-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mxt7A4YEIRUEsq8qk+QdP6S0J4DNl8rd/1mGMZCBTveQ0YkFarn5b3I1bLvN49L1 ZHo6qYdpQN5daIUKqTeCjw== 0000912057-00-014958.txt : 20000331 0000912057-00-014958.hdr.sgml : 20000331 ACCESSION NUMBER: 0000912057-00-014958 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STATION CASINOS INC CENTRAL INDEX KEY: 0000898660 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880136443 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12037 FILM NUMBER: 586891 BUSINESS ADDRESS: STREET 1: 2411 W. SAHARA AVE CITY: LAS VEGAS STATE: NV ZIP: 89102 BUSINESS PHONE: 7023672411 MAIL ADDRESS: STREET 1: P.O. BOX 295000 CITY: LAS VEGAS STATE: NV ZIP: 89126 10-K 1 10-K =============================================================================== STATION CASINOS =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended DECEMBER 31, 1999. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _____________ to ____________. Commission file number 000-21640 STATION CASINOS, INC. (Exact name of registrant as specified in its charter) NEVADA 88-0136443 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2411 WEST SAHARA AVENUE, LAS VEGAS, NEVADA 89102 (Address of principal executive offices, Zip Code) Registrant's telephone number, including area code: (702) 367-2411 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates (all persons other than executive officers or directors) of the registrant as of March 3, 2000, based on the closing price per share as reported on the New York Stock Exchange was $486,817,981. As of March 3, 2000, the registrant has 40,345,672 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting of Stockholders to be held May 23, 2000 (which has not been made publicly available as of the date of this filing) are incorporated by reference into Part III. PART I ITEM 1. BUSINESS FORWARD-LOOKING STATEMENTS When used in this report and elsewhere by management from time to time, the words "believes," "anticipates," and "expects" and similar expressions are intended to identify forward-looking statements with respect to the financial condition, results of operations and the business of Station Casinos, Inc. (the "Company") and its subsidiaries including the expansion, development and acquisition projects, legal proceedings and employee matters of the Company and its subsidiaries. Certain important factors, including but not limited to, competition from other gaming operations, leverage, construction risks, the inherent uncertainty and costs associated with litigation, and licensing and other regulatory risks, could cause the Company's actual results to differ materially from those expressed in the Company's forward-looking statements. Further information on potential factors which could affect the financial condition, results of operations and business of the Company and its subsidiaries including, without limitation, the expansion, development and acquisition projects, legal proceedings and employee matters of the Company and its subsidiaries are included in the filings of the Company with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date thereof. The Company undertakes no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date hereof. GENERAL Station Casinos, Inc. is an established multi-jurisdictional gaming and entertainment enterprise that currently owns and operates four major hotel/casino properties and two smaller casino properties in the Las Vegas Metropolitan area, and gaming and entertainment complexes in St. Charles and Kansas City, Missouri. The Company also owns and provides slot route management services in southern Nevada. Management's growth strategy includes the master-planned expansion of the Company's existing gaming facilities in Nevada and Missouri, as well as the evaluation and pursuit of additional acquisition or development opportunities in Nevada and other gaming markets. In Las Vegas, the Company owns and operates Palace Station Hotel & Casino ("Palace Station"), Boulder Station Hotel & Casino ("Boulder Station"), Texas Station Gambling Hall & Hotel ("Texas Station"), Sunset Station Hotel & Casino ("Sunset Station") and Tropicana Station, Inc., the operator of Wild Wild West Gambling Hall & Hotel ("Wild Wild West") and, together with Palace Station, Boulder Station, Texas Station, and Sunset Station, the "Las Vegas Casino Properties". The Company also owns a 50% interest in Town Center Amusements, Inc. d.b.a. Barley's Casino & Brewing Company ("Barley's"). Palace Station is situated on 39 acres on Sahara Avenue adjacent to Interstate 15, and is near major attractions on the Las Vegas Strip and downtown Las Vegas. Boulder Station is situated on 46 acres along Boulder Highway, immediately adjacent to Interstate 515, and is located on the opposite side of Las Vegas from Palace Station. Texas Station is located on 47 acres at the corner of Lake Mead Boulevard and Tonopah Highway in North Las Vegas. Sunset Station is located on 105 acres on Sunset Road immediately adjacent to Interstate 515 and features a Spanish/Mediterranean-themed hotel/casino. Each of the Company's Las Vegas casinos caters primarily to local Las Vegas residents. The Company markets the casinos together under the Station Casinos' brand, offering convenience to residents throughout the Las Vegas Valley with its strategically located properties. In Missouri, the Company owns and operates Station Casino Kansas City and Station Casino St. Charles. Station Casino Kansas City, is situated on 183 acres immediately east of the heavily traveled Interstate 435 bridge, seven miles east of downtown Kansas City. Station Casino Kansas City caters to local customers within the greater Kansas City area, as well as tourists from outside the region. Station Casino St. Charles is located on 52 acres situated immediately north of the Interstate 70 bridge in St. Charles, and is strategically located to attract customers from the St. Charles and greater St. Louis areas, as well as tourists from outside the region. Management employs the same operating strategies that have been successful at the Company's properties in the competitive Las Vegas market in order to secure a strong presence in the Missouri markets. 