upon the making of such Investment, become
a Restricted Subsidiary or be merged or consolidated with or into or
transfer or convey all or substantially all its assets to, us or any of our
Restricted Subsidiaries; provided that such person's primary business is
related, ancillary or complementary to the businesses of our company and
our Restricted Subsidiaries on the date of such Investment;
(2) Temporary Cash Investments;
(3) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP;
(4) advances and loans to employees of our company or any of our
Restricted Subsidiaries in the ordinary course of business; provided that
the aggregate amount of such Investments does not exceed $1.0 million;
(5) stock, obligations or securities received in satisfaction of
judgments, foreclosure of Liens or good faith settlement of litigation,
disputes or other debts;
(6) Investments in any Person the primary business of which is
related, ancillary or complementary to the businesses of our company and
our Restricted Subsidiaries; provided that the aggregate amount of such
Investments does not exceed $10.0 million;
(7) Investments made as a result of the receipt of non-cash
consideration from an Asset Sale that was made in compliance with the
covenant "Asset Sales;"
(8) Investments in Currency Agreements and Interest Rate Agreements
with respect to Indebtedness otherwise permissible under the Indenture;
(9) receivables owing to our company or any Restricted Subsidiary, if
created or acquired in the ordinary course of business consistent with past
practices and payable or dischargeable in accordance with customary terms;
and
(10) Investments acquired in exchange for Capital Stock, other than
Disqualified Stock, of our company or for Capital Stock of Coast Resorts.
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"Permitted Junior Securities" means Capital Stock of our company, any
Restricted Subsidiary or any affiliate of or successor to our company pursuant
to a plan of reorganization or debt securities of our company, any Restricted
Subsidiary or any affiliate of or successor to our company pursuant to a plan of
reorganization that are subordinated to all Senior Indebtedness, and any debt
securities issued in exchange for Senior Indebtedness, to substantially the same
extent as, or to a greater extent than, the exchange notes are subordinated to
Senior Indebtedness pursuant to the Indenture on the Closing Date, so long as
(i) the effect of the use of this defined term in the subordination provisions
described under the caption "Subordination" is not to cause the exchange notes
to be treated as part of (a) the same class of claims in any plan of
reorganization as the Senior Indebtedness or (b) any class of claims in any plan
of reorganization equal with, or senior to, the Senior Indebtedness for any
payment or distribution in any case or proceeding or similar event relating to
the liquidation, insolvency, bankruptcy, dissolution, winding up or
reorganization of our company and (ii) to the extent that any Senior
Indebtedness outstanding on the date of consummation of any such plan of
reorganization is not paid in full in cash on such date, either (a) the holders
of any such Senior Indebtedness not so paid in full in cash have consented to
the terms of such plan of reorganization or readjustment or (b) such holders
receive securities which constitute Senior Indebtedness and which have been
determined by the relevant court to have a value, as of the effective date of
such plan of reorganization, of at least the value of such holder's interest in
the estate's interest in such Senior Indebtedness.
"Permitted Lender" means any Eligible Lender, any other Person that
qualifies as a "qualified institutional buyer" pursuant to Rule 144A under the
Securities Act, any purchaser of Indebtedness pursuant to Regulation S under the
Securities Act and any purchaser of Indebtedness that is registered under the
Securities Act.
"Permitted Lien" means:
(1) Liens securing Senior Indebtedness, including related Obligations,
that is permitted to be incurred pursuant to the Indenture;
(2) Liens existing on the date of the Indenture;
(3) Liens for taxes, assessments or governmental charges or claims
which are not yet delinquent or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if
a reserve or other appropriate provision, if any, as will be required in
conformity with GAAP will have been made therefor;
(4) banker's liens, rights of setoff and Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory
obligations, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of like nature incurred in the
ordinary course of business, exclusive of obligations for the payment of
borrowed money;
(5) Liens on the aircraft owned by us on the Closing Date or any
replacement aircraft and on the Rancho Road Property to secure Indebtedness
permitted by the terms of the Indenture under clause (1) of the second
paragraph of the "Limitation on Indebtedness and Issuances of Preferred
Stock" covenant set forth below and any Permitted Refinancing Indebtedness
applied to the refinancing thereof;
(6) Liens in favor of us or a Restricted Subsidiary;
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(7) Liens incurred to secure the purchase price or cost of
construction or improvement of property, which Lien will not cover any
property other than that being acquired, purchased, improved or
constructed;
(8) any interest or title of a lessor under Capitalized Lease
Obligations otherwise permitted under the Indenture;
(9) Liens securing Acquired Indebtedness created prior to, and not in
connection with or in contemplation of, the incurrence of such Indebtedness
by us or any Restricted Subsidiary; provided that such Lien does not extend
to any property or assets of our company or any Subsidiary other than the
assets acquired in connection with the incurrence of such Acquired
Indebtedness;
(10) Liens on property existing at the time of acquisition thereof by
us or a Restricted Subsidiary;
(11) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
in respect of obligations that are not yet due or that are bonded or that
are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books of our
company or such Restricted Subsidiary, as the case may be, in accordance
with GAAP;
(12) Liens arising by reason of a judgment, decree or court order, to
the extent not otherwise resulting in an Event of Default;
(13) Liens securing obligations under Currency Agreements and Interest
Rate Agreements entered into in the ordinary course of business;
(14) extensions, renewals or refunding of any Liens referred to in
clauses (1) through (11) above, provided that the renewal, extension or
refunding is limited to all or part of the property securing the original
Lien; and
(15) Liens in addition to the foregoing incurred in the ordinary
course of business provided that the amount of the obligations secured by
such Liens does not exceed in the aggregate $5.0 million at any one time
outstanding and that (A) are not incurred in connection with the borrowing
of money or the obtaining of advances or credit, other than trade credit in
the ordinary course of business, and (B) do not in the aggregate materially
detract from the value of the property or materially impair the use thereof
in the operation of business by our company or any of our Subsidiaries.
"Permitted Tax Distribution" means (1) payments to Coast Resorts required
to be made pursuant to the Tax Sharing Agreement and (2) if and for so long as
we are treated as a Pass-through Entity, distributions to equityholders of our
company (or, if such equityholder is a Pass-through Entity, its equityholders)
in an amount not to exceed the Tax Amount; provided that (A) prior to the first
such distribution to equityholders, our company delivers to the Trustee an
opinion of counsel reasonably satisfactory to the Trustee confirming that (i) we
are a Pass-through Entity and (ii) the holders of the outstanding exchange notes
will not recognize income, gain or loss for federal income tax purposes as a
result of the transaction pursuant to which we become a Pass-through Entity and
will be subject to federal income tax in the same manner and at the same times
as would have been the case if such transaction had not occurred and (B) prior
to any such distribution, we deliver to the Trustee a certificate of our Chief
Financial Officer to the effect that our company is a taxable as Pass-through
Entity.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents, however designated, whether
voting or non-voting, of such Person's preferred or preference stock, whether
outstanding on the Closing Date or issued thereafter.
"Principals" means Michael J. Gaughan, J. Tito Tiberti, Jerry Herbst and
Franklin Toti.
"Project Costs" means, with respect to the development, construction or
acquisition of any of our Casinos not in existence on the date of the Indenture,
including the New Casino, or any expansion or refurbishment of an Existing
Casino, as the case may be, the aggregate costs required to complete such
development, construction and acquisition, including all direct costs related
thereto such as construction management, architectural, engineering and interior
design fees, site work, utility installations and hook-up fees, construction
permits, certificates and bonds, land acquisition costs, costs of furniture,
fixtures, furnishings, machinery and equipment, non-construction supplies and
pre-opening payroll, but excluding principal or interest payments on any
Indebtedness, other than interest which is required to be capitalized in
accordance with GAAP, which will be included in determining Project Costs.
"Public Equity Offering" means an underwritten public offering of Coast
Resorts common stock which is registered under the Securities Act and results in
net proceeds to Coast Resorts of at least $20.0 million.
"Rancho Road Property" means the approximately 29 acres of raw land owned
by us on the Closing Date located at 4300 West Carey Avenue, North Las Vegas,
Nevada.
"Related Parties" means, with respect to any Principal, (i) any spouse,
sibling, parent or lineal descendant of such Principal or any spouse of any such
sibling or lineal descendant and (ii) any trust, corporation, partnership or
other entity the beneficiaries, shareholders, partners, owners or Persons
beneficially holding an 80% or more controlling interest of which consist of
such Principal and/or such other Person referred to in the immediately preceding
clause (i).
"Representative" means any agent or representative in respect of any
Designated Senior Indebtedness; provided that if, and for so long as, any
Designated Senior Indebtedness lacks such a representative, then the
Representative for such Designated Senior Indebtedness will at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of us other than an
Unrestricted Subsidiary.
"Senior Indebtedness" means the following obligations of our company or a
Guarantor, whether outstanding on the Closing Date or thereafter Incurred:
(1) all Indebtedness and all other Obligations, including, without
limitation, expenses, fees, principal, interest, reimbursement obligations
under letters of credit and indemnities payable in connection therewith, of
our company or a Guarantor under or in respect of the Credit Agreement or
any amendments, restatements,
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modifications, renewals or replacements thereof or a Borrowing Facility or
any Interest Rate Agreement or Currency Agreement relating to or otherwise
in respect of the Indebtedness under the Credit Agreement or any
amendments, restatements, modifications, renewals or replacements thereof
or a Borrowing Facility; and
(2) all other Indebtedness and all other monetary obligations of our
company, other than the exchange notes, or a Guarantor, including principal
and interest on such Indebtedness, unless such Indebtedness or obligations,
by its terms or by the terms of any agreement or instrument pursuant to
which such Indebtedness or obligation is issued, is equal with, or
subordinated in right of payment to, the exchange notes, the Parent
Guarantee or Subsidiary Guarantees, as the case may be.
Notwithstanding anything to the contrary in clauses (1) and (2) above,
Senior Indebtedness will not include:
(1) any Indebtedness of our company or a Guarantor that, when
Incurred, was without recourse to our company or the Guarantor, as the case
may be;
(2) any of our Indebtedness to a Subsidiary or Affiliate of our
company;
(3) any Indebtedness of our company or a Guarantor, as the case may
be, to the extent not permitted by the "Limitation on Indebtedness and
Issuances of Preferred Stock" covenant or the "Limitation on Senior
Subordinated Indebtedness" covenant described below; provided that as to
any Indebtedness under the Credit Agreement which exceeds the dollar
limitations set forth in clause (1) of the definition of "Credit Facility"
and any Indebtedness otherwise incurred pursuant to Credit Facilities which
exceeds the dollar limitations set forth in clause (2) of the definition of
"Credit Facility," no such violation will be deemed to exist for purposes
of this clause (3) if the lenders thereunder have obtained a legal opinion,
which legal opinion, in the case of revolving Indebtedness, will be given
on the date of the credit commitment by such lenders with respect to such
Indebtedness, to the effect that the issuance of such Indebtedness does not
violate such covenant as of such date;
(4) any repurchase, redemption or other obligation in respect of
Disqualified Stock;
(5) any Indebtedness to any employee of our company or any of our
Subsidiaries;
(6) any liability for taxes owed or owing by our company or any of our
Subsidiaries or any amounts paid or payable under any Tax Agreement; and
(7) any Trade Payables.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Restricted Subsidiaries:
(1) for our most recent fiscal year, accounted for more than 10% of
the consolidated revenues of our company and our Restricted Subsidiaries;
or
(2) as of the end of such fiscal year, was the owner of more than 10%
of the consolidated assets of our company and our Restricted Subsidiaries,
all as set forth on the most recently available consolidated financial
statements of our company for such fiscal year.
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"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, and its successors.
"Stated Maturity" means, (1) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (2) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subordinated Notes" means the promissory notes executed by Gold Coast
Hotel and Casino, a Nevada limited partnership, in an aggregate principal amount
not to exceed $2.0 million, as assumed by us.
"Subsidiary" means, with respect to any Person, any corporation,
association, business trust or other business entity of which more than 50% of
the voting power of the outstanding Voting Stock is owned, directly or
indirectly, by such Person and one or more other Subsidiaries of such Person.
"Subsidiary Guarantor" means any of our future Subsidiaries that executes a
Subsidiary Guarantee pursuant to the "Subsidiary Guarantees" covenant set forth
below, until released from that Subsidiary Guarantee in accordance with the
Indenture.
"Tax Agreement" means (1) the Tax Sharing Agreement and (2) if and for so
long as we are treated as a Pass-through Entity, any agreement among our
company, Coast Resorts and the equityholders of our company and Coast Resorts
with respect to distributions of the Tax Amount.
"Tax Amount" means, with respect to any period, the federal, state and
local tax liability of our equityholders (or, if such holder is a Pass-though
Entity, its equityholders), assuming maximum rates, in respect of their direct
or indirect interests in our company for such period plus any additional amounts
payable to such equityholders to cover taxes arising from ownership of such
equity interests.
"Tax Sharing Agreement" means that certain Tax Sharing Agreement dated
January 30, 1996, among us, Coast Resorts and Coast West, Inc., as in existence
on the date of the Indenture.
"Temporary Cash Investment" means any of the following:
(1) direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the United
States of America or any agency thereof;
(2) demand deposit accounts, time deposit accounts, certificates of
deposit and money market deposits maturing within one year of the date of
acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any
foreign country recognized by the United States of America, and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $50.0 million or the foreign currency equivalent thereof and
unless such accounts, certificates or deposits are fully insured by the
FDIC has outstanding debt which is rated "A," or such similar equivalent
rating, or higher by at least one nationally recognized statistical rating
organization as defined in Rule 436 under the Securities Act or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor;
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(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) commercial paper, maturing not more than one year after the date
of acquisition, issued by a corporation, other than an Affiliate of our
company, organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-2" or higher according to Moody's or "A-2" or higher
by S&P;
(5) securities with maturities of one year or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or Moody's; and
(6) other dollar denominated securities issued by any Person
incorporated in the United States rated at least "A" or the equivalent by
S&P or at least "A2" or the equivalent by Moody's and in each case either
(A) maturing not more than one year after the date of acquisition or (B)
which are subject to a repricing arrangement such as a Dutch auction not
more than one year after the date of acquisition and reprices at least
yearly thereafter which the Person making the investment believes in good
faith will permit such Person to sell such security at par in connection
with such repricing mechanism.
"The Orleans" means The Orleans Hotel and Casino.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of our Restricted Subsidiaries
arising in the ordinary course of business in connection with the acquisition of
goods or services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by our company or any of our Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means:
(1) any of our Subsidiaries that are designated an Unrestricted
Subsidiary by our Board of Directors in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
Our Board of Directors may designate any Restricted Subsidiary, including
any newly acquired or newly formed Subsidiary of our company, to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, our company or any Restricted
Subsidiary; provided that:
(1) any Guarantee by our company or any Restricted Subsidiary of any
Indebtedness of the Subsidiary being so designated will be deemed an
"Incurrence" of such Indebtedness and an "Investment" by our company or
such Restricted Subsidiary, or both, if applicable at the time of such
designation;
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(2) either (I) the Subsidiary to be so designated has total assets of
$1,000 or less or (II) if such Subsidiary has assets greater than $1,000,
such designation would be permitted under the "Restricted Payments"
covenant described below; and (III) if applicable, the "Incurrence" of
Indebtedness and the "Investment" referred to in clause (1) of this proviso
would be permitted under the "Limitation on Indebtedness and Issuances of
Preferred Stock" and "Restricted Payments" covenants described below.
Our Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that:
(1) no Default or Event of Default will have occurred and be
continuing at the time of or after giving effect to such designation; and
(2) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred at such
time, have been permitted to be Incurred (and will be deemed to have been
Incurred) for all purposes of the Indenture.
Any such designation by the Board of Directors will be evidenced to the
Trustee by promptly filing with the Trustee a copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned Restricted Subsidiary" means, with respect to any Subsidiary
of any Person, the ownership of all of the outstanding Capital Stock of such
Subsidiary, other than any director's qualifying shares, by such Person or one
or more Wholly Owned Restricted Subsidiaries of such Person.
COVENANTS
LIMITATION ON INDEBTEDNESS AND ISSUANCES OF PREFERRED STOCK
We will not, and will not permit any of our Restricted Subsidiaries to
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness or issue any shares of Disqualified
Stock or, in the case of any Restricted Subsidiary, issue any shares of
preferred stock; provided that we or any of our Restricted Subsidiaries may
Incur Indebtedness and our company may issue Disqualified Stock if, after giving
effect to the Incurrence of such Indebtedness or the issuance of such
Disqualified Stock, in each case after the receipt and application of the
proceeds therefrom, the Interest Coverage Ratio would be greater than 2.0:1.
Notwithstanding the foregoing, we and any of our Restricted Subsidiaries,
except as specified below, may Incur each and all of the following:
(1) Indebtedness under the Credit Facility; provided that the
aggregate principal amount of all Indebtedness outstanding pursuant to this
clause (1) does not exceed $200.0 million;
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(2) Indebtedness owed (A) by a Restricted Subsidiary to us or (B) by
us or a Restricted Subsidiary to any Restricted Subsidiary; provided that
any event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness,
other than to us or another Restricted Subsidiary, will be deemed, in each
case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (2);
(3) Indebtedness issued in exchange for, or the net proceeds of which
are used to refinance or refund, then outstanding Indebtedness, other than
Indebtedness Incurred under clause (1), (2), (4), (7), (8) or (9) of this
paragraph, and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded plus premiums, accrued interest, fees and
expenses; provided that net proceeds of which are used to refinance or
refund the exchange notes or Indebtedness that is equal with, or
subordinated in right of payment to, the exchange notes will only be
permitted under this clause (3) if:
(A) in case the exchange notes are refinanced in part or the
Indebtedness to be refinanced is equal with the exchange notes, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is outstanding, is
expressly made equal with, or subordinate in right of payment to, the
remaining exchange notes;
(B) in case the Indebtedness to be refinanced is subordinated in
right of payment to the exchange notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which
such new Indebtedness is issued or remains outstanding, is expressly
made subordinate in right of payment to the exchange notes at least to
the extent that the Indebtedness to be refinanced is subordinated to the
exchange notes; and
(C) such new Indebtedness, determined as of the date of Incurrence
of such new Indebtedness, does not mature prior to the Stated Maturity
of the Indebtedness to be refinanced or refunded, and the Average Life
of such new Indebtedness is at least equal to the remaining Average Life
of the Indebtedness to be refinanced or refunded;
and provided further that in no event may our Indebtedness that is equal
with or subordinated in right of payment to the exchange notes be
refinanced by means of any Indebtedness of any Restricted Subsidiary
pursuant to this clause (3);
(4) Indebtedness (A) in respect of performance, surety or appeal
bonds, completion guarantees or similar instruments provided in the
ordinary course of business, (B) under Currency Agreements and Interest
Rate Agreements; provided that such agreements (I) are designed solely to
protect us or our Restricted Subsidiaries against fluctuations in foreign
currency exchange rates or interest rates and (II) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result
of fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder; or (C)
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of our
company or any of our Restricted Subsidiaries pursuant to such agreements,
in any case Incurred in connection with the disposition of any business,
assets or Restricted Subsidiary, other than Guarantees of Indebted-
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ness Incurred by any Person acquiring all or any portion of such business,
assets or Restricted Subsidiary for the purpose of financing such
acquisition, in a principal amount not to exceed the gross proceeds
actually received by us or any Restricted Subsidiary in connection with
such disposition;
(5) Our Indebtedness, to the extent the net proceeds thereof are
promptly (A) used to purchase exchange notes tendered in an Offer to
Purchase made as a result of a Change in Control or (B) deposited to
defease the exchange notes as described below under "-- Legal Defeasance
and Covenant Defeasance;"
(6) Indebtedness outstanding under Permitted FF&E Financings which are
either (x) Non-Recourse Indebtedness of our company and our Restricted
Subsidiaries or (y) limited in principal amount, including all refinancings
and replacements thereof, to $10.0 million at any one time outstanding
secured by Liens described in clause (7) of the definition of "Permitted
Liens;"
(7) Indebtedness evidenced by letters of credit or similar instruments
issued in the ordinary course of business of our company or any Restricted
Subsidiary including any such instrument to secure workers' compensation or
other insurance coverage or security or lease deposits;
(8) Indebtedness, in addition to Indebtedness permitted under clauses
(1) through (7) above and (9) through (12) below, in an aggregate principal
amount outstanding at any time not to exceed $15.0 million;
(9) obligations under letters of credit, bonds and other surety
arrangements posted by us or any of our Subsidiaries in order to prevent
the loss or material impairment of or to obtain a Gaming License or as
otherwise required by an order of any Gaming Authority or by applicable law
or regulation and consistent in character and amount with industry
practice;
(10) Our Indebtedness and Guarantees thereof by our Subsidiaries that
are Guarantors Incurred to finance the expansion or refurbishment of an
Existing Casino, provided the aggregate principal amount of such
Indebtedness at any time outstanding, together with any Indebtedness
applied to the refinancing thereof, does not exceed the lesser of $20.0
million or 80% of the aggregate Project Costs of such expansion or
refurbishment;
(11) following the date on which the New Casino is operating, our
Indebtedness and Guarantees thereof by our Subsidiaries that are Guarantors
Incurred to finance the expansion or refurbishment of an Existing Casino,
provided the aggregate principal amount of such Indebtedness at any time
outstanding, together with any Indebtedness applied to the refinancing
thereof, does not exceed the lesser of $30.0 million or 80% of the
aggregate Project Costs of such expansion or refurbishment; and
(12) the Guarantee by us or any of our Restricted Subsidiaries of our
Indebtedness or any of our Restricted Subsidiaries that was permitted to be
incurred by another provision of this covenant.