2 OPERATING STRATEGY Management believes that the following key principles have been integral to its success as a gaming operator and intends to continue to employ these strategies at each of its various operations. TARGETED CUSTOMER BASE The Company's operating strategy emphasizes attracting and retaining customers primarily from the local and repeat visitor markets. The Las Vegas Casino Properties and Station Casino Kansas City and Station Casino St. Charles (collectively the "Casino Properties") attract customers from their local markets through innovative, frequent and high-profile promotional programs, focused marketing efforts and convenient locations, and from the repeat visitor market through aggressive marketing and the development of strong relationships with specifically targeted travel wholesalers. Although perceived value initially attracts a customer to the Casino Properties, actual value generates customer satisfaction and loyalty. Management believes that actual value becomes apparent during the customer's visit through an enjoyable, affordable and high-quality entertainment experience. Las Vegas, which is and has been one of the fastest growing cities in the United States, is characterized by a strong economy and demographics which include an increasing number of retirees and other active gaming customers. This strategy applies as well to the Missouri markets. The Company believes that its out-of-town patrons are also discerning customers who enjoy the Company's value-oriented, high-quality approach. This is particularly true in Las Vegas where patrons view the Company's hotel and casino product as a preferable alternative to attractions located on the Las Vegas Strip and downtown Las Vegas. PROVIDE A HIGH-VALUE EXPERIENCE Because the Company targets the repeat customer, management is committed to providing a high-value entertainment experience for its customers in its restaurants, hotels, casinos, and other entertainment amenities. Management believes that the value offered by restaurants at each of the Casino Properties is a major factor in attracting its local gaming customers, as dining is a primary motivation for casino visits by many locals. Through their restaurants, each of which has a distinct theme and style of cuisine, the Company's Casino Properties offer generous portions of high-quality food at reasonable prices. In addition, the Company's operating strategy focuses on slot and video poker machine play. The Company's target market consists of frequent gaming patrons who seek not only a friendly atmosphere and convenience, but also higher than average payout rates. Because locals and repeat visitors demand variety and quality in their slot and video poker machine play, the Casino Properties offer the latest in slot and video poker technology, including several games designed exclusively for the Company. As part of its commitment to providing a quality entertainment experience for its patrons, the Company is dedicated to ensuring a high level of customer satisfaction and loyalty by providing attentive customer service in a friendly, casual atmosphere. Management recognizes that consistent quality and a comfortable atmosphere stem from the collective care and friendliness of each employee. The Company, which began as a family-run business, has maintained close-knit relationships among its management and endeavors to instill among its employees this same sense of loyalty. Toward this end, management takes a hands-on approach through active and direct involvement with employees at all levels. MARKETING AND PROMOTION The Company employs an innovative marketing strategy that utilizes frequent, high-profile promotional programs in order to attract customers and establish a high level of name recognition. In addition to aggressive marketing through television, radio and newspaper advertising, the Company has created and sponsored such promotions as "Paycheck Bonanza" and the "Great Giveaway," a popular football season contest. These promotions have become a tradition in the locals' market and have had a positive impact upon the Company's patronage during their respective promotion periods. In April 1999, the Company introduced its unified Boarding Pass player rewards program at the Las Vegas Casino Properties. The Boarding Pass program allows guests to earn points based on their level of gaming activity. These points can then be redeemed for food, entertainment and merchandise at any of the Las Vegas Casino Properties. This "single card", for which the technology was developed in-house, sets the Company apart from its competition in the Las Vegas locals market. 3 CASINO PROPERTIES Set forth below is certain information concerning the properties that are owned and operated by the Company. The properties are more fully described in the following table.
CASINO PROPERTIES (1) CASINO SQUARE HOTEL GAMING PARKING PROPERTY FOOTAGE ROOMS SLOTS (2) TABLES (3) SPACES (4) - ----------------------------------- ------- ----- --------- ---------- ---------- Las Vegas Casino Properties Palace Station ............... 84,000 1,028 2,244 47 3,700 Boulder Station .............. 89,000 300 3,108 47 4,350 Texas Station ................ 95,000 200 2,795 43 5,300 Sunset Station ............... 110,000 467 3,000 56 5,700 Missouri Casino Properties Station Casino St. Charles ... 45,000 - 1,875 40 5,400 Station Casino Kansas City ... 140,000 200 3,188 144 5,000 Other Wild Wild West ............... 12,500 260 250 7 500 Barley's ..................... 10,000 - 199 9 - Southwest Gaming ............. - - 797 - -
(1) The information with respect to each property other than Station Casino St. Charles is as of December 31, 1999. Information for Station Casino St. Charles is as of March 30, 2000, after the change from moving all gaming operations from the riverboat to the barge. (2) Includes slot and video poker machines and other coin-operated devices. (3) Generally includes blackjack ("21"), craps, roulette, pai gow poker, mini baccarat, Caribbean stud poker, let it ride, big six, three card and double down stud. The Las Vegas Casino Properties also offer a keno lounge, poker room, bingo parlor and a race and sports book. The Missouri Casino Properties also offer a poker room. Wild Wild West and Barley's also offer a sports book. (4) Includes covered parking spaces of 1,900 for Palace Station, 1,900 for Boulder Station, 3,500 for Texas Station, 2,000 for Sunset Station and 4,000 for Station Casino St. Charles. LAS VEGAS CASINO PROPERTIES PALACE STATION Palace Station is situated on approximately 39 acres strategically located at the intersection of Sahara Avenue and Interstate 15, one of Las Vegas' most heavily traveled areas, and a short distance from McCarran International Airport and from major attractions on the Las Vegas Strip and downtown Las Vegas. With Palace Station's ample parking and its convenient location, customers are assured easy access to the hotel and casino, a factor that management believes is particularly important in attracting and retaining its customers. The Palace Station complex has approximately 287,000 square feet of main facility area and features a turn-of-the-century railroad station theme. The complex also includes two swimming pools, an approximately 20,000-square foot banquet and convention center, five full-service restaurants, several fast-food outlets, a 24-hour gift shop and a non-gaming video arcade. Palace Station's five full-service restaurants have a total of over 1,225 seats. These restaurants offer a variety of high-quality food at reasonable prices, including the 24-hour Iron Horse Cafe (featuring a Chinese menu in addition to American fare), an all-you-can-eat buffet known as "The Feast," the Broiler (a steak and seafood restaurant), the Pasta Palace (an Italian restaurant) and the Guadalajara Bar & Grille (a Mexican restaurant). Palace Station guests also may take advantage of the Palace Saloon Piano Bar and the Trax Lounge, which provide music, dancing and entertainment. 4 BOULDER STATION Boulder Station, which opened in August 1994, is situated on approximately 46 acres strategically located on the opposite side of Las Vegas from Palace Station. Patrons enjoy convenient access to this facility which is located on Boulder Highway and immediately adjacent to the Interstate 515 interchange. Management believes that its highly visible location at this well-traveled intersection offers a competitive advantage relative to existing hotels and casinos located on Boulder Highway. Boulder Station is located approximately four miles east of the Las Vegas Strip and approximately four miles southeast of downtown Las Vegas. The Boulder Station complex has approximately 337,000 square feet of main facility area and, like Palace Station, features a turn-of-the-century railroad station theme. The complex also includes five full-service restaurants, several fast-food outlets, a 280-seat entertainment lounge, eight additional bars, a high-quality 11-screen movie theater complex, a Kid's Quest child-care facility, a swimming pool, a non-gaming video arcade and a gift shop. Boulder Station's five full-service restaurants have a total of over 1,400 seats. These restaurants offer a variety of high-quality food at reasonable prices. Restaurant themes and menus are similar to Palace Station's, allowing Boulder Station to benefit from the market acceptance and awareness of this product. Restaurants include the 24-hour Iron Horse Cafe (featuring a Chinese menu in addition to American fare), an all-you-can-eat buffet known as "The Feast," the Broiler (a steak and seafood restaurant), the Pasta Palace (an Italian restaurant), and the Guadalajara Bar & Grille (a Mexican restaurant). In addition to these restaurants which are similar to the offerings at Palace Station, Boulder Station offers various fast-food outlets. Boulder Station's restaurants and bars are located in open settings that are designed to intermingle the dining and gaming experience. TEXAS STATION Texas Station, which opened in July 1995, is situated on approximately 47 acres located at the corner of Lake Mead Boulevard and Tonopah Highway in North Las Vegas. The facility features a friendly, "down-home" Texas atmosphere, highlighted by its distinctive early-Texas architecture. In February 1999, the Company completed a $55 million master-planned expansion of Texas Station. Upon completing this expansion, Texas Station has approximately 390,000 square feet of main facility area which also includes five full-service restaurants, several fast-food outlets, a 10,000-square foot Kid's Quest child-care facility, a 132-seat entertainment lounge, seven additional bars, a high-quality 18-screen movie theater complex, a swimming pool, a non-gaming video arcade and a gift shop. Management believes that the theater complex provides a competitive advantage for the property and is an additional attraction that draws a significant number of patrons to the facility (see "Expansion Strategy" in this Item 1 for discussion of an additional master-planned expansion of Texas Station). Texas Station's five full-service restaurants have a total of over 1,300 seats. These restaurant facilities offer a variety of high-quality food at reasonable prices, including the 24-hour Yellow Rose Cafe (a 24-hour coffee shop), the Stockyard Steakhouse, the Guadalajara Bar & Grille (a Mexican restaurant), the San Lorenzo (an Italian restaurant) and the Market Street Buffet (featuring seven different food stations). In addition to the Texas Station-themed restaurants, guests may also take advantage of the unique features of the Martini Ranch, the Whiskey Bar with a seven-foot high bronco rider, which rotates on a pedestal and may be viewed by patrons on all sides, the Garage Bar which features a 1976, fire engine red Cadillac Eldorado with seven-foot Texas long-horns on the hood, or the Armadillo Honky Tonk where a 3,000 piece cut glass armadillo is the centerpiece of a dance hall. The facility also offers a variety of fast-food outlets to enhance the customers' dining selection. Management believes that the quality and variety of the restaurants offered at the facility are a major draw in the rapidly growing North Las Vegas and Summerlin markets. SUNSET STATION Sunset Station, which opened in June 1997, is located on an approximately 105-acre parcel at the intersection of Interstate 515 and Sunset Road. Multiple access points provide customers convenient access to the gaming complex and parking areas. Situated in a highly concentrated commercial corridor along Interstate 515, Sunset Station has prominent visibility from the freeway and the Sunset commercial corridor. Sunset Station is located approximately nine miles east of McCarran International Airport and eight miles southeast of Boulder Station. In November 1998, the Company completed a $34 million master-planned expansion of Sunset Station. 5 Sunset Station is distinguished from the Company's other properties by its interior and exterior Spanish/Mediterranean-style architecture. The facility features approximately 428,000 square feet of main facility area, plus seven full-service restaurants, themed to capitalize on the restaurants at the Company's other properties, an entertainment lounge, additional bars, a microbrewery, a gift shop, a non-gaming video arcade, tenant lease space for additional restaurants, a high-quality 13-screen movie theater complex, a Kid's Quest child-care facility, an outdoor swimming pool and an amphitheater, as well as several fast-food outlets and franchises. Sunset Station's seven full-service restaurants have a total of over 2,100 seats featuring "live-action" cooking and simulated patio dining. These restaurant facilities offer a variety of high-quality food at reasonable prices, including the 24-hour Sunset Cafe (a 24-hour coffee shop), the Sonoma Cellar (a steakhouse), the Casa Del Sol (a seafood restaurant), the Capri (an Italian restaurant), Guadalajara Bar & Grille (a Mexican restaurant), Sunset Brewing Company (a microbrewery) and The Feast Around the World, a live action buffet featuring Mexican, Italian, barbecue, American and Chinese cuisine. Guests may also take advantage of the Gaudi Bar, a centerpiece of the casino featuring over 8,000 square feet of stained-glass and a water light display. The facility also offers fast-food outlets to