Notwithstanding any other provision of this "Limitation on Indebtedness and
Issuances of Preferred Stock" covenant, the maximum amount of Indebtedness that
we or a Restricted Subsidiary may Incur pursuant to this "Limitation on
Indebtedness and Issuances of Preferred Stock" covenant will not be deemed to be
exceeded, with respect to
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any outstanding Indebtedness, due solely to the result of fluctuations in the
exchange rates of currencies.
For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness and Issuances of Preferred Stock" covenant,
(1) Indebtedness Incurred under the Credit Facility first will be
treated as Incurred pursuant to clause (1) of the second paragraph of this
"Limitation on Indebtedness and Issuances of Preferred Stock" covenant to
the full extent of Indebtedness permitted under such clause, it being
understood that additional Indebtedness under the Credit Facility may be
incurred to the full extent permitted under any other provision of the
Indenture;
(2) Guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount will not be included; and
(3) any Liens granted pursuant to the equal and ratable provisions
referred to in the "Liens" covenant described below will not be treated as
Indebtedness.
For purposes of determining compliance with this "Limitation on Indebtedness and
Issuances of Preferred Stock" covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses, other than Indebtedness referred to in clause
(1) of the preceding sentence, we, in our sole discretion, will classify, and
from time to time may reclassify, such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses.
NO SENIOR SUBORDINATED INDEBTEDNESS
We will not Incur any Indebtedness that is subordinate in right of payment
to any Senior Indebtedness unless such Indebtedness is equal with, or
subordinated in right of payment to, the exchange notes. No Guarantor will Incur
any Indebtedness that is subordinate in right of payment to any Senior
Indebtedness of such Guarantor unless such Indebtedness is equal with, or
subordinated in right of payment to, the Parent Guarantee or Subsidiary
Guarantee, as the case may be, executed by such Guarantor.
LIENS
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind securing Indebtedness or trade payables on any asset now owned or hereafter
acquired, except Permitted Liens, unless the exchange notes and the Subsidiary
Guarantees are secured on an equal and ratable basis with the Indebtedness
secured.
RESTRICTED PAYMENTS
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly:
(1) declare or pay any dividend or make any distribution on or with
respect to our company's or any Restricted Subsidiaries' Capital Stock,
other than (A) dividends or distributions payable solely in shares of its
Capital Stock other than Disqualified Stock or in options, warrants or
other rights to acquire shares of such Capital Stock
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and (B) pro rata dividends or distributions on Common Stock of Restricted
Subsidiaries held by minority stockholders, held by Persons other than us
or any of our Restricted Subsidiaries;
(2) purchase, redeem, retire or otherwise acquire for value any shares
of Capital Stock of (A) our company, including options, warrants or other
rights to acquire such shares of Capital Stock, held by any Person or (B) a
Restricted Subsidiary, including options, warrants or other rights to
acquire such shares of Capital Stock, held by any of our Affiliates, other
than a Restricted Subsidiary, or any holder or any Affiliate of such holder
of 5% or more of our Capital Stock;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of our Indebtedness that is subordinated in right of
payment to the exchange notes or the Subsidiary Guarantees, except a
payment of interest or principal at the Stated Maturity thereof; or
(4) make any Investment, other than a Permitted Investment, in any
Person, such payments or any other actions described in clauses (1) through
(4) above being collectively "Restricted Payments"
if, at the time of, and after giving effect to, the proposed Restricted
Payment:
(A) a Default or Event of Default will have occurred and be
continuing;
(B) we could not Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness and Issuances of Preferred
Stock" covenant; or
(C) the aggregate amount of all Restricted Payments, that is, the
amount of any Restricted Payment with a fair market value in excess of $1.0
million, if other than in cash, to be determined in good faith by the Board
of Directors, whose determination will be conclusive and evidenced by a
Board Resolution, made after the Closing Date will exceed the sum of:
(I) 50% of the aggregate amount of the Adjusted Consolidated Net
Income or, if the Adjusted Consolidated Net Income is a loss, minus 100%
of the amount of such loss, determined by excluding income resulting
from transfers of assets by us or a Restricted Subsidiary to an
Unrestricted Subsidiary, accrued on a cumulative basis during the period
taken as one accounting period beginning on January 1, 1999 and ending
on the last day of the last fiscal quarter preceding the Transaction
Date for which reports have been filed with the Commission or provided
to the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant; plus
(II) the aggregate Net Cash Proceeds received by us after the
Closing Date from the issuance and sale permitted by the Indenture of
our Capital Stock, other than Disqualified Stock, to a Person who is not
our Subsidiary, including an issuance or sale permitted by the Indenture
of our Indebtedness for cash subsequent to the Closing Date upon the
conversion of such Indebtedness into Capital Stock, other than
Disqualified Stock, of our company, or from the issuance to a Person who
is not our Subsidiary of any options, warrants or other rights to
acquire our Capital Stock, in each case, exclusive of any Disqualified
Stock or any options, warrants or other rights that are redeemable at
the option
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of the holder, or are required to be redeemed, prior to the Stated
Maturity of the exchange notes; plus
(III) 100% of the aggregate capital contributions from Coast
Resorts; plus
(IV) an amount equal to the net reduction in Investments, other
than reductions in Permitted Investments, in any Person resulting from
payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to us or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of any
such Investment except, in each case, to the extent any such payment or
proceeds are included in the calculation of Adjusted Consolidated Net
Income, or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries, valued in each case as provided in the
definition of "Investments," not to exceed, in each case, the amount of
Investments previously made by us or any Restricted Subsidiary in such
Person or Unrestricted Subsidiary.
The foregoing provision will not be violated by reason of:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the exchange notes including premium, if any, and accrued and
unpaid interest, with the proceeds of, or in exchange for, Indebtedness
Incurred under clause (3) of the second paragraph of the "Limitation on
Indebtedness and Issuances of Preferred Stock" covenant;
(3) the repurchase, redemption or other acquisition of Capital Stock
of our company or a Restricted Subsidiary, or options, warrants or other
rights to acquire such Capital Stock, in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of Capital
Stock, other than Disqualified Stock, of our company or of Coast Resorts to
the extent the net proceeds thereof are contributed to us, or options,
warrants or other rights to acquire such Capital Stock;
(4) the redemption or repurchase and the payment of dividends by us to
Coast Resorts to fund any redemption or repurchase by Coast Resorts of any
debt or equity securities of our company, any Restricted Subsidiary or
Coast Resorts required by, and in accordance with, any order of any Gaming
Authority, provided that we have used our reasonable best efforts to effect
a disposition of such securities to a third-party and has been unable to do
so;
(5) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of
our company or a Restricted Subsidiary which is subordinated in right of
payment to the exchange notes or the Subsidiary Guarantee executed by such
Restricted Subsidiary in exchange for, or out of the proceeds of, a
substantially concurrent offering of, shares of the Capital Stock, other
than Disqualified Stock, us or of Coast Resorts to the extent the net
proceeds thereof are contributed to us or of Coast Resorts to the extent
the net proceeds thereof are contributed to us, or options, warrants or
other rights to acquire such Capital Stock;
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(6) dividends or other payments to Coast Resorts in an aggregate
amount not to exceed $500,000 per fiscal year to pay accounting, legal,
corporate reporting and other administrative expenses of Coast Resorts in
the ordinary course of business;
(7) payments or distributions to dissenting stockholders and the
payment of dividends by us to Coast Resorts to fund any such payments
pursuant to applicable law pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the
provisions of the Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the property and assets of our
company or Coast Resorts;
(8) payments of amounts required for any repurchase, redemption,
retirement or other acquisition of any Capital Stock of our company or
Coast Resorts and the payment of dividends by our company to Coast Resorts
to fund any such payments or any options or rights to acquire such Capital
Stock of our company or Coast Resorts owned by any director, officer or
employee of our company or our Subsidiaries pursuant to any management
equity subscription agreement, stock option agreement or similar agreement,
or otherwise upon the death, disability, retirement or termination of
employment or departure from our company; provided that the aggregate price
paid for all such repurchased, redeemed, retired or acquired Capital Stock
of our company or options will not exceed in the aggregate $2.0 million;
(9) Investments in any Person so long as such Person is engaged in a
line of business in which we are permitted to be engaged pursuant to the
covenant described under "-- Covenants -- Line of Business" in an aggregate
amount not to exceed $15.0 million;
(10) Restricted Payments up to an amount equal to the Barbary Excess
Net Cash Proceeds;
(11) payments for the repurchase, redemption, retirement, defeasance
or other acquisition of any of the Subordinated Notes in an aggregate
amount not to exceed $2.0 million;
(12) Permitted Tax Distributions;
(13) dividends or other payments and the payments of dividends by us
to Coast Resorts to fund any such payments to the former partners of the
Gold Coast Hotel and Casino, a Nevada partnership, or the Barbary Coast
Hotel and Casino, a Nevada partnership, in an aggregate amount not to
exceed $1.5 million to pay income tax liability incurred as such partners
and assessed after the date of the Indenture; or
(14) Restricted Payments in an aggregate amount not to exceed $15.0
million.
provided that, except in the case of clauses (1), (4), (7), (8) and (13), no
Default or Event of Default will have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph,
other than the Restricted Payment referred to in clause (2), (6), (12) and (13)
thereof and an exchange of Capital Stock for Capital Stock or Indebtedness
referred to in clause (3) or (5) thereof, and the Net Cash Proceeds from any
issuance of Capital Stock referred to in clauses (3) and (5), will be included
in calculating whether the conditions of clause (C)
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of the first paragraph of this "Restricted Payments" covenant have been met with
respect to any subsequent Restricted Payments.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
We will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by
us or any other Restricted Subsidiary;
(2) pay any Indebtedness owed to us or any other Restricted
Subsidiary;
(3) make loans or advances to us or any other Restricted Subsidiary;
or
(4) transfer any of its property or assets to us or any other
Restricted Subsidiary.
The foregoing provisions will not restrict any encumbrances or
restrictions:
(1) existing on the Closing Date in the Credit Agreement, the
Indenture or any other agreements in effect on the Closing Date, and any
modifications, extensions, refinancings, renewals, substitutions or
replacements of such agreements; provided that the encumbrances and
restrictions in any such modifications, extensions, refinancings, renewals,
substitutions or replacements are no less favorable in any material respect
to the Holders than those encumbrances or restrictions that are then in
effect and that are being modified, extended, refinanced, renewed,
substituted or replaced;
(2) contained in any Indebtedness incurred under an agreement
described in clause (2)(B)(i) of the definition of "Credit Facility" and
any modifications, extensions, refinancings, renewals, substitutions or
replacements of such agreement; provided that the encumbrances and
restrictions in any such modifications, extensions, refinancings, renewals,
substitutions or replacements are no less favorable in any material respect
to the Holders than those encumbrances or restrictions that are then in
effect in such agreement;
(3) existing under or by reason of applicable law;
(4) contained in any agreement so long as such encumbrances and
restrictions are no more restrictive than those contained in the Indenture;
(5) existing with respect to any Person or the property or assets of
such Person acquired by us or any Restricted Subsidiary, existing at the
time of such acquisition and not incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired;
(6) in the case of clause (4) of the first paragraph of this "Dividend
and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant,
(A) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) existing by virtue of any
transfer of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of our company or any Restricted
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Subsidiary not otherwise prohibited by the Indenture, (C) arising or agreed
to in the ordinary course of business, not relating to any Indebtedness,
and that do not, individually or in the aggregate, detract from the value
of property or assets of our company or any Restricted Subsidiary in any
manner material to our company or any Restricted Subsidiary, (D) existing
by reason of customary provisions in leases entered into in the ordinary
course of business or (E) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other
similar agreements entered into in the ordinary course of business.
(7) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary;
(8) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if (A) the encumbrance or
restriction applies only in the event of any default contained in such
Indebtedness or agreement, (B) the encumbrance or restriction is not
materially more disadvantageous to the Holders of the exchange notes than
is customary in comparable financings and (C) we believe that any such
encumbrance or restriction will not materially affect our company's ability
to make principal or interest payments on the exchange notes.
Nothing contained in this "Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant will prevent us or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in the "Liens" covenant or (2) restricting the sale or
other disposition of property or assets of our company or any of our Restricted
Subsidiaries that secure Indebtedness of our company or any of our Restricted
Subsidiaries.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF WHOLLY OWNED RESTRICTED
SUBSIDIARIES
We will not, and will not permit any Restricted Subsidiary, to transfer,
sell, convey or otherwise dispose of any shares of Capital Stock of a Wholly
Owned Restricted Subsidiary, including options, warrants or other rights to
purchase shares of such Capital Stock, other than to us or one of our Wholly
Owned Restricted Subsidiaries unless:
(1) such transfer, sale, conveyance or disposition is of all of the
Capital Stock of such Wholly Owned Subsidiary; and
(2) the Net Cash Proceeds of any such transfer, sale, conveyance or
disposition are applied in accordance with clause (A) or (B) of the "Asset
Sales" covenant described below.
In addition, we will not permit any of our Wholly Owned Restricted
Subsidiary to issue any Capital Stock, other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares, to any Person other
than us or any of our Wholly Owned Restricted Subsidiaries.
SUBSIDIARY GUARANTEES
If a Restricted Subsidiary acquired or created after the date of the
Indenture has at any time a Fair Market Value of more than $250,000, then that
Restricted Subsidiary must execute a Subsidiary Guarantee and deliver an opinion
of counsel, in accordance with
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the terms of the Indenture pursuant to which such Subsidiary will become a
Subsidiary Guarantor, on a senior subordinated basis pursuant to subordination
provisions substantially similar to those described above under the caption
"-- Subordination," of our payment obligations under the exchange notes and the
Indenture; provided that the aggregate Fair Market Value of our Restricted
Subsidiaries that are not Subsidiary Guarantors will not at any time exceed $1.0
million.
REDEMPTION OF THE OLD FIRST MORTGAGE NOTES
On December 15, 2000, we will redeem any Old First Mortgage Notes then
outstanding.
CONSTRUCTION OF THE NEW CASINO
Simultaneously with the closing of any transaction pursuant to which we may
incur the Indebtedness referred to in clause (2) of the definition of "Credit
Facility", we will provide to the Trustee:
(1) a budget setting forth in reasonable detail all amounts to be
expended in connection with the development, construction and opening the
New Casino;
(2) an Officers' Certificate certifying that to best of their
knowledge after due inquiry;
(A) based upon our internal projections, we have sufficient funds,
together with funds available under the Credit Facility, to cause the
New Casino to be completed and operating within 21 months of the closing
of any transaction pursuant to which we may incur the Indebtedness
referred to in clause (2) of the definition of "Credit Facility"; and
(B) our internal projections with respect to the development,
construction and opening of the New Casino are reasonable.
TRANSACTIONS WITH AFFILIATES
Our company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction; including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service; with any Affiliate of our company or any
Restricted Subsidiary, unless:
(1) such transaction is on fair and reasonable terms no less favorable
to us or such Restricted Subsidiary than could be obtained, at the time of
such transaction or, if such transaction is pursuant to a written
agreement, at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is
not such a holder or an Affiliate; and
(2) we deliver to the Trustee:
(a) with respect to any transaction or series of related
transactions the aggregate amount of which exceeds $2.0 million in
value, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such transaction complies with this covenant
and has been approved by a majority of the Independent Directors; and
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(b) with respect to any transaction or series of related
transactions the aggregate amount of which exceeds $5.0 million in
value, a written opinion of a nationally recognized accounting,
appraisal or investment banking firm stating that the transaction is
fair to us or such Restricted Subsidiary from a financial point of view.
The foregoing limitation does not limit, and will not apply to:
(1) any employment or related agreement or arrangement entered into by
us or any of our Subsidiaries in the ordinary course of business on terms
customary in the hotel-casino industry;
(2) transactions solely between or among us and any of our Restricted
Subsidiaries;
(3) payment of customary directors' fees and indemnities;
(4) any Restricted Payments not prohibited by the "Restricted
Payments" covenant and Investments permitted under clause (3) of the
definition of "Permitted Investments";
(5) any Tax Agreement; and
(6) in the case of clause (2)(b) of the first paragraph of this
covenant only, (i) any Construction and Design Contract approved by all of
the Independent Directors and (ii) any amounts paid pursuant to any
agreement or arrangement existing on the Closing Date between us and any of
LGT Advertising, Las Vegas Dissemination, Inc., RJS, Inc. or Nevada
Wallboards, Inc., and any renewals or replacements of any such agreement or
arrangement, in each case with terms no less favorable to our company than
those in effect on the Closing Date.
ASSET SALES
Our company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (1) the consideration received by our company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (2) at least 75% of the consideration received,
excluding contingent liabilities assumed by the transferee of any such assets,
consists of cash or Temporary Cash Investments or the assumption of Senior
Indebtedness of our company or a Subsidiary Guarantor, provided that we or such
Restricted Subsidiary is irrevocably released from all liability under such
Indebtedness. Within 360 days after the receipt of any Net Cash Proceeds from an
Asset Sale, other than Barbary Excess Net Cash Proceeds, we will or will cause
the relevant Restricted Subsidiary to (1)(A) apply an amount equal to such Net
Cash Proceeds to permanently repay Senior Indebtedness of our company or a
Subsidiary Guarantor or (B) invest an equal amount, or the amount not so applied
pursuant to clause (A) or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement, in property or assets,
other than current assets, of a nature or type or that are used in a business,
or in Capital Stock of a company having property and assets of a nature or type,
or engaged in a business, similar or related to the nature or type of the
property and assets of, or the business of, our company and our Restricted
Subsidiaries existing on the date of such investment and (2) no later than the
end of the 12-month period referred to in clause (1), apply such excess Net Cash
Proceeds, to the extent not applied pursuant to clause (1), as provided in the
following paragraph of this "Asset
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Sales" covenant. The amount of such excess Net Cash Proceeds required to be
applied or to be committed to be applied during such 12-month period as set
forth in clause (1) of the preceding sentence and not applied as so required by
the end of such period will constitute "Excess Proceeds." Pending application of
such Net Cash Proceeds by the end of the relevant period, we and our Restricted
Subsidiaries may use such Net Cash Proceeds to temporarily repay revolving
Indebtedness.
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Asset Sales" covenant totals at least $10.0 million, we must commence, not
later than the fifteenth Business Day of such month, an Offer to Purchase to the
Holders and, to the extent required by the terms of any Pari Passu Indebtedness,
an Offer to Purchase to all holders of such Pari Passu Indebtedness, the maximum
principal amount of exchange notes and any such Pari Passu Indebtedness that may
be purchased out of the Excess Proceeds, at an offer price equal to 100% of the
principal amount thereof, plus, in each case, accrued and unpaid interest and
Additional Interest, if any, to the Payment Date. If the aggregate principal
amount of exchange notes and any such Pari Passu Indebtedness tendered by
holders thereof exceeds the amount of Excess Proceeds, the exchange notes and
Pari Passu Indebtedness will be purchased on a pro rata basis. Upon the
completion of any such Offers to Purchase, the amount of Excess Proceeds will be
reset at zero.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
We must commence, within 20 days of the occurrence of a Change of Control,
and thereafter consummate an Offer to Purchase for all Notes then outstanding,
at a purchase price equal to 101% of the principal amount thereof, plus accrued
interest and Additional Interest, if any, to the Payment Date.
There can be no assurance that we will have sufficient funds available at
the time of any Change of Control to make any debt payment, including
repurchases of exchange notes, required by the foregoing covenant, as well as
may be contained in other securities of our company which might be outstanding
at the time. The above covenant requiring us to repurchase the exchange notes
will, unless consents are obtained, require us to repay all indebtedness then
outstanding, including indebtedness under the Credit Agreement, which by its
terms would prohibit the exchange note repurchase, either prior to or
concurrently with the exchange note repurchase.
We will not be required to make an Offer to Purchase pursuant to this
covenant if a third party makes an Offer to Purchase in compliance with this
covenant and repurchases all exchange notes validly tendered and not withdrawn
under such Offer to Purchase.
INDEPENDENT DIRECTORS
We and Coast Resorts will each cause its Board of Directors to include at
least two Independent Directors at all times.
LINE OF BUSINESS
We will not, and will not permit any Subsidiary which, for our most recent
fiscal year, accounted for more than 10% of the consolidated revenues of our
company and our Subsidiaries or was the owner of more than 10% of the
consolidated assets of our company and our Subsidiaries in each case as set
forth on our most recently available consolidated
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financial statements for the fiscal year to, engage in any business other than
the gaming and hotel businesses and such business activities as are incidental
or related or complementary thereto.
PAYMENTS FOR CONSENT
We will not, and will not permit any of our Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for the benefit of
any Holder for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the exchange notes unless such
consideration is offered to be paid and is paid to all Holders that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not required by the rules and regulations of the Commission, so
long as any exchange notes are outstanding, we will furnish to the Holders:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if we were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report thereon by our
certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports.
If we have designated any of our Subsidiaries as Unrestricted Subsidiaries,
then the quarterly and annual financial information required by the preceding
paragraph will include a reasonably detailed presentation, either on the face of
the financial statements or in the footnotes thereto, and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, of the
financial condition and results of operations of our company and our Restricted
Subsidiaries separate from the financial condition and results of operations of
our Unrestricted Subsidiaries.
In addition, whether or not required by the rules and regulations of the
Commission, we will file a copy of all such information and reports referred to
in clauses (1) and (2) above with the Commission for public availability (unless
the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, we have agreed that, for so long as any exchange notes remain
outstanding, we will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Additional Interest, if any, with respect to, the exchange notes, whether
or not prohibited by the subordination provisions of the Indenture;
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(2) default in payment when due of the principal of or premium, if
any, on the exchange notes, whether or not prohibited by the subordination
provisions of the Indenture;
(3) failure by us or any of our Subsidiaries to comply with the
provisions described under the captions "Covenants -- Merger, Consolidation
or Sale of Assets," "Repurchase of Notes Upon a Change of Control,"
"-- Asset Sales," "-- Restricted Payments" or "-- Limitation on
Indebtedness and Issuances of Preferred Stock";
(4) failure by us or any of our Restricted Subsidiaries for 45 days
after notice to comply with any of the other agreements in the Indenture;
(5) the occurrence with respect to any issue or issues of Indebtedness
of our company or any Significant Subsidiary having an outstanding
principal amount of $5.0 million or more in the aggregate for all such
issues or all such Persons, whether such Indebtedness now exists or will
hereafter be created, of (a) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration or (b) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment will not
have been made, waived or extended within 30 days of such payment default;
(6) failure by us or any of our Restricted Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the Indenture, the Parent Guarantee or any
Subsidiary Guarantee will be held in any judicial proceeding to be
unenforceable or invalid or will cease for any reason to be in full force
and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, will deny or disaffirm its obligations under its Parent
Guarantee or Subsidiary Guarantee, as the case may be;
(8) the revocation, termination, suspension or other cessation of
effectiveness for a period of more than 90 consecutive days of any Gaming
License that results in the cessation or suspension of gaming operations or
any Liquor License that results in the cessation or suspension of the
ability to serve liquor, in each case at any of The Orleans, Gold Coast,
Barbary Coast, or New Casino (after it begins operations); provided that we
may relinquish a Gaming License or Liquor License with respect to any of
our hotel casinos other than The Orleans, the Gold Coast or the New Casino
if such relinquishment is, in the reasonable, good faith judgment of our
Board of Directors or the Restricted Subsidiary, as applicable, both
desirable in the conduct of the business of our company and its Restricted
Subsidiaries, taken as a whole, and not disadvantageous in any material
respect to the Holders; and
(9) certain events of bankruptcy or insolvency with respect to us or
any of our Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding exchange
notes may declare all the exchange notes to be due and payable immediately. In
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to our company, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted
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Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding exchange notes will become due and payable immediately without
further action or notice.
Holders may not enforce the Indenture or the exchange notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding exchange notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders notice of any continuing Default or Event of Default, except a Default
or Event of Default relating to the payment of principal or interest, if it
determines that withholding notice is in their interest.
At any time after a declaration of acceleration, but before a judgment or
decree for payment of the money due has been obtained by the Trustee, the
Holders of a majority in principal amount of the exchange notes, by written
notice to our company and the Trustee, may rescind and annul such declaration
and its consequences if all Events of Default, other than the non-payment of the
principal of, premium, if any, and interest on, all such exchange notes that
have become due solely by such declaration of acceleration, have been cured or
waived and the rescission would not conflict with any judgment, order or decree
of any court of competent jurisdiction.
The Holders of at least a majority in aggregate principal amount of the
outstanding exchange notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability or that the Trustee determines in good faith may be unduly
prejudicial to the rights of Holders not joining in the giving of such direction
and may take any other action it deems proper that is not inconsistent with any
such direction received from Holders.
A Holder may not pursue any remedy with respect to the Indenture or the
exchange notes unless:
(1) the Holder gives the Trustee written notice of a continuing Event
of Default;
(2) the Holders of at least 25% in aggregate principal amount of
outstanding exchange notes make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory to
the Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding exchange notes do not give the Trustee
a direction that is inconsistent with the request.
However, such limitations do not apply to the right of any Holder to
receive payment of the principal of or premium, if any, or interest on, such
Note or to bring suit for the enforcement of any such payment, on or after the
due date expressed in the exchange notes, which right will not be impaired or
affected without the consent of the Holder.
The Holders of a majority in aggregate principal amount of the exchange
notes then outstanding, by notice to the Trustee, may on behalf of the Holders
of all of the exchange notes waive any existing Default or Event of Default and
its consequences under the
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Indenture, except a continuing Default or Event of Default in the payment of the
principal of or premium, if any, or interest on the exchange notes.
We are required to deliver to the Trustee annually a statement regarding
compliance with the Indenture. Upon becoming aware of any Default or Event of
Default, we are required to deliver to the Trustee a statement specifying such
Default or Event of Default.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
We will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets, as an entirety or substantially an entirety in one transaction or a
series of related transactions, to any Person or permit any Person to merge with
or into us unless:
(1) We will be the continuing Person, or the Person, if other than us,
formed by such consolidation or into which we are merged or that acquired
or leased our property and assets will be a corporation organized and
validly existing under the laws of the United States of America or any
state or jurisdiction thereof and will expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, all of our obligations on
all of the exchange notes and under the Indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default exists;
(3) immediately after giving effect to such transaction on a pro forma
basis, we or any Person becoming the successor obligor of the exchange
notes will have a Consolidated Net Worth equal to or greater than our
Consolidated Net Worth immediately prior to such transaction;
(4) immediately after giving effect to such transaction on a pro forma
basis as if the transaction had occurred at the beginning of the applicable
four-quarter period, we, or any Person becoming the successor obligor of
the exchange notes, as the case may be, could Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness
and Issuances of Preferred Stock" covenant; and
(5) We will deliver to the Trustee an Officers' Certificate, attaching
the arithmetic computations to demonstrate compliance with clauses (3) and
(4), and Opinion of Counsel, in each case stating that such consolidation,
merger or transfer and such supplemental indenture complies with this
provision and that all conditions precedent provided for herein relating to
such transaction have been complied with.
Notwithstanding the foregoing clause (3), (a) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to us, and (b) we may merge with an Affiliate
incorporated solely for the purpose of reincorporating our company in
another jurisdiction.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding exchange notes and all obligations of
each Guarantor
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discharged with respect to its Parent Guarantee or Subsidiary Guarantee, as the
case may be ("Legal Defeasance") except for:
(1) the rights of Holders of outstanding exchange notes to receive
payments in respect of the principal of, premium, if any, and interest and
Additional Interest, if any, on such exchange notes when such payments are
due from the trust referred to below;
(2) our obligations with respect to the exchange notes concerning
issuing temporary exchange notes, registration of the exchange notes,
mutilated, destroyed, lost or stolen exchange notes and the maintenance of
an office or agency for payment and money for security payments held in
trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, we may, at our option and at any time, elect to have the
obligations of our company and each Guarantor released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants will not constitute a
Default or Event of Default with respect to the exchange notes. In the event
Covenant Defeasance occurs, certain events, not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events, described under
"Events of Default" will no longer constitute an Event of Default with respect
to the exchange notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
and Additional Interest, if any, on the outstanding exchange notes on the
stated maturity or on the applicable redemption date, as the case may be,
and we must specify whether the exchange notes are being defeased to
maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, we will have delivered to the
Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that (a) we have received from, or there has been published by,
the Internal Revenue Service a ruling or (b) since the date of the
Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel will confirm that, the Holders of the outstanding exchange notes
will not recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we will have delivered to the
Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that the Holders of the outstanding exchange notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to
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federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default will have occurred and be
continuing either: (A) on the date of such deposit, other than a Default or
Event of Default resulting from the borrowing of funds to be applied to
such deposit, or (B) insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit and receipt of good and readily
available funds;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument, other than the Indenture, to which we or any of
our Restricted Subsidiaries is a party or by which we or any of our
Restricted Subsidiaries are bound;
(6) we must have delivered to the Trustee an opinion of counsel to the
effect that, subject to customary assumptions and exclusions, after the
91st day following the deposit and receipt of good and readily available
funds, the trust funds will not be part of any "estate" formed by the
bankruptcy or reorganization of our company or subject to the "automatic
stay" under the Bankruptcy Code or, in the case of Covenant Defeasance,
will be subject to a first priority perfected Lien in favor of the trustee
for the benefit of the Holders;
(7) we must deliver to the Trustee an Officers' Certificate stating
that the deposit was not made by us with the intent of preferring the
Holders over our other creditors or with the intent of defeating,
hindering, delaying or defrauding creditors of our company or others; and
(8) we must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect, except as to:
(1) surviving rights of registration of transfer or exchange of the
exchange notes;
(2) covenants relating to payment of the exchange notes, maintenance
of an office or agency of our company in New York City, waiver of stay,
extension and usury laws by our company and the Guarantors and corporate
existence of our company;
(3) provisions regarding reinstatement of the Indenture in certain
circumstances; and
(4) Coast Resorts' obligations under the Parent Guarantee and the
obligations of any Subsidiary Guarantor under its Subsidiary Guarantee and
the Trustee, at our
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expense, will execute proper instruments acknowledging satisfaction and
discharge of the Indenture when:
(a) either:
(i) all the exchange notes theretofore authenticated and
delivered, other than destroyed, lost or stolen exchange notes that
have been replaced or paid and exchange notes that are subject to
defeasance as described under "-- Legal Defeasance and Covenant
Defeasance," have been delivered to the Trustee for cancellation;
or
(ii) all exchange notes not theretofore delivered to the
Trustee for cancellation (A) have become due and payable, (B) will
become due and payable at maturity within 45 days or (C) are to be
called for redemption within 45 days under arrangements
satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and our expense, and we have
irrevocably deposited or caused to be deposited with the Trustee
funds in trust for such purpose, together with a statement by us
that such deposit is irrevocable, in an amount sufficient to pay
and discharge the entire Indebtedness on the exchange notes not
theretofore delivered to the Trustee for cancellation, for
principal, and premium, if any, on, and interest and Additional
Interest, if any, on the exchange notes to the date of such
deposit, in case of exchange notes that have become due and
payable, or to the Stated Maturity or redemption date, as the case
may be;
(b) we have paid or caused to be paid all sums payable under the
Indenture by us; and
(c) we and each Guarantor have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided in the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided below, the Indenture, the exchange notes, the Parent
Guarantee or any Subsidiary Guarantee may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the
exchange notes then outstanding. This includes, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, the exchange notes. Any existing default or compliance with any provision
of the Indenture, the exchange notes, the Parent Guarantee or any Subsidiary
Guarantee may also be waived with the consent of the Holders of a majority in
principal amount of the exchange notes then outstanding, again including
consents obtained in connection with a tender offer or exchange offer for the
exchange notes.
Without the consent of each Holder affected, an amendment or waiver may not
with respect to any exchange notes held by a non-consenting Holder:
(1) reduce the principal amount of exchange notes whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any
exchange note or alter the provisions with respect to the redemption of the
exchange notes, other than
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provisions relating to the covenants described above under the captions
"Covenants -- Repurchase of Exchange Notes Upon a Change in Control" and
"Covenants -- Asset Sales;"
(3) reduce the rate of or change the time for payment of interest on
any exchange note;
(4) waive a Default or Event of Default in the payment of principal or
premium, interest or Additional Interest, if any, on the exchange notes,
except a rescission of acceleration of the exchange notes by the Holders of
at least a majority in aggregate principal amount of the exchange notes and
a waiver of the payment default that resulted from such acceleration;
(5) make any exchange note payable in money other than that stated in
the exchange notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders to receive payments of
principal of or premium, interest or Additional Interest, if any, on the
exchange notes;
(7) waive a redemption payment with respect to any exchange note,
other than a payment required by one of the covenants described above under
the captions "Covenants -- Repurchase of Exchange Notes Upon a Change in
Control" and "Covenants -- Asset Sales"; or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder of
exchange notes, we and the Trustee may amend or supplement the Indenture, the
exchange notes, the Parent Guarantee or any Subsidiary Guarantee:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated exchange notes in addition to or in
place of certificated exchange notes;
(3) to provide for the assumption of our obligations to Holders in the
case of a merger or consolidation or sale of all or substantially all of
our assets;
(4) to provide for additional Subsidiary Guarantees or for the release
of a Guarantor in compliance with the Indenture;
(5) to make any change that would provide any additional rights or
benefits to the Holders or that does not adversely affect the legal rights
under the Indenture of any such Holder; or
(6) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture
Act.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we are required
to mail to Holders of the exchange notes a notice briefly describing such
amendment. However,
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the failure of any Holder to receive such notice, or any defect therein, will
not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and we may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
We are not required to transfer or exchange any exchange note selected for
redemption. Also, we are not required to transfer or exchange any exchange note
for a period of 15 days before a selection of exchange notes to be redeemed.
The registered Holder of an exchange note will be treated as the owner of
it for all purposes.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of our company
or any Guarantor, as such, will have any liability for any obligations of our
company or any Guarantor under the exchange notes, the Indenture, the Parent
Guarantee or any Subsidiary Guarantee, or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder by accepting an
exchange note waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the exchange notes. The waiver may not
be effective to waive liabilities under the federal securities laws and it is
the view of the Commission that such a waiver is against public policy.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of our company or any Guarantor, its
right to obtain payment of claims in certain cases, or to realize certain
property received as security or otherwise will be limited. The Trustee will be
permitted to engage in other transactions. However, if it acquires any
conflicting interest, it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
exchange notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default will occur and be continuing, the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder, unless such Holder will have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the Indenture and
the related registration rights agreement without charge by writing to Coast
Hotels and
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Casinos, Inc., 4500 West Tropicana Avenue, Las Vegas, Nevada, 89103, Attention:
Chief Financial Officer.
BOOK ENTRY; DELIVERY AND FORM
Outstanding notes offered and sold to qualified institutional buyers
("QIBs") in reliance on Rule 144A ("Rule 144A Notes") and any outstanding notes
offered and sold in offshore transactions in reliance on Regulation S
("Regulation S Notes") were issued in registered, global form in minimum
denominations of $1,000 and integral multiples of $1,000 in excess thereof.
The outstanding notes issued as described below under "-- Exchange of
Book-Entry Notes for Certificated Notes" were issued in definitive form.
Outstanding notes held in definitive form are subject to certain restrictions on
transfer set forth therein and will bear the legend regarding such restrictions
set forth under the heading "Transfer Restrictions" herein.
The Rule 144A Notes are represented by one or more notes in registered,
global form without interest coupons (collectively, the "Rule 144A Global
Notes"). The Regulation S Notes are represented by one or more notes in
registered, global form without interest coupons (collectively, the "Regulation
S Global Notes" and, together with the Rule 144A Global Notes, the "Global
Notes"). The Global Notes are on deposit with the Trustee as custodian for The
Depository Trust Company ("DTC"), in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to an account of a direct or
indirect participant in DTC as described below. Through and including the 40th
day after the later of the commencement of the issuance of the notes and the
issue date such period through and including such 40th day, the "Restricted
Period," beneficial interests in the Regulation S Global Notes may be held only
through the Euroclear System ("Euroclear") and Cedel, S.A. ("Cedel") (as
indirect participants in DTC), unless transferred to a person that takes
delivery through a Rule 144A Global Note in accordance with the certification
requirements described below. Beneficial interests in the Rule 144A Global Notes
may not be exchanged for beneficial interests in the Regulation S Global Notes
at any time except in the limited circumstances described below. See
"-- Exchanges between Regulation S Notes and Rule 144A Notes."
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Book-Entry Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of Certificated Notes,
as defined below.
Rule 144A Notes, including beneficial interests in the Rule 144A Global
Notes, will be subject to certain restrictions on transfer and will bear a
restrictive legend as described under "Transfer Restrictions." Regulation S
Notes will also bear the legend as described under "Transfer Restrictions." In
addition, transfers of beneficial interests in the Global Notes will be subject
to the applicable rules and procedures of DTC and its direct or indirect
participants, including, if applicable, those of Euroclear and Cedel, which may
change from time to time.
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Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
Exchange Notes
Exchange notes issued in exchange for outstanding notes originally offered
and sold (1) to QIBs in reliance on Rule 144A under the Securities Act or (2) in
reliance on Regulation S under the Securities Act will be represented by a
single, permanent Global Note in definitive, fully registered book-entry form
(the "Exchange Global Note" and together with the Rule 144A Global Note and the
Regulation S Global Note, the "Global Notes"), which will be registered in the
name DTC, or its nominee, on behalf of persons who receive exchange notes
represented thereby for credit to the respective accounts of such persons, or to
such other accounts as they may direct at DTC.
Exchange notes issued in exchange for outstanding notes will be issued,
upon request, in fully registered form (together with the Certificated Notes,
the "Certificated Notes"), but otherwise such holders will only be entitled to
registration of their respective exchange notes in book-entry form under the
Exchange Global Note.
Depository Procedures
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. The
Company takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss these
matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers, including the Placement Agents, banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised us that, pursuant to procedures established by it, (1)
upon deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Placement Agents with portions of the principal amount of the
Global Notes and (2) ownership of such interests in the Global Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC with respect to the Participants or by the
Participants and the Indirect Participants with respect to other owners of
beneficial interest in the Global Notes.
Investors in the Rule 144A Global Notes may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations,
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including Euroclear and Cedel, which are Participants in such system. Investors
in the Regulation S Global Notes must initially hold their interests therein
through Euroclear or Cedel, if they are participants in such systems, or
indirectly through organizations that are participants in such systems. After
the expiration of the Restricted Period (but not earlier), investors may also
hold interests in the Regulation S Global Notes through Participants in the DTC
system other than Euroclear and Cedel. Euroclear and Cedel will hold interests
in the Regulation S Global Notes on behalf of their participants through
customers' securities accounts in their respective names on the books of their
respective depositories, which are Morgan Guaranty Trust Company of New York,
Brussels office, as operator of Euroclear, and Citibank, N.A., as operator of
Cedel. All interests in a Global Note, including those held through Euroclear or
Cedel, may be subject to the procedures and requirements of DTC. Those interests
held through Euroclear or Cedel may also be subject to the procedures and
requirements of such systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
such persons will be limited to that extent. Because DTC can act only on behalf
of Participants, which in turn act on behalf of Indirect Participants and
certain banks, the ability of a person having beneficial interests in a Global
Note to pledge such interests to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interest in the Global Notes will not
have exchange notes registered in their names, will not receive physical
delivery of exchange notes in certificated form and will not be considered the
registered owners or "Holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, and premium, if any, Additional
Interest, if any, and interest on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, we and the Trustee will
treat the persons in whose names the exchange notes, including the Global Notes,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither we, the
Trustee nor any agent of us or the Trustee has or will have any responsibility
or liability for (1) any aspect of DTC's records or any Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes or (2) any other matter relating to the actions and practices of
DTC or any of its Participants or Indirect Participants. DTC has advised us that
its current practice, upon receipt of any payment in respect of securities such
as the exchange notes, including principal and interest, is to credit the
accounts of the relevant Participants with the payment on the payment date, in
amounts proportionate to their respective holdings in the principal amount of
beneficial interest in the relevant security as shown on the records of DTC,
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee or
our company. Neither our company nor the Trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the
exchange notes, and we and the
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Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interest
in the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants. See "-- Same Day Settlement
and Payment."
Subject to the transfer restrictions set forth under "Transfer
Restrictions," transfers between Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in same day funds, and
transfers between participants in Euroclear and Cedel will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
exchange notes described herein, cross-market transfers between the Participants
in DTC, on the one hand, and Euroclear or Cedel participants, on the other hand,
will be effected through DTC in accordance with DTC's rules on behalf of
Euroclear or Cedel, as the case may be, by its respective depositary; however,
such cross-market transactions will require delivery of instructions to
Euroclear or Cedel, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositories for Euroclear or Cedel.