enhance the customers' dining selection. Sunset Station is located on approximately 105 acres, approximately 70 acres of which have been developed. The Company is currently evaluating potential development plans for the undeveloped property. Uses for the land could include a lifestyle entertainment retail center, as well as the development of several pads for various build-to-suit retail, restaurant and entertainment concepts. Timing and definitive plans have not yet been determined for such a development. MISSOURI CASINO PROPERTIES STATION CASINO KANSAS CITY Station Casino Kansas City opened in January 1997. This facility is a master-planned gaming and entertainment destination facility featuring a historic Missouri riverboat theme and is strategically located to attract customers from the greater Kansas City area, as well as tourists from outside the region. The facility is located on an approximately 183-acre site immediately east of the heavily traveled Interstate 435 bridge, seven miles east of downtown Kansas City. Station Casino Kansas City's marketing programs are specifically designed to effectively target and capture repeat customer demand from the local customer base and also capture the strong visitor and overnight markets. Management believes that Station Casino Kansas City has specific advantages relative to other riverboat facilities in the region and that it is the premier facility in the Kansas City market. The site is adjacent to the Interstate 435 bridge, which supports traffic flow of approximately 90,000 cars per day. Interstate 435 is a six-lane, north-south expressway offering quick and easy accessibility and direct visibility of the site. The Station Casino Kansas City facility features two continuously docked gaming vessels situated in a man-made protective basin. The Company believes the Station Casino Kansas City facility offers the first Las Vegas-style gaming experience in the Midwest. The gaming facilities are docked adjacent to a land-based entertainment facility with approximately 526,000 square feet of main facility area which includes six full-service restaurants, several fast-food outlets, 11 bars and lounges, a 1,400-seat Grand Pavillion featuring headline entertainment, a Kid's Quest child-care facility, a high-quality 18-screen movie theater complex, a 5,700-square foot non-gaming video arcade and midway operated by Sega GameWorks and a gift shop. Station Casino Kansas City's restaurants offer a variety of high-quality food at reasonable prices. Restaurants include an all-you-can-eat live action buffet "Feast Around the World," featuring Italian, Mexican, Chinese, barbecue, and traditional American fare, Bugatti's Little Italy Cafe, featuring fine Italian cuisine and a wine bar with an extensive selection, Pancho Villa's Cantina, featuring southwestern foods, the Orleans Seafood Co. and Oyster Bar, featuring fresh Louisiana style seafood, and the Hafbrauhaus Brewery & Biergarten featuring a wide selection of micro-brewed lagers, an assortment of American and Bavarian cuisine and live entertainment. In addition, Station Casino Kansas City leases space to a well-known Kansas City favorite, Arthur Bryant's Barbeque. STATION CASINO ST. CHARLES Station Casino St. Charles opened in May 1994. Station Casino St. Charles is situated immediately north of the Interstate 70 bridge in St. Charles on approximately 52 acres owned by the Company. The Station Casino St. Charles 6 complex is strategically located to attract customers from the St. Charles and greater St. Louis area, as well as tourists from outside the region. The site is adjacent to the Interstate 70 bridge. Interstate 70 is a 10-lane, east-west expressway offering quick and easy accessibility to and direct visibility of the Station Casino St. Charles site. In March 2000, the Company completed a reconfiguration of the two gaming vessels at Station Casino St. Charles. In response to the new "open boarding" rules that went into effect in the St. Louis market in September 1999, the Company has moved all of the gaming operations to the existing barge which contains 45,000 square feet of gaming and entertainment space. Station Casino St. Charles features a 250-seat all-you-can-eat buffet known as "The Feast," as well as an 80-seat specialty steakhouse known as "The Broiler." In addition to the casinos and restaurants, the facility offers three bars, an entertainment lounge, a lobby, a ticketing facility and a gift shop. In May 1996, the Company completed construction of an elevated roadway and a 4,000-space five-story parking structure. The parking facility is constructed above the existing flood plain. The elevated roadway and parking structure provide improved access to the gaming facilities and significantly diminish Station Casino St. Charles' susceptibility to closure during the spring flooding season. In the fall of 1996, the Company commenced an expansion project at Station Casino St. Charles which included the building of a backwater basin containing two new gaming vessels and a new retail and entertainment complex. Since December 31, 1997, construction on the Station Casino St. Charles expansion project has been halted. The Company currently believes the Station Casino St. Charles expansion project as originally contemplated fulfills a strategic need in the St. Louis, Missouri market. While the Company desires to complete and operate these new facilities, circumstances may arise in the future, including the lack of available financing, a downturn in the demand for gaming facilities or increased regulatory requirements unique to the state of Missouri and more attractive uses of available capital, which may prevent the expansion project from being completed as originally designed, if at all. As a result of the uncertainty surrounding the expansion project, the Company evaluated the carrying values of the assets in St. Charles as of December 31, 1999 and concluded that a write-down of the assets was appropriate. As of December 31, 1999, the existing operating assets and $169.0 million the Company had invested in the expansion project were written down by approximately $125.2 million. The Company does not anticipate that any major construction activity on the expansion project will resume in the near term. THE SOUTHWEST COMPANIES The Company provides slot route management services to numerous food and beverage establishments and commercial businesses in Southern Nevada through its subsidiary, Southwest Gaming Services, Inc. ("SGSI"). SGSI commenced its slot route business in southern Nevada in December 1990. Management combined its gaming experience with its route management abilities to capitalize on the rapidly expanding slot route business. EXPANSION STRATEGY SELECTION CRITERIA Management believes that a highly visible central location, convenient access and ample parking are critical factors in attracting local patronage and repeat visitors. Additionally, sites must be large enough to support multi-phased master-planned growth. The Company selects sites that are centrally located within a dense population base so that the facility cannot be cut-off from its primary market. These sites generally have been adjacent to high-traffic surface streets and interstate highways. Management believes that each of its casino properties' locations has provided the Company with a significant competitive advantage to attract its targeted customer base. MASTER-PLANNED DEVELOPMENT Management's expansion strategy includes the master-planned expansion of its existing and future gaming locations. In designing project sites, the Company plans and engineers for multi-phased facility expansion to accommodate future growth and to allow the Company to develop dominant properties in each market place. A project's 7 master-planned design typically allows the option of adding hotel rooms, casino space and non-gaming entertainment such as movie theaters, additional restaurants, retail shops, and various other entertainment venues. The Company has commenced another phase of master-planned construction at Texas Station. Construction has begun on the $55 million project, which is expected to be completed in the first quarter of 2001. The next phase of the master plan is designed to further position Texas Station as an all-inclusive entertainment destination for Las Vegas residents. The project will include the addition of 350 gaming devices, a 60-lane bowling alley and approximately 40,000 square feet of meeting and banquet space. EXPANSION, DEVELOPMENT AND ACQUISITION OPPORTUNITIES The Company continually evaluates the timing and scope of its master-planned developments at each of its properties and may determine from time to time to expand the scope of, improve on or suspend the implementation of its master plans. These decisions are dependent upon the availability of financing, competition and future economic and gaming regulatory environments, many of which are beyond the Company's control. The Company also evaluates other development and acquisition opportunities in current and emerging gaming markets, including land-based, dockside, riverboat and Indian gaming opportunities. The Company's decision whether to proceed with any new gaming development or acquisition opportunity is dependent upon future economic and regulatory factors, the availability of financing and competitive and strategic considerations, many of which are beyond the Company's control. GREEN VALLEY PROJECT A 50/50 joint venture between the Company and GCR Gaming, LLC (a subsidiary of American Nevada Corporation) has proposed to build a new resort/casino on the south side of Interstate 215 at Green Valley Parkway in Henderson, Nevada. The 40-acre resort site is part of a 170-acre mixed-use commercial, retail and office project. The resort site has been designated a gaming enterprise district under Nevada Senate Bill 208 and local ordinances since 1996. Construction is expected to commence during the third quarter of 2000 and is expected to be completed in the fourth quarter of 2001. The estimated construction cost of this project is $270 to $280 million. The yet-to-be named project will be managed by a subsidiary of the Company. The Company and American Nevada Corporation have co-owned Barley's since January 1996. The new project is planned to complement the Green Valley Ranch master-planned community. The plans for the project include over 330,000 square feet of public space and 200 hotel rooms. Planned entertainment amenities include a state-of-the-art spa with outdoor pools; a 10-screen movie theater; six full-service restaurants; a fast-food court with six quick-serve outlets and a non-gaming arcade. It is anticipated that the casino will have 95,000 square feet of gaming with over 2,400 slot machines and 40 table games. The planned facility also includes a race and sports book, a poker room and parking for approximately 3,200 vehicles in a low-rise garage and on surface parking. UNITED AUBURN INDIAN COMMUNITY On October 12, 1999, the Company announced that it has entered into a Development Services Agreement and a Management Agreement with the United Auburn Indian Community (the "UAIC"). Subject to the receipt of certain governmental approvals, as well as voter approval of a proposed amendment to the California constitution, the Company and the UAIC intends to develop a gaming and entertainment facility on 49 acres, approximately seven miles north of Interstate 80, in Placer County, California, near Sacramento. The scope and the timing of this project has yet to be determined. COMPETITION The gaming industry includes land-based casinos, dockside casinos, riverboat casinos, casinos located on Indian reservations and other forms of legalized gaming. There is intense competition among companies in the gaming industry, many of which have significantly greater resources than the Company. Certain states have recently legalized, and several other states are currently considering legalizing, casino gaming in designated areas. Legalized casino gaming in such states and on Indian reservations will provide strong competition to the Company and could adversely affect the Company's operations, particularly to the extent that such gaming is conducted in areas close to the Company's operations. Indian gaming in California, as it currently exists, has had little, if any impact on the Company's operations to date, although there are no assurances as to future impact. Proposition 5, a California ballot initiative passed by voters in California on November 3, 1998, would have permitted Indian tribes who enter into agreements with the State of California to conduct certain gaming activities including horse race wagering, gaming devices (including slot machines), banked card games and lotteries. In August 1999 Proposition 5 was ruled unconstitutional by the California Supreme Court on the basis that the initiative would permit the operation of Nevada and New Jersey type casinos, which is prohibited by the California Constitution. Proposition 1A is an amendment to the California Constitution, passed by the voters of California 8 on March 7, 2000, designed to modify the Constitution to authorize the Governor to negotiate compacts with federally recognized Indian tribes, subject to Legislative ratification, for the operation of slot machines, lottery games, and banking and percentage games on Indian lands. In September 1999 the Governor negotiated, and the Legislature ratified, compacts with 57 Indian tribes that became effective with the passage of Proposition 1A. It is not certain how Proposition 1A will affect the Company; however, because visitors from California make up Nevada's largest visitors market, with Proposition 