DTC has advised us that it will take any action permitted to be taken by a
Holder only at the direction of one or more Participants to whose account DTC
has credited the interests in the Global Notes and only in respect of such
portion of the aggregate principal amount of the notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the notes, DTC reserves the right to exchange the
Global Notes for legended Notes in certificated form, and to distribute such
notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Regulation S Global Notes and in the
Rule 144A Global Notes among Participants in DTC, Euroclear and Cedel, they are
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither our company nor the
Trustee nor any of their respective agents will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if (1) DTC (A) notifies us that it is
unwilling or unable to continue as depositary for the Global Notes and we then
fail to appoint a successor
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depositary or (B) has ceased to be a clearing agency registered under the
Exchange Act, (2) we, at our option, notify the Trustee in writing that it
elects to cause the issuance of the Certificated Notes or (3) there has occurred
and continues to be a Default or Event of Default with respect to the notes. In
addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon request but only upon compliance with procedures set
forth in the Indenture. In all cases, Certificated Notes delivered in exchange
for any Global Note or beneficial interests therein will be registered in the
names, and issued in any approved denominations, requested by or on behalf of
the depositary (in accordance with its customary procedures) and will bear the
applicable restrictive legend referred to in "Transfer Restrictions," unless we
determine otherwise in compliance with applicable law.
Exchange of Certificated Notes for Book-Entry Notes
Exchange notes issued in certificated form may not be exchanged for
beneficial interests in any Global Note unless the transferor first delivers to
the Trustee a written certificate in the form provided in the Indenture to the
effect that such transfer will comply with the appropriate transfer restrictions
applicable to such notes. See "Transfer Restrictions."
Exchanges Between Regulation S Notes and Rule 144A Notes
Prior to the expiration of the Restricted Period, beneficial interests in
the Regulation S Global Note may be exchanged for beneficial interests in the
Rule 144A Global Note only if such exchange occurs in connection with a transfer
of the notes pursuant to Rule 144A and the transferor first delivers to the
Trustee a written certificate in the form provided in the Indenture to the
effect that the notes are being transferred to a person who the transferor
reasonably believes to be a QIB within the meaning of Rule 144A, purchasing for
its own account or the account of a QIB in a transaction meeting the
requirements of Rule 144A and in accordance with all applicable securities laws
of the states of the United States and other jurisdictions.
Beneficial interest in a Rule 144A Global Note may be transferred to a
person who takes delivery in the form of an interest in the Regulation S Global
Note, whether before or after the expiration of the Restricted Period, only if
the transferor first delivers to the Trustee a written certificate in the form
provided in the Indenture to the effect that such transfer is being made in
accordance with Rule 903 or 904 of Regulation S or Rule 144, if available, and
that, if such transfer occurs prior to the expiration of the Restricted Period,
the interest transferred will be held immediately thereafter through Euroclear
or Cedel.
Transfers involving an exchange of a beneficial interest in the Regulation
S Global Note for a beneficial interest in a Rule 144A Global Note or vice versa
will be effected in DTC by means of an instruction originated by the Trustee
through the DTC Deposit/ Withdraw at Custodian system. Accordingly, in
connection with any such transfer, appropriate adjustments will be made to
reflect a decrease in the principal amount of the Regulation S Global Note and a
corresponding increase in the principal amount of the Rule 144A Global Note or
vice versa, as applicable. Any beneficial interest in one of the Global Notes
that is transferred to a person who takes delivery in the form of an interest in
the other Global Note will, upon transfer, cease to be an interest in such
Global Note and will become an interest in the other Global Note and,
accordingly, will thereafter be subject to all transfer restrictions and other
procedures applicable to beneficial interest in such other Global Note for so
long as it remains such an interest. The policies and
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practices of DTC may prohibit transfers of beneficial interests in the
Regulation S Global Note prior to the expiration of the Restricted Period.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the notes represented by
the Global Notes, including principal, premium, if any, interest and Additional
Interest, if any, be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to notes in
certificated form, we will make all payments of principal, premium, if any,
interest and Additional Interest, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The notes represented by the Global Notes are expected to be eligible
to trade in the PORTAL market and to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
notes will, therefore, be required by the Depositary to be settled in
immediately available funds. The Company expects that secondary trading in any
certificated notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day,
which must be a business day for Euroclear and Cedel, immediately following the
settlement date of DTC. DTC has advised us that cash received in Euroclear or
Cedel as a result of sales of interests in a Global Note by or through a
Euroclear or Cedel participant to a Participant in DTC will be received with
value on the settlement date of DTC, but will be available in the relevant
Euroclear or Cedel cash account only as of the business day for Euroclear or
Cedel following DTC's settlement date.
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133
MATERIAL FEDERAL TAX CONSIDERATIONS
The following is a general discussion of United States federal tax
consequences associated with the exchange of the outstanding notes for the
exchange notes and of the ownership and disposition of the exchange notes by an
initial beneficial owner of the exchange notes. The discussion below is based
upon current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable Treasury Regulations, judicial authority and administrative
rulings and practice, any of which may be altered with retroactive effect
thereby changing the federal tax consequences discussed below. The tax treatment
of the holders of the exchange notes may vary depending upon their particular
situations. In addition, certain other holders, including insurance companies,
tax exempt organizations, financial institutions and broker-dealers, may be
subject to special rules not discussed below. We will not seek a ruling from the
Internal Revenue Service (the "IRS") with respect to any of the matters
discussed in this prospectus and there can be no assurance that the IRS will not
challenge one or more of the tax consequences described below. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF EXCHANGE NOTES,
AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY FOREIGN,
STATE, LOCAL OR OTHER TAXING JURISDICTION AND THE POSSIBLE EFFECTS ON YOU OF
CHANGES IN U.S. FEDERAL OR OTHER TAX LAWS.
THE EXCHANGE OFFER
The exchange of outstanding notes for exchange notes pursuant to this
exchange offer should not be treated as an "exchange" for United States federal
income tax purposes because the exchange notes will not be considered to differ
materially in kind or extent from the outstanding notes. Rather, any exchange
notes received by you should be treated as a continuation of your investment in
the outstanding notes. As a result, there should be no United States federal
income tax consequences to you resulting from the exchange offer. In addition,
you should have the same adjusted issue price, adjusted basis, and holding
period in the exchange notes as you had in the outstanding notes immediately
prior to the exchange.
NON-UNITED STATES HOLDERS
The following is a general discussion of United States federal income and
estate tax consequences of the acquisition, ownership, and disposition of the
exchange notes by an initial beneficial owner of the exchange notes that, for
United States federal income tax purposes, is not a "United States person" (a
"Non-United States Holder"). United States persons acquiring the exchange notes
are subject to different rules than those discussed below. For purposes of this
discussion, a "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or of any political
subdivision thereof, an estate whose income is includible in gross income for
United States federal income tax purposes regardless of its source or a trust,
if a United States court is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. "United States"
refers to the United States of America, including the States and the District of
Columbia, and United States possessions, which include, Puerto Rico, the U.S.
Virgin Islands, Guam, American Samoa, Wake Island, and Northern Mariana Islands.
127
134
INTEREST
Generally, interest income of a Non-United States Holder that is not
effectively connected with a United States trade or business will be subject to
a United States federal income tax and withholding tax at a 30% rate, or, if
applicable, a lower rate as is prescribed by an income tax treaty between the
United States and your country of residence. However, interest paid on a note by
us or our paying agent to a Non-United States Holder will qualify for the
so-called "portfolio-interest exemption" and, therefore, will not be subject to
United States federal income tax or withholding tax provided that such interest
income is not effectively connected with a United States trade or business of
the Non-United States Holder and provided that:
- the Non-United States Holder does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of our
company that is entitled to vote;
- the Non-United States Holder is not
- a controlled foreign corporation related to our company actually or
constructively through the stock ownership rules under Section 864(d)(4)
of the Code,
- a bank which acquired the note in consideration for an extension of
credit made pursuant to a loan agreement entered into in the ordinary
course of business, or
- a foreign tax exempt organization or a foreign private foundation for
United States federal income tax purposes;
- the interest paid to the Non-United States Holder is not considered
contingent interest under Section 871(h)(4) of the Code and the
regulations thereunder, and
- either
- the Non-United States Holder provides to our company or our paying agent
a Form W-8BEN, or suitable substitute form, signed under penalties of
perjury that includes its name and address and certifies that the holder
is not a United States person, or
- the Non-United States Holder provides a Form W-8BEN, or a suitable
substitute form or other appropriate documentation, signed under the
penalties of perjury to a qualified intermediary, such as a securities
clearing organization, bank, or other financial institution, which in
turn provides to us or our paying agent a Form W-8IMY. The certificates
described in this paragraph are effective only with respect to payments
of interest made to the certifying Non-United States Holder after the
issuance of the certificate, in the calendar year of its issuance, and
the two immediately succeeding calendar years.
Except to the extent that an applicable treaty otherwise provides, interest
received by a Non-United States Holder that is effectively connected with a
United States trade or business conducted by such holder will be taxed at the
graduated rates applicable to United States persons. Effectively connected
interest received by a corporate Non-United States Holder may also, under
certain circumstances, be subject to an additional "branch profits tax" at a 30%
rate, or, if applicable, a lower treaty rate. Even though such effectively
connected interest will be subject to federal income tax, and possibly subject
to
128
135
the branch profits tax, it will not be subject to withholding if the Non-United
States Holder delivers a properly executed IRS Form W-8ECI to us or our agent.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
federal income tax on gain realized on a sale, redemption or other disposition
of a note unless
- the gain is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder, or
- in the case of a Non-United States Holder who is a nonresident alien
individual and holds the note as a capital asset, such holder is present
in the United States for 183 or more days in the taxable year and certain
other requirements are met.
If a Non-United States Holder falls under clause (i) in the preceding
paragraph, the holder will be taxed on the net gain derived from the sale under
the graduated United States federal income tax rates that are applicable to
United States persons and, if the Non-United States Holder is a foreign
corporation, it may also be subject to the branch profits tax described above.
Even though the effectively connected income will be subject to federal income
tax, and possibly subject to the branch profits tax, it will not be subject to
withholding if the Non-United States Holder delivers a properly executed IRS
Form W-8ECI to us or our agent. If an individual Non-United States Holder falls
under clause (ii) in the preceding paragraph, the holder generally will be
subject to United States federal income tax at a rate of 30% on the amount by
which the gain derived from the sale from sources within the United States were
to exceed such holder's capital losses allocable to sources within the United
States for the taxable year of the sale.
FEDERAL ESTATE TAXES
If interest on the notes is exempt from withholding of United States
federal income tax under the rules described above, the notes will not be
included in the estate of a deceased Non-United States Holder for United States
federal estate tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
We will, when required, report to the IRS and to each Non-United States
Holder the amount of any interest paid on the exchange notes in each calendar
year, and the amount of tax withheld, if any, with respect to the payments.
Treasury Regulations provide that backup withholding and additional
information reporting will not apply to payments on the notes by us to a
Non-United States Holder if the holder certifies as to its status as a
Non-United States Holder under penalties of perjury or otherwise establishes an
exemption, provided that neither we nor our Paying Agent has actual knowledge
that the holder is a United States person or that the conditions of any other
exemption are not, in fact, satisfied.
The payment of the proceeds from the disposition of the notes to or through
the United States office of any broker, United States or foreign, will be
subject to information reporting and possible backup withholding at a rate of
31%, unless the owner certifies as to its status as a Non-United States Holder
under penalties of perjury or otherwise establishes an exemption, provided that
the broker does not have actual knowledge that the holder is a
129
136
United States person or that the conditions of any other exemption are not, in
fact, satisfied. The payment of the proceeds from the disposition of a note to
or through a non-United States office of a non-United States broker that is not
a United States related person will not be subject to information reporting or
backup withholding. In the case of the payment of proceeds from the disposition
of a note to or through a non-United States office of a broker that is either a
United States person or a United States related person, information reporting is
required on the payment unless the broker has documentary evidence in its files
that the owner is a Non-United States Holder and the broker has no actual
knowledge to the contrary. Backup withholding will not apply to payments made
through foreign offices of a broker that is a United States person or a United
States related person, absent actual knowledge that the payee is a United States
person. For purposes of this paragraph, a "United States related person" is
- a "controlled foreign corporation" for United States federal income tax
purposes,
- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment, or for such part of the period that the broker has been in
existence, is derived from activities that are effectively connected with
the conduct of a United States trade or business, or
- with respect to payments made after December 31, 2000, a foreign
partnership that, at any time during its taxable year, is 50% or more, by
income or capital interest, owned by United States persons or is engaged
in the conduct of a United States trade or business. Recently adopted
Treasury Regulations provide certain presumptions under which a
Non-United States Holder will be subject to backup withholding and
information reporting unless the Non-United States Holder provides a
certification as to its Non-United States Holder status.
Any amounts withheld under the backup withholding rules from a payment to a
Non-United States Holder will be allowed as a refund or a credit against such
Non-United States Holder's United States federal income tax liability provided
that the requisite procedures are followed.
The Treasury Department recently promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
these regulations do not significantly alter the substantive withholding and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. In addition, these
regulations impose more stringent conditions on the ability of financial
intermediaries acting for a Non-United States Holder to provide certifications
on behalf of the holder, which may include entering into an agreement with IRS
to audit certain documentation with respect to such certifications. These
regulations are generally effective for payments made after December 31, 2000,
subject to certain transition rules. You should consult your own tax advisor to
determine the effects of the application of these regulations to your particular
circumstances.
THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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137
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding exchange notes where such outstanding exchange notes
were acquired as a result of market-making activities or other trading
activities.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of exchange
notes and any commissions or concessions received by such persons may be deemed
to be underwriting compensation under the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We will promptly send additional copies of this prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer other than commissions or concessions of any
brokers or dealers and will indemnify original holders of the outstanding
exchange notes, including any broker-dealers, against certain liabilities,
including certain liabilities under the Securities Act.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Gibson,
Dunn & Crutcher LLP, Los Angeles, California and New York, New York, and by
McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP, Reno, Nevada.
INDEPENDENT ACCOUNTANTS
The financial statements of Coast Hotels and Casinos, Inc. as of December
31, 1997 and 1998 and for the three years in the period ended December 31, 1998
and the financial statements of Coast Resorts, Inc., as the parent company only,
as of December 31, 1997 and 1998 and for the three years in the period ended
December 31, 1998, all included in this prospectus, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their reports
appearing herein.
131
138
INDEX TO FINANCIAL STATEMENTS
COAST HOTELS AND CASINOS, INC.
PAGE
----
Report of Independent Accountants........................... F-2
Balance Sheets of Coast Hotels and Casinos, Inc. as of
December 31, 1997 and 1998 and March 31, 1999
(Unaudited)............................................... F-3
Statements of Operations of Coast Hotels and Casinos, Inc.
for the years ended December 31, 1996, 1997 and 1998 and
for the three months ended March 31, 1998 and 1999
(Unaudited)............................................... F-4
Statements of Stockholder's Equity of Coast Hotels and
Casinos, Inc. for the years ended December 31, 1996, 1997
and 1998 and for the three months ended March 31, 1999
(Unaudited)............................................... F-5
Statements of Cash Flows of Coast Hotels and Casinos, Inc.
for the years ended December 31, 1996, 1997 and 1998 and
for the three months ended March 31, 1998 and 1999
(Unaudited)............................................... F-6
Notes to Financial Statements............................... F-7
COAST RESORTS, INC. (PARENT COMPANY ONLY)
Report of Independent Accountants........................... F-27
Balance Sheets of Coast Resorts, Inc. (parent company only)
as of December 31, 1997 and 1998 and March 31, 1999
(Unaudited)............................................... F-28
Statements of Operations of Coast Resorts, Inc. (parent
company only) for the years ended December 31, 1996, 1997
and 1998 and for the three months ended March 31, 1998 and
1999 (Unaudited).......................................... F-29
Statements of Stockholders' Equity of Coast Resorts, Inc.
(parent company only) for the years ended December 31,
1996, 1997 and 1998 and for the three months ended March
31, 1999 (Unaudited)...................................... F-30
Statements of Cash Flows of Coast Resorts, Inc. (parent
company only) for the years ended December 31, 1996, 1997
and 1998 and for the three months ended March 31, 1998 and
1999 (Unaudited).......................................... F-31
Notes to Financial Statements............................... F-32
F-1
139
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholder of
Coast Hotels and Casinos, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholder's equity and cash flows present fairly, in all
material respects, the financial position of Coast Hotels and Casinos, Inc. (a
wholly owned subsidiary of Coast Resorts, Inc.) at December 31, 1997 and 1998,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 5, 1999, except for Note 15 as to which
the date is March 23, 1999
F-2
140
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31,
DECEMBER 31, DECEMBER 31, 1999
1997 1998 (UNAUDITED)
------------ ------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 29,426 $ 41,595 $ 35,697
Accounts receivable, less allowance for
doubtful accounts $194 (1997), $594
(1998) and $767 (1999).................. 5,616 4,301 4,823
Inventories................................ 5,085 4,912 4,556
Due from affiliate......................... 1,675 -- --
Refundable income taxes.................... 1,772 -- --
Prepaid expenses and other................. 11,420 9,330 11,499
-------- -------- --------
TOTAL CURRENT ASSETS.................. 54,994 60,138 56,575
PROPERTY AND EQUIPMENT, net.................. 305,420 301,252 302,892
DUE FROM AFFILIATE........................... -- -- 4,352
OTHER ASSETS................................. 6,447 5,644 8,495
-------- -------- --------
$366,861 $367,034 $372,314
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable........................... $ 9,107 $ 9,888 $ 6,214
Accrued liabilities........................ 27,651 25,338 28,080
Due to affiliate........................... -- 1,353 --
Construction accounts payable.............. 2,491 -- --
Current portion of long-term debt.......... 8,076 7,905 7,817
-------- -------- --------
TOTAL CURRENT LIABILITIES............. 47,325 44,484 42,111
LONG-TERM DEBT, less current portion......... 207,173 199,954 233,981
DEFERRED INCOME TAXES........................ 10,063 6,654 --
DEFERRED RENT................................ 4,954 13,024 13,988
-------- -------- --------
TOTAL LIABILITIES..................... 269,515 264,116 290,080
-------- -------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value, 25,000 shares
authorized, 1,000 shares issued and
outstanding................................ 1 1 1
Additional paid-in capital................... 95,858 86,903 86,903
Retained earnings............................ 1,487 16,014 (4,670)
-------- -------- --------
TOTAL STOCKHOLDER'S EQUITY............ 97,346 102,918 82,234
-------- -------- --------
$366,861 $367,034 $372,314
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-3
141
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31,
------------------------------ ------------------
1996 1997 1998 1998 1999
-------- -------- -------- ------- --------
(UNAUDITED)
OPERATING REVENUES:
Casino.......................................... $148,509 $211,026 $242,992 $59,179 $ 66,057
Food and beverage............................... 39,517 61,724 66,503 16,578 17,775
Hotel........................................... 14,700 28,095 28,443 6,937 7,877
Other........................................... 10,635 19,994 26,421 6,093 7,046
-------- -------- -------- ------- --------
GROSS OPERATING REVENUES........................ 213,361 320,839 364,359 88,787 98,755
Less: promotional allowances.................... (17,374) (26,956) (31,996) (7,773) (8,689)
-------- -------- -------- ------- --------
NET OPERATING REVENUES............................ 195,987 293,883 332,363 81,014 90,066
-------- -------- -------- ------- --------
OPERATING EXPENSES:
Casino.......................................... 74,169 114,932 127,512 31,512 32,046
Food and beverage............................... 31,680 50,129 47,278 11,734 11,776
Hotel........................................... 7,428 12,623 11,856 2,712 3,041
Other........................................... 8,351 19,516 22,458 4,827 5,969
General and administrative...................... 37,992 54,351 55,879 13,148 14,315
Pre-opening expenses............................ 7,125 -- -- -- --
Land lease...................................... -- 2,100 3,190 525 1,110
Deferred (non-cash) rent........................ -- 2,378 3,198 594 964
Depreciation and amortization................... 7,883 18,278 20,607 4,881 5,210
-------- -------- -------- ------- --------
TOTAL OPERATING EXPENSES..................... 174,628 274,307 291,978 69,933 74,431
-------- -------- -------- ------- --------
OPERATING INCOME.................................. 21,359 19,576 40,385 11,081 15,635
-------- -------- -------- ------- --------
OTHER INCOME (EXPENSES):
Interest expense:
Related parties................................. (160) (148) -- -- --
Other........................................... (22,076) (26,194) (27,323) (6,764) (6,514)
Interest income................................. 4,791 98 695 101 215
Interest capitalized............................ 7,464 1,016 58 -- --
Gain on disposal of equipment................... 58 919 168 25 --
-------- -------- -------- ------- --------
TOTAL OTHER INCOME (EXPENSES)................ (9,923) (24,309) (26,402) (6,638) (6,299)
-------- -------- -------- ------- --------
NET INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM.............................. 11,436 (4,733) 13,983 4,443 9,336
-------- -------- -------- ------- --------
PROVISION (BENEFIT) FOR INCOME TAXES.............. 6,617 (1,401) 5,225 1,625 3,013
-------- -------- -------- ------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM....... 4,819 (3,332) 8,758 2,818 6,323
Extraordinary item -- loss on early retirement of
debt, net of applicable income tax benefit
($14,543)....................................... -- -- -- -- (27,007)
-------- -------- -------- ------- --------
NET INCOME (LOSS)................................. $ 4,819 $ (3,332) $ 8,758 $ 2,818 $(20,684)
======== ======== ======== ======= ========
UNAUDITED PRO FORMA DATA (reflecting
reorganization and change in tax status):
Provision (benefit) for income taxes............ 4,117
--------
Net income (loss)............................... $ 7,319
========
The accompanying notes are an integral part of these financial statements.