1A, increased competition from Indian gaming may result in a decline in the Company's revenues and may have a material adverse effect on the Company's business. The Las Vegas Casino Properties face competition from all other casinos and hotels in the Las Vegas area, including to some degree, from each other. Such competition includes at least 11 hotel/casinos targeted primarily towards local residents and repeat visitors, as well as numerous non-hotel gaming facilities targeted towards local residents. The Company competes with other locals oriented hotel/casinos by focusing on repeat customers and attracting these customers through innovative marketing programs. The Company's value-oriented, high-quality approach is designed to generate repeat business. Additionally, the casino properties are strategically located and designed to permit convenient access and ample parking, which are critical factors in attracting local visitors and repeat patrons. Currently, there are approximately 30 major gaming properties located on or near the Las Vegas Strip, 12 located in the downtown area and several located in other areas of Las Vegas. In addition, two new hotel/casinos are under construction which will add approximately 2,800 rooms to the Las Vegas area. One of the new hotel/casinos is located on the Las Vegas Strip and is expected to draw significant numbers of visitors. This new facility could have a positive effect on the Las Vegas Casino Properties through increased local employment and increased visitor traffic to Las Vegas. However, major additions, expansions or enhancements of existing properties or the construction of new properties by competitors, could also have a material adverse effect on the businesses of the Las Vegas Casino Properties. The additional capacity has had little, if any, impact on the Las Vegas Casino Properties' hotel occupancy or casino volume to date, although there can be no assurance that hotel occupancy or casino volume will not be adversely affected in the future. The Las Vegas Casino Properties face more direct competition from 11 hotel/casinos primarily targeted to the local and the repeat visitor markets. Some of these competitors have completed expansions and existing competitors and new entrants into these markets are in the planning stages or under construction on other projects. Other gaming operators own undeveloped properties on which they could develop gaming facilities in the immediate vicinity of Texas Station. In July 1999, The Regent Las Vegas Hotel and Casino ("the Regent") opened in northwest Las Vegas approximately five miles from Texas Station. The Regent competes indirectly with Texas Station because of its close proximity to Texas Station. Another new hotel/casino will be opening near the Regent in the second half of 2000 and will compete directly with Palace Station and Texas Station. Also, a smaller competitor on Boulder Highway is anticipated to open in the first half of 2000. Although the Company has competed strongly in these marketplaces, there can be no assurance that additional capacity will not have a negative impact on the Company. The Missouri Gaming Commission has been empowered to determine the number of gaming licenses supportable by the region's economic situation. As of December 31, 1999, 41 applications for gaming licenses had been filed with the State of Missouri, including ten applications to operate in the St. Louis marketplace. Ten licensees are currently licensed in Missouri, in St. Louis, Kansas City, St. Joseph and Caruthersville, Missouri. Station Casino St. Charles competes primarily with other gaming operations in and around St. Louis, Missouri. Currently, in addition to Station Casino St. Charles, there are four competitors operating in the St. Louis market. In particular, Station Casino St. Charles directly competes with a facility located in Maryland Heights which opened in 1997. Such direct competition is due to the Maryland Heights facility's size, quality and close proximity. The Company has experienced a decline in revenues at Station Casino St. Charles since the opening of the Maryland Heights facility. The Company has taken steps that management believes will mitigate the effects of such competition and the decline in revenues has stabilized. However, in light of ever increasing competition, there can be no assurance as to the future performance of Station Casino St. Charles. Additionally, two of the four competitors operating in the St. Louis market are located in Illinois, which does not impose the $500 loss limit imposed in Missouri. Gaming also has been approved by local voters in jurisdictions near St. Louis, including St. Charles, Jefferson City and other cities and counties along the Mississippi and Missouri Rivers. The Missouri Gaming Commission is currently considering applicants for a gaming license in the St. Louis area. It is not known at this time if a new license will be granted, or, if granted, when the licensee could open a new facility. Any new gaming operations developed near St. Louis would likely provide significant competition to Station Casino St. Charles. Gaming laws in surrounding states and in other areas may be amended in ways that would increase the competition to Station Casino St. Charles. This increasing competition could have a material adverse effect on the Company's business. On March 21, 1997, Davis Gaming was selected for investigation for licensure for a riverboat gaming operation which it intends to develop in Boonville, Missouri, a city in central Missouri near Jefferson City and Columbia. Davis Gaming recently sold its rights to build and operate the Isle of Capri which has until March 31, 2000, to obtain approval 9 from the Boonville City Council. In addition, Mark Twain Casino L.L.C. was selected for investigation for licensure for a riverboat gaming operation which it intends to develop in LaGrange, Missouri, a city in northeastern Missouri. Neither area is currently served by a Missouri gaming facility. The Isle of Capri Project has proceeded and has received preliminary site and development approval from the Missouri Gaming Commission. On February 23, 2000, the Mark Twain Casino Project received approval from the Missouri Gaming Commission to operate its proposed riverboat gaming operation in a continuously docked manner. Station Casino Kansas City competes primarily with other gaming operations in and around Kansas City, Missouri. In addition to Station Casino Kansas City, there are three other gaming facilities currently operating in the Kansas City market. Gaming has been approved by local voters in jurisdictions near Kansas City, including St. Joseph (which currently has one riverboat gaming operation), Jefferson City and other cities and counties along the Missouri River. Since the opening of Station Casino Kansas City, Sam's Town, the