F-4
142
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- --------
Balances at December 31, 1995...... 1,000 $1 $38,239 $ 5,094 $ 43,334
Exchange by Coast Resorts, Inc.
of notes payable for common
stock......................... -- -- 52,525 -- 52,525
Reclassification of undistributed
earnings to additional paid-in
capital upon termination of
partnership status............ -- -- 5,094 (5,094) --
Net income....................... -- -- 4,819 4,819
----- -- ------- -------- --------
Balances at December 31, 1996...... 1,000 1 95,858 4,819 100,678
Net loss......................... (3,332) (3,332)
----- -- ------- -------- --------
Balances at December 31, 1997...... 1,000 1 95,858 1,487 97,346
Transfer of Coast West, Inc. to the
Company by Coast Resorts, Inc.... -- -- (8,955) 5,769 (3,186)
Net income....................... -- -- 8,758 8,758
----- -- ------- -------- --------
Balances at December 31, 1998...... 1,000 1 86,903 16,014 102,918
Net loss (unaudited)............. (20,684) (20,684)
----- -- ------- -------- --------
Balances at March 31, 1999
(unaudited)...................... 1,000 $1 $86,903 $ (4,670) $ 82,234
===== == ======= ======== ========
The accompanying notes are an integral part of these financial statements.
F-5
143
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31,
------------------------------- ------------------
1996 1997 1998 1998 1999
--------- -------- -------- ------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ 4,819 $ (3,332) $ 8,758 $ 2,818 $(20,684)
--------- -------- -------- ------- --------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization......................... 7,883 18,278 20,607 4,881 5,210
Provision for bad debts............................... 2,153 1,935 1,490 758 173
Gain on disposal of equipment......................... (58) (919) (168) (25) --
Deferred rent......................................... -- 2,378 3,198 594 964
Loss on early retirement of debt...................... -- -- -- -- 41,550
Deferred income taxes................................. 4,162 789 876 388 (7,927)
Amortization of original issue discount............... 497 616 706 166 124
(Increase) decrease in operating assets:
Accounts receivable................................. (1,608) (1,773) 915 (736) (694)
Refundable income taxes............................. (645) (1,127) 1,772 -- (3,400)
Inventories......................................... (2,286) 1,279 173 184 356
Prepaid expenses and other assets................... (1,395) (1,493) 2,463 (928) (2,113)
Increase (decrease) in operating liabilities:
Accounts payable.................................. 4,307 (2,727) 781 (1,734) (3,674)
Accrued liabilities............................... 9,204 2,142 (2,313) 7,295 2,742
--------- -------- -------- ------- --------
TOTAL ADJUSTMENTS............................... 22,214 19,378 30,500 10,843 33,311
--------- -------- -------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 27,033 16,046 39,258 13,661 12,627
--------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of amounts in accounts
payable............................................. (125,722) (57,736) (15,492) (4,794) (6,532)
Proceeds from sale of equipment....................... 20 1,070 168 25 --
--------- -------- -------- ------- --------
NET CASH USED IN INVESTING ACTIVITIES................... (125,702) (56,666) (15,324) (4,769) (6,532)
--------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under bank lines of credit... 1,045 -- -- -- 47,000
Principal payments on bank lines of credit............ (29,200) -- -- -- --
Proceeds from issuance of long-term debt, net of
discounts and commissions........................... 179,570 19,569 -- -- 168,521
Principal payments on long-term debt.................. (1,826) (7,913) (8,097) (2,044) (192,032)
Payments of repurchase premiums....................... -- -- -- -- (33,177)
Advances to affiliate................................. (2,568) (3,165) (3,668) (32) (2,305)
Payments for debt issue costs......................... (1,336) -- -- -- --
--------- -------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES..... 145,685 8,491 (11,765) (2,076) (11,993)
--------- -------- -------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 47,016 (32,129) 12,169 6,816 (5,898)
CASH AND CASH EQUIVALENTS, at beginning of period....... 14,539 61,555 29,426 29,426 41,595
--------- -------- -------- ------- --------
CASH AND CASH EQUIVALENTS, at end of period............. $ 61,555 $ 29,426 $ 41,595 $36,242 $ 35,697
========= ======== ======== ======= ========
The accompanying notes are an integral part of these financial statements.
F-6
144
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BACKGROUND INFORMATION AND BASIS OF PRESENTATION
Background Information
Coast Hotels and Casinos, Inc. (the "Company") is a Nevada corporation and
a wholly owned subsidiary of Coast Resorts, Inc. ("Coast Resorts"), which is
also a Nevada corporation. The Company was formed in September 1995 and owns and
operates the following hotel-casinos in Las Vegas, Nevada:
- Gold Coast Hotel and Casino, which is located approximately one mile west
of the Las Vegas Strip on Flamingo Road.
- Barbary Coast Hotel and Casino, which is located on the Las Vegas Strip.
- The Orleans Hotel and Casino, which is located approximately one mile
west of the Las Vegas Strip on Tropicana Avenue. The Orleans opened for
business on December 18, 1996.
Prior to the Reorganization described below, the Gold Coast Hotel and
Casino and the Barbary Coast Hotel and Casino had previously been operated
independently by Gold Coast Hotel and Casino, a Nevada limited partnership
organized in 1986 ("Gold Coast"), and Barbary Coast Hotel and Casino, a Nevada
partnership organized in 1979 ("Barbary Coast").
On January 1, 1996, the partners of Gold Coast and Barbary Coast (the
"Predecessor Partnerships") completed a reorganization (the "Reorganization")
with Coast Resorts. Coast Resorts was formed in September 1995 for the purpose
of effecting the Reorganization of the Predecessor Partnerships. Coast Resorts,
Gold Coast and Barbary Coast were all related through common ownership and
management control.
In the Reorganization, the partners of the Predecessor Partnerships each
transferred to Coast Resorts, by assignment or through the merger of
Gaughan-Herbst, Inc., a Nevada corporation, the sole general partner of the Gold
Coast, their respective partnership interests in the Predecessor Partnerships in
exchange for an aggregate of 1,000,000 shares of common stock, par value $.01
per share, of Coast Resorts. The partners of the Gold Coast (or their
principals) received in the aggregate 65% of such shares of common stock of
Coast Resorts, and the partners of the Barbary Coast received in the aggregate
35% of such shares. The shares of common stock were issued to the respective
partners (or their principals) of each such Predecessor Partnership based upon
such partners' pro rata interests in such Predecessor Partnership.
Concurrently with the exchange of the partners' interests in the
Predecessor Partnerships and the merger of Gaughan-Herbst, Inc. into Coast
Resorts, Coast Resorts became the sole partner of each of the Predecessor
Partnerships, and each Predecessor Partnership dissolved and terminated.
Immediately upon the dissolution and termination, all of the assets and
liabilities of the Predecessor Partnerships became the assets and liabilities of
Coast Resorts. Coast Resorts immediately contributed to our company all of the
assets of the Predecessor Partnerships other than those relating to a certain
ground lease (the "Coast West Lease"), which Coast Resorts contributed to Coast
West Inc.,
F-7
145
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- BACKGROUND INFORMATION AND BASIS OF PRESENTATION -- CONTINUED
another wholly-owned subsidiary of Coast Resorts ("Coast West"). In addition,
our company assumed, jointly and severally with Coast Resorts, all of the
liabilities of the Predecessor Partnerships other than (i) obligations under a
portion of subordinated notes payable to former partners and $1,500,000
principal amount of demand notes payable to a related party which were retained
by Coast Resorts and were exchanged for shares of Coast Resorts Common Stock (as
defined below), and (ii) those liabilities incident to the Coast West Lease, and
Coast West assumed, jointly and severally with Coast Resorts, all of the
liabilities of the Predecessor Partnerships incident to the Coast West Lease.
Coast Resorts retained the liability for an aggregate principal amount of
$51,025,000 in notes payable to former partners and retained the liability for
$1,500,000 relating to demand notes due to a related party (the "Exchange
Liabilities"). On January 16, 1996, the Exchange Liabilities were exchanged for
494,353 shares of common stock, par value $.01 per share, of Coast Resorts (the
"Coast Resorts Common Stock"), based upon management's estimate of the fair
market value of such common stock.
As a result of the Reorganization, the former partners of the Predecessor
Partnerships (or their principals) immediately following the Reorganization
owned all of the issued and outstanding shares of common stock of Coast Resorts,
Coast Resorts owned all of the issued and outstanding common stock of our
company and Coast West, and our company and Coast West owned and had assumed in
the aggregate all of the assets and liabilities of the Predecessor Partnerships,
other than the Exchange Liabilities that were exchanged for Coast Resorts Common
Stock.
As further described in Note 9, on July 21, 1998 Coast Resorts contributed
the common stock of Coast West to our company, as a result of which Coast West
became a wholly owned subsidiary of our company. Coast West was then
subsequently merged into the company.
Basis of Presentation
Gold Coast and Barbary Coast historically operated under a high degree of
common control. The former Managing General Partner of Gold Coast was also the
Managing General Partner of Barbary Coast. Due to the common control of Gold
Coast and Barbary Coast and the continuation of ownership by the former
partners, the Reorganization was accounted for as a reorganization of entities
under common control. Accordingly, the financial statements of our company
reflect the Reorganization in a manner similar to a pooling of interests.
The financial statements include the accounts of our company, and from July
21, 1998 through December 31, 1998, its subsidiary Coast West. All intercompany
balances and transactions have been eliminated.
F-8
146
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- BACKGROUND INFORMATION AND BASIS OF PRESENTATION -- CONTINUED
1999 Interim Financial Information
The accompanying financial statements as of and for the three months ended
March 31, 1998 and 1999 are unaudited and have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The unaudited financial statements should be
read in conjunction with the audited financial statements and footnotes for the
year ended December 31, 1998. In the opinion of management, all adjustments and
normal recurring accruals considered necessary for a fair presentation of the
results for the interim period have been included. The interim results reflected
in the unaudited financial statements are not necessarily indicative of expected
results for the full year.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories, which consist primarily of food and beverage, liquor store,
and gift shop merchandise, are valued at the lower of cost or market value,
which is determined using the first-in, first-out and the average cost methods,
except for the base stocks of bar glassware and restaurant china which are
stated at original cost with subsequent replacements charged to expense.
Original Issue Discount and Debt Issue Costs
Original issue discount is amortized over the life of the related
indebtedness using the effective interest method. Costs associated with the
issuance of debt are deferred and amortized over the life of the related
indebtedness also using the effective interest method.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Expenditures for additions,
renewals and betterments are capitalized; expenditures for maintenance and
repairs are charged to expense as incurred. Upon retirement or disposal of
assets, the cost and accumulated depreciation are eliminated from the accounts
and the resulting gain or loss is included in income. Depreciation is computed
by the straight-line method over the estimated useful lives of property and
equipment, which range from 5 to 15 years for equipment and up to 40 years for
buildings and improvements.
During construction, our company capitalizes interest and other direct and
indirect development costs. Interest is capitalized monthly by applying the
effective interest rate on certain borrowings to the average balance of
expenditures. The interest that was capitalized was $7,464,000 (1996),
$1,016,000 (1997) and $58,000 (1998).
F-9
147
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Pre-opening and Related Promotional Expense
Costs associated with the opening of new hotel-casinos or major additions
to an existing hotel-casino, including personnel, training, certain marketing
and other costs, are capitalized and charged to expense over management's
estimate of the period of economic benefit associated with such costs.
Management believes that such period, with respect to major hotel-casinos, is
within one fiscal quarter of the date of opening. Effective January 1, 1999,
pre-opening costs are expensed as incurred. There were no capitalized
pre-opening costs at December 31, 1997 or 1998.
Valuation of Long-Lived Assets
Long-lived assets and certain identifiable intangibles held and used by our
company are reviewed for impairment whenever events or changes in circumstances
warrant such a review. The carrying value of a long-lived or intangible asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair value of the asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Losses on long-lived assets to be disposed of are determined in a similar
manner, except that fair values are reduced for the cost to dispose.
Advertising Costs
Costs for advertising are expensed as incurred, except costs for
direct-response advertising, which are capitalized and amortized over the period
of the related program. Direct-response advertising costs consist primarily of
mailing costs associated with direct mail programs. Capitalized advertising
costs were immaterial at December 31, 1997 and 1998. Advertising expense was
approximately $3.8 million, $7.5 million, and $6.0 million for the years ended
December 31, 1996, 1997 and 1998, respectively.
Casino Revenue
In accordance with common industry practice, our company recognizes as
casino revenue the net win from gaming activities, which is the difference
between amounts wagered and amounts paid to winning patrons.
Deferred Revenue
Wagers received on all sporting events are recorded as a liability until
the final outcome of the event when the payoffs, if any, can be determined.
F-10
148
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Progressive Jackpot Payouts
The Company has a number of progressive slot machines, progressive poker
games and a progressive keno game. As coins are played on the progressive slot
machines, the amount available to win increases, to be paid out when the
appropriate jackpot is hit. The keno game and poker game payouts also increase
with the amount of play, to be paid out when hit. In accordance with common
industry practice, our company has recorded the progressive jackpot as a
liability with a corresponding charge against casino revenue.
Promotional Allowances
The retail value of hotel accommodations and food and beverage items
provided to customers without charge is included in gross revenues and then
deducted as promotional allowances, to arrive at net revenues. The estimated
cost of providing these complimentary services is as follows for the years ended
December 31, 1996, 1997 and 1998:
DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
Hotel.................................... $ 1,804 $ 2,023 $ 2,497
Food and beverage........................ 14,725 23,187 25,552
------- ------- -------
Total cost of promotional allowances... $16,529 $25,210 $28,049
======= ======= =======
The cost of promotional allowances has been allocated to expense as follows
for the years ended December 31, 1996, 1997 and 1998:
DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
Casino................................... $15,361 $22,280 $25,290
Other.................................... 1,168 2,930 2,759
------- ------- -------
$16,529 $25,210 $28,049
======= ======= =======
Slot Club Promotion
The Company has established promotional clubs to encourage repeat business
from frequent and active slot machine customers. Members in the clubs earn
points based on slot activity accumulated in the members' account. Points can be
redeemed for certain consumer products (typically household appliances), travel,
food and beverage or cash. The Company accrues for slot club points expected to
be redeemed in the future based on the average cost of items expected to be
redeemed.
F-11
149
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Income Taxes
Prior to the Reorganization, our company operated as individual
partnerships which did not pay federal income taxes. The partners of Gold Coast
and Barbary Coast were taxed on their proportionate share of each of their
respective partnership's taxable income or loss.
Subsequent to the Reorganization, our company is included in the
consolidated federal income tax return filed by Coast Resorts. The Company's tax
allocation is based on the amount of tax it would incur if it filed a separate
return. Coast Resorts will pay our company an amount equal to the tax benefit
arising from the utilization of net operating losses of our company to the
extent that such losses result in a reduction in the amount of tax payable by
Coast Resorts.
In connection with the Reorganization, effective January 1, 1996, our
company adopted Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and
liabilities are recognized for the expected future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The adoption of SFAS 109 on January 1, 1996
resulted in the recognition in the 1996 financial statements of net deferred tax
liabilities and a corresponding charge to earnings through the income tax
provision of approximately $2,500,000. In addition, upon termination of the
partnership tax status on January 1, 1996, all undistributed earnings of the
predecessor partnerships were reclassified to additional paid-in capital.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a remaining
maturity at acquisition of three months or less to be cash equivalents. Cash in
excess of daily requirements is typically invested in U.S. Government-backed
repurchase agreements with maturities of 30 days or less. Such investments are
generally made with major financial institutions having a high credit rating. At
times, our company's cash deposited in financial institutions may be in excess
of federally insured limits. These instruments are stated at cost, which
approximates fair value because of their short maturity.
Short-term Investments
Short-term investments purchased with an original maturity of over three
months but less than one year are stated at cost, which approximates fair value
because of their short maturity. There were no short-term investments at
December 31, 1997 or 1998.
F-12
150
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Concentration of Credit Risk
The Company extends credit to patrons after background checks and
investigations of creditworthiness and does not require collateral. The Company
has a concentration of credit risk in Southern Nevada. The Company records
provisions for potential credit losses and such losses have been within
management's expectations. Management believes that as of December 31, 1998, no
significant concentration of credit risk exists for which an allowance has not
already been determined and recorded.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock Options
The Financial Accounting Standards Board has issued Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). This Statement
defines a fair value based method of accounting for an employee stock option in
which companies account for stock options by recognizing, as compensation
expense in the statement of operations, the fair value of stock options granted
over the vesting period of the option. The statement also permits companies to
continue accounting for stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). The Company
has elected to account for stock options under APB No. 25 and will disclose the
pro forma impact on net income and earning per share as if our company had used
the fair value method recommended by SFAS No. 123.
Reclassifications
Certain amounts in the 1996 and 1997 financial statements have been
reclassified to conform with the 1998 presentation.
F-13
151
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following as of
December 31, 1997 and 1998:
DECEMBER 31,
---------------------
1997 1998
-------- ---------
(IN THOUSANDS)
Building........................................ $232,661 $ 233,570
Furniture and fixtures.......................... 139,022 146,175
-------- ---------
371,683 379,745
Less accumulated depreciation................... (81,733) (100,369)
-------- ---------
289,950 279,376
Land............................................ 15,232 15,232
Construction in progress........................ 238 6,644
-------- ---------
Net property and equipment...................... $305,420 $ 301,252
======== =========
NOTE 4 -- LEASES
The Barbary Coast building is located on land which is leased. The lease
term runs through May 2003 with a purchase option and two 30 year renewal
options. In addition, the parking lot adjacent to the building is being leased
under a 10 year lease which runs through December 2003. Annual rental payments
under these leases total $300,000.
During December 1995, our company entered into a ground lease for the land
underlying the Orleans. The land is owned by The Tiberti Company, a Nevada
general partnership, of which a stockholder of Coast Resorts is the managing
partner. The stockholder is also the president and a director and stockholder of
the general contractor for the construction of the Orleans, as more fully
described in Note 10. The lease provides for an initial term of fifty years with
a twenty-five year renewal option and includes a purchase option, exercisable by
our company, at fair market value during the twentieth and twenty-first years of
the lease. Lease payments range from $175,000 to $250,000 per month during the
first sixteen years of the lease increasing by 3% per annum thereafter. The
total amount of the base rent payments on the Orleans lease is being charged to
expense on the straight-line method over the term of the lease. The Company has
recorded deferred rent to reflect the excess of rent expense over cash payments
since inception of the lease.
The Coast West lease was entered into in September 1995, for a parcel of
land located in the western area of Las Vegas to be used for future development
opportunities. The Coast West Lease term runs through December 31, 2055, with
three 10-year renewal options. Monthly payments started at $166,667 for the year
ended December 31, 1995. Thereafter, the monthly rent increases by the amount of
$5,000 in January of each year. The lease includes a put option exercisable by
the landlord requiring the purchase of the land at fair market value at the end
of the 20th through 24th years of the lease, provided that the purchase price
shall not be less than ten times, nor more than fifteen times, the annual rent
at such time. Based on the terms of the lease, the potential purchase price
F-14
152
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- LEASES -- CONTINUED
commitment ranges from approximately $31,000,000 to approximately $51,000,000 in
the years 2014 through 2018. The total amount of the base rent payments on the
Coast West Lease are being charged to expense on the straight-line method over
the term of the lease. The Company has recorded deferred rent to reflect the
excess of rent expense over cash payments since the inception of the lease.
Future Minimum Lease Payments
The following is an annual schedule of future minimum cash lease payments
required under operating leases that have initial or remaining noncancelable
terms in excess of one year as of December 31, 1998:
OPERATING LEASES
(IN THOUSANDS)
YEAR ENDING DECEMBER 31, PAYMENTS
------------------------ --------------
(IN THOUSANDS)
1999............................................. $ 4,890
2000............................................. 5,000
2001............................................. 5,060
2002............................................. 5,370
2003............................................. 5,480
Later years...................................... 420,657
--------
Total minimum lease payments................... $446,457
========
Rent Expense
Rent expense for the years ended December 31, 1996, 1997 and 1998 is as
follows:
DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
(IN THOUSANDS)
Occupancy rentals........................... $4,777 $4,777 $6,688
Other equipment............................. 414 900 115
------ ------ ------
$5,191 $5,677 $6,803
====== ====== ======
F-15
153
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- ACCRUED LIABILITIES
Major classes of accrued liabilities consist of the following as of
December 31, 1997 and 1998:
DECEMBER 31,
------------------
1997 1998
------- -------
(IN THOUSANDS)
Slot club liability................................ $ 6,475 $ 7,548
Compensation and benefits.......................... 8,177 7,318
Progressive jackpot payouts........................ 4,101 4,511
Customer deposits and unpaid winners............... 5,069 3,003
Deferred sports book revenue....................... 871 914
Taxes.............................................. 1,046 575
Accrued interest expense........................... 1,354 1,207
Other.............................................. 558 262
------- -------
$27,651 $25,338
======= =======
F-16
154
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1997 and 1998:
DECEMBER 31,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
Related parties:
7.5% notes, payable in monthly installments of
interest only, with all principal and any
unpaid interest due December 31, 2001. The
notes are uncollateralized and are payable to
the former partners of Barbary Coast and Gold
Coast. Approximately $51,025,000 of the notes
were exchanged for Coast Resorts Common Stock
on January 16, 1996 as more fully described in
Note 1......................................... $ 1,975 $ 1,975
Non-related parties:
13% First Mortgage Notes due December 15, 2002,
with interest payable semiannually on June 15
and December 15, net of original issue discount
of $4,677,000 in 1997 and $3,971,000 in 1998... 170,323 171,029
10 7/8% First Mortgage Notes due November 1,
2001, with interest payable quarterly on March
15, June 15, September 15 and December 15...... 16,800 16,800
9.19% note payable, payable in 60 monthly
installments of approximately $750,000,
including principal and interest,
collateralized by certain gaming and other
equipment...................................... 22,481 14,987
8.6% note due August 11, 2007, payable in monthly
installments of $26,667 principal plus interest
on remaining principal balance, collateralized
by 1980 Hawker aircraft........................ 3,067 2,773
Other notes payable.............................. 603 295
-------- --------
215,249 207,859
Less: current portion............................ 8,076 7,905
-------- --------
$207,173 $199,954
======== ========
On January 30, 1996, our company completed a private placement of $175
million principal amount of 13% First Mortgage Notes Due December 15, 2002 (the
"13% First Mortgage Notes"). Interest on the 13% First Mortgage Notes is payable
semi-annually commencing June 15, 1996. The 13% First Mortgage Notes are
unconditionally guaranteed by Coast Resorts, Coast West and certain future
subsidiaries of our company. Net proceeds from the offering (after deducting
original issue discount and commissions) were approximately $164.1 million. Of
that amount, (i) approximately $114.8 million was deposited in a construction
disbursement account restricted for use by our company to finance in part the
cost of developing, constructing, equipping and opening The Orleans,
F-17
155
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- LONG-TERM DEBT -- CONTINUED
(ii) approximately $19.3 million was used by our company to purchase U.S.
Government Obligations which were deposited into an interest escrow account
restricted to fund the interest payable on the 13% First Mortgage Notes through
December 15, 1996 and (iii) approximately $29.2 million was used by our company
to repay all outstanding indebtedness under our company's credit facility, which
was terminated. The balance of approximately $800,000 was used to pay, in part,
the estimated offering expenses of $2.4 million.
The 13% First Mortgage Notes are redeemable at the option of our company at
106.50% and 103.25% of the principal amount thereof during the twelve month
periods beginning December 15, 2000 and 2001, respectively. In addition, on or
before December 15, 1998, our company was entitled to redeem up to $57.25
million aggregate principal amount of 13% First Mortgage Notes at 110% of the
principal amount thereof with the net proceeds of a public offering of Coast
Resorts Common Stock subject to certain limitations as outlined in the indenture
governing the 13% First Mortgage Notes (the "Indenture").
Pursuant to the terms of the Indenture, in December 1996 our company
incurred approximately $30 million of equipment financing for The Orleans. In
August 1997, our company incurred an additional $3.2 million in equipment
financing. At December 31, 1997 and 1998, outstanding equipment financing
totaled approximately $25.5 million and $17.8 million, respectively.
The Indenture contains covenants that, among other things, limit the
ability of our company to pay dividends or make advances to Coast Resorts, repay
existing indebtedness, incur additional indebtedness, or sell material assets,
as defined in the Indenture. Additionally, pursuant to the Indenture, if on July
20, 1998 (the twentieth day of the month following the first month in which The
Orleans has been operating for 18 months) the Fixed Charge Coverage Ratio (as
defined in the Indenture) of our company for the most recently ended four full
fiscal quarters was less than 1.5 to 1, our company would have been required to
consummate an asset sale of the Barbary Coast within one year. The proceeds from
such asset sale would be required to be used by our company to repurchase Notes
at a price equal to 101% of the principal amount of such Notes. As of June 30,
1998, the measurement date, the Fixed Charge Coverage Ratio was in excess of 1.5
to 1.
The Company is permitted by the Indenture governing the 13% First Mortgage
Notes to borrow up to an additional $20 million for working capital purposes. In
November 1997, our company issued $16.8 million principal amount of 10 7/8%
first mortgage notes due November 1, 2001 ("10 7/8% First Mortgage Notes"). The
10 7/8% First Mortgage Notes are collateralized on a pari passu basis with the
13% First Mortgage Notes. Interest on the 10 7/8% First Mortgage Notes is
payable quarterly on March 15, June 15, September 15 and December 15. The
10 7/8% First Mortgage Notes are unconditionally guaranteed by Coast Resorts and
certain future subsidiaries of Coast Hotels. Net proceeds from the offering
(after deducting commissions) were approximately $16.5 million and were used for
working capital purposes.
F-18
156
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- LONG-TERM DEBT -- CONTINUED
The 10 7/8% First Mortgage Notes are redeemable at any time prior to
November 1, 2001 at a redemption price equal to the principal amount thereof,
plus any accrued and unpaid interest plus an "Applicable Premium" as defined in
the indenture governing the 10 7/8% First Mortgage Notes. That indenture
contains covenants that, among other things, limit the ability of our company to
pay dividends to Coast Resorts, repay existing indebtedness, incur additional
indebtedness or sell material assets.
Maturities on long-term debt are as follows:
YEAR ENDING DECEMBER 31, MATURITIES
------------------------ --------------
(IN THOUSANDS)
1999............................................. $ 7,905
2000............................................. 7,918
2001............................................. 19,150
2002............................................. 175,323
2003............................................. 323
Thereafter....................................... 1,211
--------
$211,830
========
NOTE 7 -- INCOME TAXES AND PRO FORMA DATA
As discussed in Note 1, prior to the Reorganization, our company operated
as individual partnerships which did not pay federal income taxes. Effective
January 1, 1996, our company adopted SFAS 109. The adoption of SFAS 109 resulted
in the recognition in the 1996 financial statements of net deferred tax
liabilities and a corresponding charge to earnings through the income tax
provision of approximately $2,500,000. Had the companies been taxed as C
Corporations since formation, the income tax provision and net income for the
year ended December 31, 1996 would have been $4,117,000 and $7,319,000,
respectively.
The components of the income tax provision (benefit) for the years ended
December 31, 1996, 1997 and 1998 were as follows:
DECEMBER 31,
---------------------------
1996 1997 1998
------ ------- ------
(IN THOUSANDS)
Federal:
Current.................................. $2,454 $(2,189) $4,349
Deferred................................. 4,163 788 876
------ ------- ------
$6,617 $(1,401) $5,225
====== ======= ======
F-19
157
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES AND PRO FORMA DATA -- CONTINUED
The income tax provision (benefit) for the years ended December 31, 1996,
1997 and 1998 differs from that computed at the federal statutory corporate tax
rate as follows:
DECEMBER 31,
-----------------------
1996 1997 1998
---- ----- ----
Federal statutory rate......................... 34.0% (34.0)% 35.0%
Establishment of deferred taxes................ 21.0% -- --
Other.......................................... 2.0% 4.4% 2.4%
---- ----- ----
Effective tax rate........................ 57.0% (29.6)% 37.4%
==== ===== ====
The tax effects of significant temporary differences representing net
deferred tax assets and liabilities at December 31, 1997 and 1998 are as
follows:
DECEMBER 31,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Current:
Accrued vacation............................... $ 565 $ 810
Allowance for doubtful accounts................ 2,893 286
Accrued slot club points....................... 902 444
Progressive liabilities........................ 1,025 1,103
Accrued medical and other benefits............. 131 202
Tax credits.................................... 1,299 --
NOL carryforward............................... 273 --
Other.......................................... 42 --
-------- --------
Total current.......................... 7,130 2,845
-------- --------
Non-current:
FICA, alternative minimum tax and other tax
credits..................................... -- 2,195
Deferred rent.................................. 1,734 4,688
-------- --------
Total non-current...................... 1,734 6,883
-------- --------
Total deferred tax assets........................ 8,864 9,728
-------- --------
Deferred tax liabilities:
Non-current:
Property, plant and equipment.................. (11,797) (13,537)
-------- --------
Total deferred tax liabilities......... (11,797) (13,537)
-------- --------
Net deferred tax liability....................... $ (2,933) $ (3,809)
======== ========
NOTE 8 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of our company's financial instruments
have been determined by our company using available market information and
appropriate valuation
F-20
158
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- FAIR VALUE OF FINANCIAL INSTRUMENTS -- CONTINUED
methodologies. The carrying amounts of cash and cash equivalents, accounts
receivable, and accounts payable approximate fair values due to the short-term
maturities of these instruments. The carrying amounts and estimated fair values
of our company's other financial instruments at December 31, 1998 are as
follows:
CARRYING FAIR
AMOUNT VALUE
-------- --------
(IN THOUSANDS)
Liabilities:
Current portion of long-term debt.............. $ 7,905 $ 7,905
13% First Mortgage Notes....................... $171,029 $196,000
10 7/8% First Mortgage Notes................... $ 16,800 $ 19,328
Other long-term debt........................... $ 12,125 $ 10,789
The methods and assumptions are summarized as follows:
For current portion of long-term debt, the carrying amount approximates
fair value due to the short-term nature of such debt. The fair value of the 13%
First Mortgage Notes was determined based upon market quotes. The fair value of
the 10 7/8% First Mortgage Notes was determined using the make-whole premium as
defined in the associated indenture. For all other long-term debt, the fair
value is estimated using a discounted cash flow analysis, based on the
incremental borrowing rates currently available to our company for debt with
similar terms and maturity.
NOTE 9 -- COAST WEST, INC.
The Company had agreed to provide advances to Coast West sufficient to make
payments on the Coast West Lease and other obligations, including project
development and site improvement. The Indenture limited the amount outstanding
under advances to Coast West to $8.0 million unless Coast West became a
subsidiary of our company. Based on the cash requirements of Coast West for
lease payments and anticipated development costs, it was likely that by
September 1998 Coast West would require cash from our company that, when added
to the outstanding advances from our company, would exceed $8.0 million. On July
21, 1998, Coast Resorts contributed the capital stock of Coast West to our
company, as a result of which Coast West became a wholly owned subsidiary of our
company. In 1999, the operations of Coast West were merged into the Company and
the subsidiary was dissolved.
As of the date of the stock transfer, Coast West had total assets of
$3,615,000, total liabilities of $12,570,000, which includes $7,699,000 due to
our company and $4,871,000 of deferred rent, and an accumulated deficit of
$8,955,000. The Company had recorded an allowance for doubtful accounts in
connection with advances provided to Coast West for lease payments. On the date
of the stock transfer, the total allowance for bad debt expense recorded by our
company in relation to those advances was $5,769,000. Upon the transfer of Coast
West stock, our company wrote off this allowance for doubtful accounts to
F-21
159
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- COAST WEST, INC. -- CONTINUED
retained earnings and recorded the assumption of the $8,955,000 of net
liabilities of Coast West as a decrease in additional paid-in capital.
NOTE 10 -- RELATED PARTY TRANSACTIONS
The Company's advertising services are provided by LGT Advertising, a
company owned by several stockholders of Coast Resorts. LGT purchases
advertising for our company from third parties and passes along any discounts
they receive. LGT and its owners receive no compensation or profit for these
services, as our company is invoiced for actual costs incurred. Advertising
expense amounted to approximately $3.8 million, $7.5 million and $6.0 million
for the years ended December 31, 1996, 1997 and 1998, respectively.
The Company received laundry services from Exber, Inc. (dba El Cortez Hotel
& Casino). A major stockholder-officer of Exber, Inc. is the father of a major
stockholder of Coast Resorts and a director and officer of our company. Laundry
expense payable to Exber, Inc. was approximately $864,000 for the year ended
December 31, 1996. The Company discontinued its laundry service from Exber, Inc.
in October 1996.
The Company purchases certain of its equipment and inventory for its
operations from RJS, a company owned by the father of a major stockholder and
director of Coast Resorts and a director and officer of our company and our
company's restaurant manager. RJS invoices our company based on actual costs
incurred. For the fiscal years ended December 31, 1996, 1997 and 1998, our
company incurred expenses payable to RJS of approximately $4.1 million, $1.4
million and $829,000, respectively.
The Company purchases wallboards and parlay cards for its race and sports
books from Nevada Wallboards, Inc. A major stockholder and director of Coast
Resorts and a director and officer of our company is the majority stockholder of
Nevada Wallboards, Inc. For the fiscal years ended December 31, 1996, 1997 and
1998, our company incurred expenses payable to Nevada Wallboards of
approximately $145,000, $198,000 and $186,000, respectively.
A director of our company is the President and sole stockholder of
Yates-Silverman, Inc. which was retained by our company as the designer of The
Orleans and the Coast West project. For the fiscal years ended December 31,
1996, 1997 and 1998, our company incurred expenses payable to Yates-Silverman of
approximately $508,000, $177,000 and $500,000, respectively.
The Company maintains numerous racetrack dissemination contracts with Las
Vegas Dissemination, Inc. ("LVD"). The son of a major stockholder and director
of Coast Resorts and a director and officer of our company is the president and
sole shareholder of LVD. LVD has been granted a license by the Nevada gaming
authorities to disseminate live racing for those events and tracks for which it
contracts and has been granted the exclusive right to disseminate all
pari-mutuel services and race wire services in the State of Nevada. Under these
dissemination contracts, our company pays to LVD an amount based
F-22
160
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- RELATED PARTY TRANSACTIONS -- CONTINUED
on the wagers accepted for races held at the racetracks covered by the
respective contracts. The Company also pays to LVD a monthly fee for race wire
services. For the fiscal years ended December 31, 1996, 1997 and 1998, our
company incurred expenses payable to LVD of approximately $889,000, $1.1 million
and $3.1 million, respectively.
J.A. Tiberti Construction Company ("Tiberti Construction") has served as
the general contractor for the original construction of the Gold Coast and for
certain expansions thereof, for the original construction of the Barbary Coast
and all expansions thereof and for the original construction and Phase II
expansion of The Orleans. The president of Tiberti Construction is a stockholder
and director of Coast Resorts and a director of our company. For the years ended
December 31, 1996, 1997 and 1998, our company paid approximately $80.3 million,
$26.2 million and $3.7 million, respectively, to Tiberti Construction in
connection with such construction services.
As more fully described in Note 4, our company is a party to a ground lease
with The Tiberti Company with respect to the land underlying The Orleans. The
president of The Tiberti Company is a director and stockholder of Coast Resorts.
Amounts paid to the Tiberti Company with respect to the lease were $3.0 million,
$2.1 million and $2.4 million for the years ended December 31, 1996, 1997 and
1998, respectively.
NOTE 11 -- BENEFIT PLANS
401(k) Plans
The Company offers separate defined contribution 401(k) plans for eligible
employees. During 1996, previously separate plans of the Gold Coast and the
Barbary Coast were consolidated into one plan. All employees of the Gold Coast
and The Orleans, and all employees of the Barbary Coast not covered by a
collective bargaining agreement, are eligible to participate. The employees may
elect to defer up to 15% of their yearly compensation, subject to statutory
limits. The Company makes matching contributions of 50% of the first 6% of the
employees' contribution. Contribution expense was $1,176,000, $842,000 and
$1,252,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
Defined Benefit Plan
Certain employees at the Barbary Coast are covered by a union-sponsored,
collectively bargained, multi-employer, defined benefit pension plan. The
Barbary Coast contributed $274,000, $313,000 and $308,000 during the years ended
December 31, 1996, 1997 and 1998, respectively, to the plan. These contributions
are determined in accordance with the provisions of negotiated labor contracts
and generally are based on the number of hours worked.
F-23
161
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- BENEFIT PLANS -- CONTINUED
Stock Compensation Plan
In December 1996, the Board of Directors of Coast Resorts adopted the 1996
Stock Incentive Plan (the "Plan") which authorizes the issuance of (i) shares of
Coast Resorts Common Stock or any other class of security of Coast Resorts which
is convertible into shares of Coast Resorts Common Stock or (ii) a right or
interest with an exercise or conversion privilege at a price related to Coast
Resorts Common Stock or with a value derived from the value of such common
stock. Awards under the Plan are not restricted to any specified form or
structure and may include, without limitation, sales or bonuses of stock,
restricted stock, stock options, reload stock options, stock purchase warrants,
other rights to acquire stock, securities convertible into or redeemable for
stock, stock appreciation rights, limited stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares. Officers,
key employees, directors (whether employee directors or non-employee directors)
and consultants of Coast Resorts and its subsidiaries are eligible to
participate in the Plan.
Under the terms of the Plan, the aggregate number of shares issued and
issuable pursuant to all awards, including all incentive stock options, granted
under the Plan shall not exceed 220,000 at any time. In addition, the aggregate
number of shares subject to awards granted during any calendar year to any one
eligible person, including the number of shares involved in awards having a
value derived from the value of shares, shall not exceed 40,000.
No awards shall be made under the Plan after the tenth anniversary of the
adoption of the Plan. Although shares may be issued after the tenth anniversary
of the adoption of the Plan pursuant to awards made prior to such date, no
shares shall be issued under the Plan after the twentieth anniversary of
adoption of the Plan. As of December 31, 1998, no awards have been made under
the Plan.
F-24
162
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- SUPPLEMENTAL CASH FLOWS INFORMATION
For the years ended December 31, 1996, 1997 and 1998 and the three months
ended March 31, 1998 and 1999 supplemental cash flows information amounts are as
follows:
DECEMBER 31, MARCH 31,
----------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
Interest paid................. $21,607 $25,488 $26,764 $1,473 $7,308
======= ======= ======= ====== ======
Income taxes paid............. $ 3,100 $ -- $ 2,300 $3,841 $ --
======= ======= ======= ====== ======
Supplemental schedule of non-
cash investing and financing
activities:
Property and equipment
acquisitions included in
accounts payable or financed
through notes payable....... $38,918 $ 2,491 $ -- $ -- $ --
======= ======= ======= ====== ======
Conversion of notes payable to
Coast Resorts Common
Stock....................... $52,525 $ -- $ -- $ -- $ --
======= ======= ======= ====== ======
Transfer of net liabilities of
Coast West to our company by
Coast Resorts ($8,955) less
write-off of related
allowance for advances to
Coast West ($5,769)......... $ -- $ -- $ 3,186 $ -- $ --
======= ======= ======= ====== ======
NOTE 13 -- REGULATION OF GAMING OPERATIONS
The gaming operations of our company are subject to the licensing and
regulatory control of the Nevada Gaming Commission (the Nevada Commission), the
Nevada State Gaming Control Board (the Nevada Control Board) and the Clark
County Liquor and Gaming Board (the Clark County Board) (collectively, the
"Nevada Gaming Authorities"). These agencies issue gaming licenses based upon,
among other considerations, evidence that the character and reputation of
principal owners, officers, directors, and certain other key employees are
consistent with regulatory goals. The necessary licenses have been secured by
our company. The licenses are not transferable and must be renewed periodically
upon the payment of appropriate taxes and license fees. The Nevada Gaming
Authorities have broad discretion with regard to the renewal of the licenses
which may at any time revoke, suspend, condition, limit or restrict a license
for any cause deemed reasonable by the issuing agency. Officers, directors, and
key employees of our company must be approved by the Nevada Control Board and
licensed by the Nevada Commission and Clark County Board.
F-25
163
COAST HOTELS AND CASINOS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the financial position,
results of operations or cash flows of our company.
NOTE 15 -- SUBSEQUENT EVENTS
First Mortgage Notes Repurchase
In March 1999, we issued $175.0 million of 9.5% senior subordinated notes
with interest payable on April 1 and October 1 beginning October 1, 1999 and
entered into a $75.0 million credit facility due 2004 to facilitate a
refinancing. With the proceeds from those notes and borrowings under the credit
facility, we repurchased substantially all of the outstanding 13% first mortgage
notes and all of the 10 7/8% first mortgage notes and amended the indenture
under which the 13% first mortgage notes were issued to eliminate substantially
all of its restrictive covenants. Approximately $2.0 million in principal amount
of the 13% first mortgage notes remain outstanding and are governed by the terms
of the amended indenture. In connection with the repurchase of the 13% first
mortgage notes and the 10 7/8% first mortgage notes, we incurred repurchase
premiums of $31.0 million and $2.1 million, respectively. The repurchase
premiums and the write-offs of unamortized debt issuance costs and original
issue discount resulted in an extraordinary loss of $27.0 million, net of
applicable income tax benefit of $14.5 million.
Stock Option Plan
Effective January 1, 1999, Coast Resorts issued options to purchase 30,415
shares of its common stock to its chief operating officer, who is also the chief
operating officer of our company. The options vest in increments on January 1,
1999, January 1, 2000 and January 1, 2001. The exercise price on the options is
at $100 per share, which is equivalent to the estimated fair value of Coast
Resorts' common stock at the grant date, as estimated by Coast Resorts from
recent sales of common stock between shareholders.
F-26
164
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders of
Coast Resorts, Inc.
In our opinion, the accompanying balance sheets and related statements of
operations, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Coast Resorts, Inc. (parent company only) as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with generally accepted
auditing standards, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The Company has no material business activity other than that conducted
through its wholly owned subsidiary, Coast Hotels and Casinos, Inc. ("CHC"). The
accompanying financial statements include the parent's investment in CHC using
the equity method of accounting, and have been prepared solely to accompany the
financial statements of CHC. The financial statements of Coast Resorts, Inc.
(parent company only) should be read in conjunction with the financial
statements of CHC included in this prospectus.
PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 5, 1999, except for Note 2 as
to which the date is March 23, 1999
F-27
165
COAST RESORTS, INC.
(PARENT COMPANY ONLY)
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999
------------ ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 3 $ 3 $ 3
------- -------- --------
TOTAL CURRENT ASSETS.................. 3 3 3
INVESTMENT IN SUBSIDIARIES................... 94,767 103,054 82,370
------- -------- --------
$94,770 $103,057 $ 82,373
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to affiliates.......................... $ 301 $ 601 $ 1,131
Accrued liabilities........................ 30 30 --
------- -------- --------
TOTAL CURRENT LIABILITIES............. 331 631 1,131
------- -------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 500,000
shares authorized, none issued and
outstanding............................. -- -- --
Common stock, $.01 par value, 2,000,000
shares authorized, 1,494,353 shares
issued and outstanding at December 31,
1997 and 1998 and 1,489,353 shares
issued and outstanding at March 31,
1999.................................... 15 15 15
Additional paid-in capital................. 95,398 95,398 95,398
Treasury stock............................. -- -- (500)
Retained earnings (deficit)................ (974) 7,013 (13,671)
------- -------- --------
TOTAL STOCKHOLDERS' EQUITY............ 94,439 102,426 81,242
------- -------- --------
$94,770 $103,057 $ 82,373
======= ======== ========
The accompanying notes are an integral part of these financial statements.
F-28
166
COAST RESORTS, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
Equity interest in income
(loss) from
subsidiaries............. $ 3,689 $ (4,335) $ 8,287 $ 2,596 $ (20,684)
General and administrative
expenses................. (81) (261) (134) (230) --
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes.................... 3,608 (4,596) 8,153 2,366 (20,684)
Income tax provision
(benefit)................ (28) 14 166 (32) --
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......... $ 3,636 $ (4,610) $ 7,987 $ 2,398 $ (20,684)
========== ========== ========== ========== ==========
Basic and diluted net
income (loss) per share
of common stock.......... $ 2.47 $ (3.08) $ 5.34 $ 1.60 $ (13.89)
========== ========== ========== ========== ==========
Weighted average common
shares outstanding....... 1,472,742 1,494,353 1,494,353 1,494,353 1,489,353
========== ========== ========== ========== ==========
UNAUDITED PRO FORMA DATA
(reflecting
reorganization and change
in tax status of
subsidiaries):
Income (loss) before income
taxes.................... $ 6,108
Provision (benefit) for
income taxes............. (28)
----------
NET INCOME (LOSS).......... $ 6,136
==========
Basic and diluted net
income per share of
common stock............. $ 4.17
==========
Weighted average common
shares outstanding....... 1,472,742
==========
The accompanying notes are an integral part of these financial statements.
F-29
167
COAST RESORTS, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------- ------ ---------- -------- -------- --------
Balances at December 31,
1995.................... 1,000,000 $10 $19,340 $ 23,538 $ -- $ 42,888
Exchange of notes payable
of subsidiary for common
stock................... 494,353 5 52,520 -- -- 52,525
Reclassification of
undistributed earnings
to additional paid-in
capital upon termination
of partnership status... -- -- 23,538 (23,538) -- --
Net income................ -- -- -- 3,636 -- 3,636
--------- --- ------- -------- ----- --------
Balances at December 31,
1996.................... 1,494,353 15 95,398 3,636 -- 99,049
Net loss.................. -- -- -- (4,610) -- (4,610)
--------- --- ------- -------- ----- --------
Balances at December 31,
1997.................... 1,494,353 15 95,398 (974) -- 94,439
Net income................ -- -- -- 7,987 -- 7,987
--------- --- ------- -------- ----- --------
Balances at December 31,
1998.................... 1,494,353 15 95,398 7,013 -- 102,426
Repurchase of common
stock................... (5,000) -- -- -- (500) (500)
Net loss (unaudited)...... -- -- -- (20,684) -- (20,684)
--------- --- ------- -------- ----- --------
Balances at March 31, 1999
(unaudited)............. 1,489,353 $15 $95,398 $(13,671) $(500) $ 81,242
========= === ======= ======== ===== ========
The accompanying notes are an integral part of these financial statements.
F-30
168
COAST RESORTS, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ 3,636 $(4,610) $ 7,987 $ 2,398 $(20,684)
------- ------- ------- ------- --------
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Equity interest in net (income) loss
from subsidiaries................. (3,689) 4,335 (8,287) (2,596) 20,684
Accrued liabilities.................. -- 30 -- (23) (30)
Due to affiliates.................... 53 245 300 221 530
------- ------- ------- ------- --------
TOTAL ADJUSTMENTS................. (3,636) 4,610 (7,987) (2,398) 21,184
------- ------- ------- ------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES...................... -- -- -- -- --
------- ------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock........... -- -- -- -- (500)
------- ------- ------- ------- --------
NET CASH USED IN FINANCING
ACTIVITIES...................... -- -- -- -- (500)
------- ------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................... -- -- -- -- --
CASH AND CASH EQUIVALENTS, at beginning
of period............................ 3 3 3 3 3
------- ------- ------- ------- --------
CASH AND CASH EQUIVALENTS, at end of
period............................... $ 3 $ 3 $ 3 $ 3 $ 3
======= ======= ======= ======= ========
The accompanying notes are an integral part of these financial statements.
F-31
169
COAST RESORTS, INC.
(PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background Information and Basis of Presentation
Coast Resorts, Inc. ("Coast Resorts" or the "Company") is a Nevada
corporation and serves as a holding company for Coast Hotels and Casinos, Inc.
("Coast Hotels") and Coast West, Inc. ("Coast West"), also Nevada corporations.
The Company has no material business activity other than that conducted through
Coast Hotels.
On July 21, 1998, our company contributed the common stock of Coast West to
Coast Hotels, as a result of which Coast West became a wholly owned subsidiary
of Coast Hotels.
The accompanying financial statements present the financial position and
results of operations of Coast Resorts as a parent company only, and thus
include Coast Resort's investment in Coast Hotels, as well as Coast Resort's
equity interest in its results of its operations. Accordingly, these financial
statements should be read in conjunction with the financial statements of Coast
Hotels.
Net Income (Loss) Per Common Share
Net income per common share for the years ended December 31, 1996, 1997 and
1998 is computed by dividing net income by the weighted average number of shares
of common stock outstanding, which weighted average totaled 1,472,742 shares,
1,494,353 shares and 1,494,353 shares, respectively. The Company has no dilutive
securities outstanding for any of the periods presented.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 is effective for periods ending after December 15, 1997 and replaces
currently reported earnings per share with "basic," or undiluted, earnings per
share and "diluted" earnings per share. Basic earnings per share is computed
based on weighted average shares outstanding while diluted earnings per share
reflects the additional dilution for all potential dilutive securities, such as
stock options and warrants.
The Company has adopted the provisions of SFAS 128 in its fiscal 1997 and
1998 financial statements. The retroactive adoption had no impact on our
company's operating results for the year ended December 31, 1996.
1999 Interim Financial Information
The accompanying financial statements as of and for the three months ended
March 31, 1998 and 1999 are unaudited and have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The unaudited financial statements should be
read in conjunction with the audited financial statements and footnotes for the
year ended December 31, 1998. In the
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170
COAST RESORTS, INC.
(PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
opinion of management, all adjustments and normal recurring accruals considered
necessary for a fair presentation of the results for the interim period have
been included. The interim results reflected in the unaudited financial
statements are not necessarily indicative of expected results for the full year.
NOTE 2 -- SUBSEQUENT EVENTS
Coast Hotels First Mortgage Notes Repurchase
In March 1999, Coast Hotels issued $175.0 million of 9.5% senior
subordinated notes with interest payable on April 1 and October 1, 1999 and
entered into a $75.0 million credit facility due 2004 to facilitate a
refinancing. With the proceeds from those notes and borrowings under the credit
facility, Coast Hotels repurchased substantially all of the outstanding 13%
first mortgage notes and all of the 10 7/8% first mortgage notes and amended the
Indenture under which the 13% first mortgage notes were issued to eliminate
substantially all of its restrictive covenants. Approximately $2.0 million in
principal amount of the 13% first mortgage notes remain outstanding and are
governed by the terms of the amended Indenture. In connection with the
repurchase of the 13% notes and the 10 7/8% notes, Coast Hotels incurred
repurchase premiums of $31.0 million and $2.1 million, respectively. The
repurchase premiums and the write-offs of unamortized debt issuance costs and
original issue discount resulted in an extraordinary loss of $27.0 million, net
of applicable income tax benefit of $14.5 million.
Stock Option Plan
Effective January 1, 1999, Coast Resorts issued options to purchase 30,415
shares of its common stock to its chief operating officer who is also the chief
operating officer of Coast Hotels. The options vest in increments on January 1,
1999, January 1, 2000 and January 1, 2001. The exercise price on the options is
at $100 per share, which is equivalent to the estimated fair value of Coast
Resort's common stock at the grant date, as estimated by Coast Resorts from
recent sales of common stock between shareholders.
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ALL TENDERED OUTSTANDING NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER
RELATED DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND
REQUESTS FOR ADDITIONAL COPIES OF THIS PROSPECTUS, THE LETTER OF TRANSMITTAL AND
OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE AGENT AS FOLLOWS:
BY MAIL, OVERNIGHT COURIER OR HAND:
FIRSTAR BANK OF MINNESOTA, N.A.
101 EAST 5TH STREET
12TH FLOOR
ST. PAUL, MINNESOTA 55101
BY FACSIMILE:
(651) 229-6415
CONFIRM BY TELEPHONE:
(651) 229-2600
(Originals of all documents submitted by facsimile should be sent promptly
by hand, overnight courier, or registered or certified mail.)
No broker dealer or other person is authorized in connection with any offer
made hereby to give any information or to make any representations not contained
in this prospectus and, if given or made, the unauthorized information or
representations must not be relied upon as having been authorized by us. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any security other than the securities offered hereby nor does it constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby to any person in any jurisdiction in which it is unlawful to make
such an offer or solicitation to such person. Neither the delivery of this
prospectus nor any sale made hereunder shall under any circumstances create any
implication that the information contained herein is correct as of any time
subsequent to the date hereof.
Until , 1999 (25 days from the date of this prospectus) all
dealers effecting transactions in the exchange notes, whether or not
participating in this exchange offer, may be required to deliver a prospectus.
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OFFER TO EXCHANGE
OUR 9 1/2% SENIOR SUBORDINATED NOTES
DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
FOR
ANY AND ALL OF OUR OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES
DUE 2009
LOGO
PAYMENT OF PRINCIPAL AND INTEREST
GUARANTEED ON A SENIOR SUBORDINATED BASIS
BY COAST RESORTS, INC.
-------------------------
PROSPECTUS
-------------------------
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172
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.7502(1) of the General Corporation Law of Nevada, or the "NGCL,"
provides that a Nevada corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by reason
of the fact that such person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if he or she
acted in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
Section 78.7502(2) of the NGCL provides that a Nevada corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth in subsection (1), against
expenses, including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if he or she acted under the standards set forth in
subsection (1), except that no indemnification may be made for any claim, issue
or matter as to which such person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which such action or suit was brought or
other court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section 78.7502(3) of the NGCL provides that to the extent a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (1) and (2), or in defense of any claim, issue or matter therein,
the corporation shall indemnify such person against expenses, including
attorneys' fees, actually and reasonably incurred by him or her in connection
with the defense.
Section 78.751(1) of the NGCL provides that any discretionary
indemnification under Section 78.7502, unless ordered by a court or advanced
pursuant to subsection 2 of Section 78.751, may be made by the corporation only
as authorized in the specific case upon determination that indemnification of
such director, officer, employee or agent is proper in the circumstances. The
determination must be made (a) by the stockholders; (b) by the board of
directors by majority vote of quorum consisting of directors who were not
parties to the action, suit or proceeding; (c) if a majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding
so orders, by independent legal counsel in a written opinion; or (d) if a quorum
consisting of directors
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173
who were not parties to the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
Section 78.751(2) of the NGCL provides that the articles of incorporation,
bylaws or an agreement made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he or she is
not entitled to be indemnified by the corporation. Such provision does not
affect any rights to advancement of expenses to which corporate personnel other
than directors or officers may be entitled under any contract or otherwise by
law.
Section 78.752 of the NGCL provides that a Nevada corporation may purchase
and maintain insurance or make other financial arrangements on behalf of any
person who acted in any of the capacities set forth above for any liability
asserted against such person for any liability asserted against him or her and
liability and expenses incurred by him or her in any such capacity or arising
out of his or her status as such, whether or not the corporation has the
authority to indemnify him or her against such liabilities and expenses.
Our Amended Articles of Incorporation provides that none of our directors
or officers shall be personally liable to us or our stockholders for damages for
breach of fiduciary duty as a director. However, such provision does not
eliminate or limit the liability of a director or officer for any act or
omission which involves intentional misconduct, fraud or a knowing violation of
law, or the payment of distributions in violation of Section 78.300 of the NGCL.
In addition, our Amended Articles of Incorporation and Amended Bylaws provide
for indemnification of its directors and officers in accordance with the NGCL.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1 Amended Articles of Incorporation of Coast Hotels and
Casinos, Inc.(5)
3.2 First Amended Bylaws of Coast Hotels and Casinos, Inc.(5)
3.3 Articles of Incorporation of Coast Resorts, Inc.(1)
3.4 First Amended Bylaws of Coast Resorts, Inc.(1)
4.1 Indenture dated as of January 30, 1996, among Coast Hotels
and Casinos, Inc., as issuer of 13% First Mortgage Notes due
2002, Coast Resorts, Inc. and Coast West, Inc., as the
Guarantors, and American Bank National Association, as
Trustee.(4)
4.3 Form of 13% Note (included in Exhibit 4.1)
4.4 Indenture dated as of March 23, 1999 among Coast Hotels and
Casinos, Inc., as issuer of 9 1/2% Senior Subordinated Notes
due 2009, Coast Resorts, Inc., as guarantor, and Firstar
Bank of Minnesota, N.A., as trustee(8)
4.5 Form of 9 1/2% Note (included in Exhibit 4.4)
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
4.6 First Supplemental Indenture dated as of March 5, 1999, with
respect to the Indenture dated as of January 30, 1996 among
Coast Hotels and Casinos, as issuer of the 13% Notes, Coast
Resorts, Inc. and Coast West, Inc., as the Guarantors, and
Firstar Bank of Minnesota, N.A., as successor in interest to
American Bank National Association, as Trustee.(8)
5.1 Opinion of Gibson, Dunn & Crutcher LLP
5.2 Opinion of McDonald Carano Wilson McCune Bergin Frankovich &
Hicks LLP
10.1 Registration Rights Agreement dated as of January 30, 1996
among Coast Hotels and Casinos, Inc., as issuer of the 13%
Notes, Coast Resorts, Inc. and Coast West, Inc., as the
Guarantors, and Bear, Stearns & Co. Inc. and BA Securities,
Inc.(4)
10.2 13% Note Guarantee of Coast Resorts, Inc.(4)
10.3 13% Note Guarantee of Coast West, Inc.(4)
10.4 Deed of Trust, Assignment of Rents, Leases and Security
Agreement dated January 30, 1996 of Coast Hotels and
Casinos, Inc.(4)
10.5 Leasehold Deed of Trust, Assignment of Rents, Leases and
Security Agreement dated January 30, 1996 of Coast West,
Inc.(4)
10.6 Security Agreement dated January 30, 1996 by and between
Coast Hotels and Casinos, Inc. and American Bank National
Association(4)
10.7 Security Agreement dated January 30, 1996 by and between
Coast West, Inc. and American Bank National Association(4)
10.8 Stock Pledge and Security Agreement dated January 30, 1996
by and among Coast Resorts, Inc. and American Bank National
Association(4)
10.9 Disbursement and Escrow Agreement dated January 30, 1996,
among Nevada Title Company, Nevada Construction Services,
Inc., American Bank National Association and Coast Hotels
and Casinos, Inc.(4)
10.10 Pledge and Escrow Agreement dated January 30, 1996 between
American Bank National Association and Coast Hotel and
Casinos, Inc.(4)
10.11 Collateral Assignment of Contracts dated January 30, 1996(4)
10.12 Escrow Agreement dated January 30, 1996 by and among Coast
Resorts, Inc., American Bank National Association, and Bank
of America Nevada(4)
10.13 Unsecured Environmental Indemnification Agreement dated
January 30, 1996 among Coast Hotel and Casinos, Inc. and
American Bank National Association(4)
10.14 Unsecured Environmental Indemnification Agreement among
Coast West, Inc. and American Bank National Association(4)
10.15 Tax Sharing Agreement dated as of January 30, 1996 by and
among Coast Resorts, Inc., Coast Hotels and Casinos, Inc.,
and Coast West, Inc.(4)
10.16 Agreement Between Owner and Contractor dated as of January
24, 1996, between J.A. Tiberti Construction Co., Inc. and
Coast Hotels and Casinos, Inc.(4)
10.17 Ground Lease dated as of October 1, 1995, between The
Tiberti Company, a Nevada general partnership, and Coast
Hotels and Casinos, Inc. (as successor of Gold Coast Hotel
and Casino, a Nevada limited partnership)(3)
10.18 Lease Agreement dated May 1, 1992, by and between Empey
Enterprises, a Nevada general partnership, as lessor, and
the Barbary Coast Hotel & Casino, a Nevada general
partnership, as lessee(1)
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.19 Ground Lease Agreement dated October 28, 1994 by and among
21 Stars, Ltd., a Nevada limited liability company, as
landlord, Barbary Coast Hotel & Casino, a Nevada general
partnership, as tenant, Wanda Peccole, as successor trustee
of the Peccole 1982 Trust dated February 15, 1982 ("Trust"),
and The William Peter and Wanda Ruth Peccole Family Limited
Partnership, a Nevada limited partnership ("Partnership"),
and, together with Trust, as owner, as amended(1)
10.20 Form of Subordination Agreement between Coast Hotels and
Casinos, Inc. and certain former Gold Coast partners holding
Subordinated Notes(4)
10.21 Lease dated as of November 1, 1982, by and between Nevada
Power Company, a Nevada Corporation as landlord, and Barbary
Coast Hotel and Casino, a Nevada general partnership(1)
10.22 Leasehold Deed of Trust, Assignment of Rents and Security
Agreement dated February 13, 1991, by and between the
Barbary Coast Hotel and Casino, a Nevada general
partnership, First American Title Company of Nevada, and
Exber, Inc., a Nevada corporation(1)
10.23 Agreement and Plan of Reorganization dated as of September
29, 1995, among Coast Resorts, Inc., the Gold Coast Hotel
and Casino, a Nevada limited partnership, the Barbary Coast
Hotel and Casino, a Nevada general partnership, and
Gaughan-Herbst, Inc., a Nevada corporation(2)
10.24 Supplement to Agreement and Plan of Reorganization dated as
of December 22, 1995, among Coast Resorts, Inc., the Gold
Coast Hotel and Casino, a Nevada limited partnership, the
Barbary Coast Hotel and Casino, a Nevada general
partnership, and Gaughan-Herbst, Inc., a Nevada
corporation(3)
10.25 10 7/8% First Mortgage Note due 2001, dated November 21,
1997(6)
10.26 Indenture dated as of November 21, 1997 among Coast Hotels
and Casinos, Inc., as issuer of the 10 7/8% First Mortgage
Notes due 2001, the Guarantors, and Firstar Bank of
Minnesota, N.A., as Trustee(6)
10.27 10 7/8% Note Guarantee of Coast Resorts, Inc.(6)
10.28 Purchase Agreement for the 10 7/8% Notes dated November 21,
1997(6)
10.29 Security Agreement dated November 21, 1997 (Coast Hotels and
Casinos, Inc.)(6)
10.30 Deed of Trust, Assignment of Rents, Leases and Security
Agreement dated November 21, 1997(6)
10.31 Stock Pledge and Security Agreement dated November 21, 1997
(Coast Resorts, Inc.)(6)
10.32 Pari Passu Intercreditor Agreement dated November 21,
1997(6)
10.33 Master Security Agreement, dated as of October 24, 1996, by
and between Coast Hotels and Casinos, Inc. and the CIT
Group/Equipment Financing, Inc.(7)
10.34 Amendment No. 1, dated December 27, 1996, to Master Security
Agreement dated as of October 24, 1996 by and between Coast
Hotels and Casinos, Inc. and the CIT Group/Equipment
Financing Inc.(7)
10.35 Agreement Between Owner and Contractor dated as of February
9, 1999, between Coast Resorts, Inc., as owner, and J.A.
Tiberti Construction Co., Inc., as contractor(7)
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.36 Employment Agreement dated as of January 1, 1999, between
Harlan Braaten and Coast Hotels and Casinos, Inc.(8)
10.37 Amendment dated as of March 5, 1999 to the Deed of Trust,
Assignment of Rents, Leases and Security Agreement dated
January 30, 1996 of Coast Hotels and Casinos, Inc.(8)
10.38 Amendment dated as of March 5, 1999 to the Leasehold Deed of
Trust, Assignment of Rents, Leases and Security Agreement
dated January 30, 1996 of Coast West, Inc.(8)
10.39 Amendment dated as of March 5, 1999 to the Security
Agreement dated January 30, 1996 by and between Coast Hotels
and Casinos, Inc. and American Bank National Association(8)
10.40 Amendment dated as of March 5, 1999 to the Security
Agreement dated January 30, 1996 by and between Coast West,
Inc. and American Bank National Association(8)
10.41 Amendment dated as of March 5, 1999 to the Stock Pledge and
Security Agreement dated January 30, 1996 by and among Coast
Resorts, Inc. and American Bank National Association(8)
10.42 Amendment dated as of March 5, 1999 to the Collateral
Assignment of Contracts dated January 30, 1996(8)
10.43 Amendment dated as of March 5, 1999 to the Unsecured
Indemnity Agreement dated January 30, 1996 among Coast Hotel
and Casinos, Inc. and American Bank National Association(8)
10.44 Amendment dated as of March 5, 1999 to the Unsecured
Indemnity Agreement among Coast West, Inc. and American Bank
National Association(8)
10.45 Placement Agreement for the 9 1/2% Notes, dated March 18,
1999, among Coast Hotels and Casinos, Inc., Coast Resorts,
Inc., Morgan Stanley & Co. Incorporated and NationsBanc
Montgomery Securities LLC(8)
10.46 Registration Rights Agreement dated March 23, 1999 among
Coast Hotels and Casinos, Inc. and Coast Resorts, Inc., and
Morgan Stanley & Co. Incorporated and NationsBanc Montgomery
Securities LLC(8)
10.47 Loan Agreement dated as of March 18, 1999 among Coast Hotels
and Casinos, Inc., as Borrower, the Lenders referred to
therein, and Bank of America National Trust and Savings
Association, as Administrative Agent(8)
12 Computation of Ratio of Earnings to Fixed Charges(8)
21 List of Subsidiary of Coast Resorts, Inc.(8)
23.1 Consent of Independent Accountants
23.2 Consent of Gibson, Dunn & Crutcher (included in the opinion
filed as Exhibit 5.1 hereto)
23.3 Consent of McDonald Carano Wilson McCune Bergin Frankovich &
Hicks LLP (included in the opinion filed as Exhibit 5.2
hereto)
24 Powers of Attorney (included on signature pages hereto)
25 Form T-1 Statement of Eligibility and Qualification of
Firstar Bank of Minnesota, N.A., as Trustee(8)
27.1 Financial Data Schedule for Coast Hotels and Casinos, Inc.
27.2 Financial Data Schedule for Coast Resorts, Inc. (Parent
Company only)
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
- -------------------------
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s General Form for Registration of Securities on Form
10 and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Amendment No. 1 to General Form for Registration of
Securities on Form 10 and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Amendment No. 2 to General Form for Registration of
Securities on Form 10 and incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Annual Report on Form 10-K for the period ended
December 31, 1995 and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Registration Statement on Form S-4 filed May 2,
1996 and incorporated herein by reference
(6) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Annual Report on Form 10-K for the period ended
December 31, 1997 and incorporated herein by reference.
(7) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Annual Report on Form 10-K for the period ended
December 31, 1998 and incorporated herein by reference.
(8) Previously filed with the Securities and Exchange Commission as an exhibit
to this Registration Statement on May 28, 1999 and incorporated herein by
reference.
(b) Financial Statement Schedules.
The following Financial Statement Schedule was previously filed:
SCHEDULE
NUMBER DESCRIPTION OF SCHEDULE
- -------- -----------------------
II Valuation and Qualifying Accounts(1)
- -------------------------
(1) Previously filed with the Securities and Exchange Commission in Coast
Resorts, Inc.'s and Coast Hotels and Casinos, Inc.'s Annual Reports on Form
10-K for the year ended December 31, 1998 and incorporated herein by
reference.
Schedules other than those listed above have been omitted because of the
absence of conditions under which they are required or because the information
required is set forth in the financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This
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178
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrants of expenses incurred or paid by a director, officer or
controlling person of the registrants in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrants will, unless
in the opinion of its counsel the matter as been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Coast Hotels
and Casinos, Inc. has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Las Vegas, State of Nevada, on June 17, 1999.
COAST HOTELS AND CASINOS, INC.
By: /s/ MICHAEL J. GAUGHAN
----------------------------------------
Michael J. Gaughan
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Gage Parrish as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL J. GAUGHAN Chairman of the Board, Chief June 17, 1999
- --------------------------------------------- Executive Officer and
Michael J. Gaughan Director (Principal
executive officer)
/s/ GAGE PARRISH Chief Financial Officer June 17, 1999
- --------------------------------------------- and Director (Principal
Gage Parrish financial
and accounting officer)
/s/ HARLAN D. BRAATEN Director June 17, 1999
- ---------------------------------------------
Harlan D. Braaten
/s/ JERRY HERBST Director June 17, 1999
- ---------------------------------------------
Jerry Herbst
/s/ J. TITO TIBERTI Director June 17, 1999
- ---------------------------------------------
J. Tito Tiberti
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SIGNATURE TITLE DATE
--------- ----- ----
/s/ FRANKLIN TOTI Director June 17, 1999
- ---------------------------------------------
Franklin Toti
/s/ CHARLES SILVERMAN Director June 17, 1999
- ---------------------------------------------
Charles Silverman
/s/ F. MICHAEL CORRIGAN Director June 17, 1999
- ---------------------------------------------
F. Michael Corrigan
/s/ JOSEPH A. BLASCO Director June 17, 1999
- ---------------------------------------------
Joseph A. Blasco
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Coast Resorts,
Inc. has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Las Vegas, State of Nevada, on June 17, 1999.
COAST HOTELS AND CASINOS, INC.
By: /s/ MICHAEL J. GAUGHAN
----------------------------------------
Michael J. Gaughan
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Gage Parrish as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL J. GAUGHAN Chairman of the Board, Chief June 17, 1999
- --------------------------------------------- Executive Officer and
Michael J. Gaughan Director (Principal
executive officer)
/s/ GAGE PARRISH Chief Financial Officer June 17, 1999
- --------------------------------------------- and Director (Principal
Gage Parrish financial
and accounting officer)
/s/ HARLAN D. BRAATEN Director June 17, 1999
- ---------------------------------------------
Harlan D. Braaten
/s/ JERRY HERBST Director June 17, 1999
- ---------------------------------------------
Jerry Herbst
/s/ J. TITO TIBERTI Director June 17, 1999
- ---------------------------------------------
J. Tito Tiberti
II-10
182
SIGNATURE TITLE DATE
--------- ----- ----
/s/ FRANKLIN TOTI Director June 17, 1999
- ---------------------------------------------
Franklin Toti
/s/ CHARLES SILVERMAN Director June 17, 1999
- ---------------------------------------------
Charles Silverman
/s/ F. MICHAEL CORRIGAN Director June 17, 1999
- ---------------------------------------------
F. Michael Corrigan
/s/ JOSEPH A. BLASCO Director June 17, 1999
- ---------------------------------------------
Joseph A. Blasco
II-11
183
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1 Amended Articles of Incorporation of Coast Hotels and
Casinos, Inc.(5)
3.2 First Amended Bylaws of Coast Hotels and Casinos, Inc.(5)
3.3 Articles of Incorporation of Coast Resorts, Inc.(1)
3.4 First Amended Bylaws of Coast Resorts, Inc.(1)
4.1 Indenture dated as of January 30, 1996, among Coast Hotels
and Casinos, Inc., as issuer of 13% First Mortgage Notes due
2002, Coast Resorts, Inc. and Coast West, Inc., as the
Guarantors, and American Bank National Association, as
Trustee.(4)
4.3 Form of 13% Note (included in Exhibit 4.1)
4.4 Indenture dated as of March 23, 1999 among Coast Hotels and
Casinos, Inc., as issuer of 9 1/2% Senior Subordinated Notes
due 2009, Coast Resorts, Inc., as guarantor, and Firstar
Bank of Minnesota, N.A., as trustee(8)
4.5 Form of 9 1/2% Note (included in Exhibit 4.4)
4.6 First Supplemental Indenture dated as of March 5, 1999, with
respect to the Indenture dated as of January 30, 1996 among
Coast Hotels and Casinos, as issuer of the 13% Notes, Coast
Resorts, Inc. and Coast West, Inc., as the Guarantors, and
Firstar Bank of Minnesota, N.A., as successor in interest to
American Bank National Association, as Trustee.(8)
5.1 Opinion of Gibson, Dunn & Crutcher LLP
5.2 Opinion of McDonald Carano Wilson McCune Bergin Frankovich &
Hicks LLP
10.1 Registration Rights Agreement dated as of January 30, 1996
among Coast Hotels and Casinos, Inc., as issuer of the 13%
Notes, Coast Resorts, Inc. and Coast West, Inc., as the
Guarantors, and Bear, Stearns & Co. Inc. and BA Securities,
Inc.(4)
10.2 13% Note Guarantee of Coast Resorts, Inc.(4)
10.3 13% Note Guarantee of Coast West, Inc.(4)
10.4 Deed of Trust, Assignment of Rents, Leases and Security
Agreement dated January 30, 1996 of Coast Hotels and
Casinos, Inc.(4)
10.5 Leasehold Deed of Trust, Assignment of Rents, Leases and
Security Agreement dated January 30, 1996 of Coast West,
Inc.(4)
10.6 Security Agreement dated January 30, 1996 by and between
Coast Hotels and Casinos, Inc. and American Bank National
Association(4)
10.7 Security Agreement dated January 30, 1996 by and between
Coast West, Inc. and American Bank National Association(4)
10.8 Stock Pledge and Security Agreement dated January 30, 1996
by and among Coast Resorts, Inc. and American Bank National
Association(4)
10.9 Disbursement and Escrow Agreement dated January 30, 1996,
among Nevada Title Company, Nevada Construction Services,
Inc., American Bank National Association and Coast Hotels
and Casinos, Inc.(4)
10.10 Pledge and Escrow Agreement dated January 30, 1996 between
American Bank National Association and Coast Hotel and
Casinos, Inc.(4)
10.11 Collateral Assignment of Contracts dated January 30, 1996(4)
10.12 Escrow Agreement dated January 30, 1996 by and among Coast
Resorts, Inc., American Bank National Association, and Bank
of America Nevada(4)
184
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.13 Unsecured Environmental Indemnification Agreement dated
January 30, 1996 among Coast Hotel and Casinos, Inc. and
American Bank National Association(4)
10.14 Unsecured Environmental Indemnification Agreement among
Coast West, Inc. and American Bank National Association(4)
10.15 Tax Sharing Agreement dated as of January 30, 1996 by and
among Coast Resorts, Inc., Coast Hotels and Casinos, Inc.,
and Coast West, Inc.(4)
10.16 Agreement Between Owner and Contractor dated as of January
24, 1996, between J.A. Tiberti Construction Co., Inc. and
Coast Hotels and Casinos, Inc.(4)
10.17 Ground Lease dated as of October 1, 1995, between The
Tiberti Company, a Nevada general partnership, and Coast
Hotels and Casinos, Inc. (as successor of Gold Coast Hotel
and Casino, a Nevada limited partnership)(3)
10.18 Lease Agreement dated May 1, 1992, by and between Empey
Enterprises, a Nevada general partnership, as lessor, and
the Barbary Coast Hotel & Casino, a Nevada general
partnership, as lessee(1)
10.19 Ground Lease Agreement dated October 28, 1994 by and among
21 Stars, Ltd., a Nevada limited liability company, as
landlord, Barbary Coast Hotel & Casino, a Nevada general
partnership, as tenant, Wanda Peccole, as successor trustee
of the Peccole 1982 Trust dated February 15, 1982 ("Trust"),
and The William Peter and Wanda Ruth Peccole Family Limited
Partnership, a Nevada limited partnership ("Partnership"),
and, together with Trust, as owner, as amended(1)
10.20 Form of Subordination Agreement between Coast Hotels and
Casinos, Inc. and certain former Gold Coast partners holding
Subordinated Notes(4)
10.21 Lease dated as of November 1, 1982, by and between Nevada
Power Company, a Nevada Corporation as landlord, and Barbary
Coast Hotel and Casino, a Nevada general partnership(1)
10.22 Leasehold Deed of Trust, Assignment of Rents and Security
Agreement dated February 13, 1991, by and between the
Barbary Coast Hotel and Casino, a Nevada general
partnership, First American Title Company of Nevada, and
Exber, Inc., a Nevada corporation(1)
10.23 Agreement and Plan of Reorganization dated as of September
29, 1995, among Coast Resorts, Inc., the Gold Coast Hotel
and Casino, a Nevada limited partnership, the Barbary Coast
Hotel and Casino, a Nevada general partnership, and
Gaughan-Herbst, Inc., a Nevada corporation(2)
10.24 Supplement to Agreement and Plan of Reorganization dated as
of December 22, 1995, among Coast Resorts, Inc., the Gold
Coast Hotel and Casino, a Nevada limited partnership, the
Barbary Coast Hotel and Casino, a Nevada general
partnership, and Gaughan-Herbst, Inc., a Nevada
corporation(3)
10.25 10 7/8% First Mortgage Note due 2001, dated November 21,
1997(6)
10.26 Indenture dated as of November 21, 1997 among Coast Hotels
and Casinos, Inc., as issuer of the 10 7/8% First Mortgage
Notes due 2001, the Guarantors, and Firstar Bank of
Minnesota, N.A., as Trustee(6)
10.27 10 7/8% Note Guarantee of Coast Resorts, Inc.(6)
10.28 Purchase Agreement for the 10 7/8% Notes dated November 21,
1997(6)
10.29 Security Agreement dated November 21, 1997 (Coast Hotels and
Casinos, Inc.)(6)
10.30 Deed of Trust, Assignment of Rents, Leases and Security
Agreement dated November 21, 1997(6)
185
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.31 Stock Pledge and Security Agreement dated November 21, 1997
(Coast Resorts, Inc.)(6)
10.32 Pari Passu Intercreditor Agreement dated November 21,
1997(6)
10.33 Master Security Agreement, dated as of October 24, 1996, by
and between Coast Hotels and Casinos, Inc. and the CIT
Group/Equipment Financing, Inc.(7)
10.34 Amendment No. 1, dated December 27, 1996, to Master Security
Agreement dated as of October 24, 1996 by and between Coast
Hotels and Casinos, Inc. and the CIT Group/Equipment
Financing Inc.(7)
10.35 Agreement Between Owner and Contractor dated as of February
9, 1999, between Coast Resorts, Inc., as owner, and J.A.
Tiberti Construction Co., Inc., as contractor(7)
10.36 Employment Agreement dated as of January 1, 1999, between
Harlan Braaten and Coast Hotels and Casinos, Inc.(8)
10.37 Amendment dated as of March 5, 1999 to the Deed of Trust,
Assignment of Rents, Leases and Security Agreement dated
January 30, 1996 of Coast Hotels and Casinos, Inc.(8)
10.38 Amendment dated as of March 5, 1999 to the Leasehold Deed of
Trust, Assignment of Rents, Leases and Security Agreement
dated January 30, 1996 of Coast West, Inc.(8)
10.39 Amendment dated as of March 5, 1999 to the Security
Agreement dated January 30, 1996 by and between Coast Hotels
and Casinos, Inc. and American Bank National Association(8)
10.40 Amendment dated as of March 5, 1999 to the Security
Agreement dated January 30, 1996 by and between Coast West,
Inc. and American Bank National Association(8)
10.41 Amendment dated as of March 5, 1999 to the Stock Pledge and
Security Agreement dated January 30, 1996 by and among Coast
Resorts, Inc. and American Bank National Association(8)
10.42 Amendment dated as of March 5, 1999 to the Collateral
Assignment of Contracts dated January 30, 1996(8)
10.43 Amendment dated as of March 5, 1999 to the Unsecured
Indemnity Agreement dated January 30, 1996 among Coast Hotel
and Casinos, Inc. and American Bank National Association(8)
10.44 Amendment dated as of March 5, 1999 to the Unsecured
Indemnity Agreement among Coast West, Inc. and American Bank
National Association(8)
10.45 Placement Agreement for the 9 1/2% Notes, dated March 18,
1999, among Coast Hotels and Casinos, Inc., Coast Resorts,
Inc., Morgan Stanley & Co. Incorporated and NationsBanc
Montgomery Securities LLC(8)
10.46 Registration Rights Agreement dated March 23, 1999 among
Coast Hotels and Casinos, Inc. and Coast Resorts, Inc., and
Morgan Stanley & Co. Incorporated and NationsBanc Montgomery
Securities LLC(8)
10.47 Loan Agreement dated as of March 18, 1999 among Coast Hotels
and Casinos, Inc., as Borrower, the Lenders referred to
therein, and Bank of America National Trust and Savings
Association, as Administrative Agent(8)
12 Computation of Ratio of Earnings to Fixed Charges(8)
21 List of Subsidiary of Coast Resorts, Inc.(8)
23.1 Consent of Independent Accountants
186
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
23.2 Consent of Gibson, Dunn & Crutcher (included in the opinion
filed as Exhibit 5.1 hereto)
23.3 Consent of McDonald Carano Wilson McCune Bergin Frankovich &
Hicks LLP (included in the opinion filed as Exhibit 5.2
hereto)
24 Powers of Attorney (included on signature pages hereto)
25 Form T-1 Statement of Eligibility and Qualification of
Firstar Bank of Minnesota, N.A., as Trustee(8)
27.1 Financial Data Schedule for Coast Hotels and Casinos,
Inc.(8)
27.2 Financial Data Schedule for Coast Resorts, Inc. (Parent
Company only)(8)
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
- -------------------------
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s General Form for Registration of Securities on Form
10 and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Amendment No. 1 to General Form for Registration of
Securities on Form 10 and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Amendment No. 2 to General Form for Registration of
Securities on Form 10 and incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Annual Report on Form 10-K for the period ended
December 31, 1995 and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Registration Statement on Form S-4 filed May 2,
1996 and incorporated herein by reference
(6) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Annual Report on Form 10-K for the period ended
December 31, 1997 and incorporated herein by reference.
(7) Previously filed with the Securities and Exchange Commission as an exhibit
to Coast Resorts, Inc.'s Annual Report on Form 10-K for the period ended
December 31, 1998 and incorporated herein by reference.
(8) Previously filed with the Securities and Exchange Commission as an exhibit
to this Registration Statement on May 28, 1999 and incorporated herein by
reference.