closest gaming development to Station Casino Kansas City, closed and Boyd Gaming, the owner of Sam's Town, sold most of Sam's Town's assets to Harrah's, the operator of Harrah's-North Kansas City, the next closest gaming operator in the area. The Kansas state senate is currently considering a bill to allow games of chance at the Woodlands race track which is approximately 15 miles from Station Casino Kansas City. Although this has been proposed in the past and failed, there are no assurances it will fail again. Any new gaming operations developed near Kansas City would likely provide significant competition to Station Casino Kansas City. Several companies are engaging in riverboat gaming in states neighboring Missouri. Illinois sites, including Alton, East St. Louis, and Metropolis, enjoy certain competitive advantages over Station Casino St. Charles because Illinois, unlike Missouri, does not impose limits on the size of losses and places fewer restrictions on the extension of credit to customers. In contrast, Missouri gaming law provides for a maximum loss of $500 per player on each cruise and prohibits the extension of credit (except credit cards and checks). Unlike Illinois gaming law, the Missouri gaming law places no limits on the number of gaming positions allowed at each site. As of December 31, 1999, Illinois had approved a total of ten licenses; however, only nine licensees are operating riverboat gaming facilities. While riverboats currently are the only licensed form of casino-style gaming in Illinois and the number of licenses is restricted to ten, possible future competition may arise if gaming is legalized in or around Chicago, which was specifically excluded from the legislation permitting gaming in Illinois. The Company's Missouri gaming operations also compete to a lesser extent with the riverboat and floating gaming facilities in Mississippi, Louisiana, Iowa and Indiana. Like Illinois, neither Mississippi nor Louisiana gaming legislation imposes limits on wagers or losses. Gaming laws in these states and in other areas may be amended in ways that would increase the competition to the Company's Missouri gaming operations. To a lesser extent, the Company's operations compete with gaming operations in other parts of the state of Nevada, such as Reno, Laughlin and Lake Tahoe, with facilities in Atlantic City, New Jersey and other parts of the world and with state-sponsored lotteries, on-and-off-track pari-mutuel wagering, card parlors and other forms of legalized gambling. REGULATION AND LICENSING NEVADA GAMING REGULATIONS The ownership and operation of casino gaming facilities, the operation of gaming device routes and the manufacture and distribution of gaming devices in Nevada are subject to: (i) the Nevada Gaming Control Act and the rules and regulations promulgated thereunder (collectively, the "Nevada Act"); and (ii) various local ordinances and regulations. The Company's gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming Control Board ("Nevada Board"), the City of Las Vegas, the Clark County Liquor and Gaming Licensing Board (the "Clark County Board"), the City of North Las Vegas, the City of Henderson and certain other local regulatory agencies. The Nevada Commission, the Nevada Board, the City of Las Vegas, the Clark County Board, the City of North Las Vegas, the City of Henderson, and certain other local regulatory agencies are collectively referred to as the "Nevada Gaming Authorities". The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices 10 of licensees, including the establishment of minimum procedures for internal controls and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) providing a source of state and local revenues through taxation and licensing fees. Change in such laws, regulations and procedures could have an adverse effect on the Company's gaming operations. The Company's direct and indirect subsidiaries that conduct gaming operations in Nevada are required to be licensed by the Nevada Gaming Authorities. The gaming licenses require the periodic payment of fees and taxes and are not transferable. SGSI is licensed as a distributor and as an operator of a slot machine route. Palace Station Hotel & Casino, Inc. ("PSHC"), Boulder Station, Inc. ("BSI"), Texas Station, Inc. ("TSI"), Sunset Station, Inc. ("SSI"), and Tropicana Station, Inc. ("TRSI") have received licenses to conduct nonrestricted gaming operations. Town Center Amusements, Inc. ("TCAI") has been licensed to conduct nonrestricted gaming operations at Barley's Casino & Brewing Company ("Barley's Casino"), a micro brewery and casino located in Southeast Las Vegas. The Company's ownership in TCAI is held through an intermediary company known as Green Valley Station, Inc. ("GVSI") which is licensed as a member and Manager of TCAI. The Company is registered by the Nevada Commission as a publicly traded corporation (a "Registered Corporation") and has been found suitable to own the stock of PSHC, BSI, TSI, SSI, TRSI, GVSI, and SGSI. The Company is also licensed as a manufacturer and distributor. PSHC, BSI, TSI, SSI, TRSI, GVSI, and SGSI are each a corporate gaming licensee and TCAI is a limited liability company licensee (individually a "Gaming Subsidiary" and collectively the "Gaming Subsidiaries") under the terms of the Nevada Act. As a Registered Corporation, the Company is required periodically to submit detailed financial and operating reports to the Nevada Commission and the Nevada Board and furnish any other information which the Nevada Commission or the Nevada Board may require. No person may become a stockholder or holder of an interest of, or receive any percentage of profits from the Gaming Subsidiaries without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company and the Gaming Subsidiaries have obtained from the Nevada Gaming Authorities the various registrations, findings of suitability, approvals, permits and licenses (individually, a "Gaming License" and collectively, the "Gaming Licenses") required in order to engage in gaming activities in Nevada. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, a Registered Corporation, such as the Company or the Gaming Subsidiaries, which hold a license, in order to determine whether such individual is suitable or should be licensed as a business associate of a Registered Corporation or a gaming licensee. Officers, directors and certain key employees of the Gaming Subsidiaries must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company who are actively and directly involved in gaming activities of the Gaming Subsidiaries may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in corporate position. If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue to have a relationship with the Company or the Gaming Subsidiaries, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company or the Gaming Subsidiaries to terminate the employment of any person who refuses to file the appropriate applications. Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Nevada. The Company and the Gaming Subsidiaries are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by the Company and the Gaming Subsidiaries must be reported to or approved by the Nevada Commission and/or the Nevada Board. If it were determined that the Nevada Act was violated by a Gaming Subsidiary, the gaming licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Company, the Gaming Subsidiaries and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be 11 appointed by the Nevada Commission to operate Palace Station, Boulder Station, Texas Station, Sunset Station, Wild Wild West and Barley's Casino and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the premises) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of the Gaming Licenses of the Gaming Subsidiaries or the appointment of a supervisor could (and revocation of any Gaming License would) materially adversely affect the Company's gaming operations. Any beneficial owner of the Company's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have their suitability as a beneficial owner of the Company's voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the state of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act provides that persons who acquire beneficial ownership of more than 5% of the voting securities of a Registered Corporation must report the acquisition to the Nevada Commission. The Nevada Act also requires that beneficial owners of more than 10% of the voting securities of a Registered Corporation must apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. An "institutional investor," as defined in the Nevada Commission's regulations, which acquires beneficial ownership of more than 10%, but not more than 15% of the Company's voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Company, any change in the Company's corporate charter, bylaws, management policies or operations of the Company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder who is found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a Registered Corporation beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company or the Gaming Subsidiaries, the Company (i) pays that person any dividend or interest upon voting securities of the Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pay remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities including, if necessary, the immediate purchase of said voting securities for cash at fair market value. Additionally, the Clark County Board has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license. The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction. 12 The Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to require the Company's stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. However, to date, the Nevada Commission has not imposed such a requirement on the Company. The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. On May 27, 1999, the Nevada Commission granted the Company prior approval to make public offerings for a period of two years, subject to certain conditions ("Shelf Approval"). However, the Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Board and must be renewed at the end of the two year approval period. The Shelf Approval also applies to any affiliated company wholly-owned by the Company (an "Affiliate") which is a publicly traded corporation or would thereby become a publicly traded corporation pursuant to a public offering. The Shelf Approval also includes approval for the Gaming Subsidiaries to guarantee any security issued by, or to hypothecate their assets to secure the payment or performance of any obligations evidenced by a security issued by, the Company or an Affiliate in a public offering under the Shelf Approval. The Shelf Approval does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful. Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby such person obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and the Nevada Commission that they meet a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada corporate gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming licensees and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before 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 the Registered Corporation's Board of Directors in response to a tender offer made directly to the Registered Corporation's stockholders for the purpose of acquiring control of the Registered Corporation. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the Nevada licensee's respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the serving or selling of food or refreshments or the selling of any merchandise. Nevada licensees that hold a license as an operator of a slot route, or manufacturer's or distributor's license also pay certain fees and taxes to the state of Nevada. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada Board of their participation in such foreign gaming. The revolving fund is 13 subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, licensees are required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities or enter into associations that are harmful to the state of Nevada or its ability to collect gaming taxes and fees, or employ, contract with or associate with a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the grounds of unsuitability or whom a court in the state of Nevada has found guilty of cheating. The loss or restriction of the Company's gaming licenses in Nevada would have a material adverse effect on its business and could require the Company to cease gaming operations in Nevada. NEVADA LIQUOR REGULATIONS The sale of alcoholic beverages at Palace Station is subject to licensing, control and regulation by the City of Las Vegas. The sale of alcoholic beverages at Boulder Station and Wild Wild West is subject to licensing control and regulation by the Clark County Board. Texas Station is subject to licensing control and regulation of the City of North Las Vegas. Sunset Station and Barley's Casino are subject to the licensing control and regulation of the City of Henderson and the Department of Treasury, Bureau of Alcohol, Tobacco and Firearms. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse effect on the operations of the Gaming Subsidiaries. MISSOURI GAMING REGULATIONS Gaming was originally authorized in the State of Missouri and the City of St. Charles on November 3, 1992, by referendum, although no governmental action was taken to enforce or implement the original law. On April 29, 1993, Missouri enacted the Missouri Gaming Law which replaced the original law and established the Missouri Gaming Commission, which is responsible for the licensing and regulation of riverboat gaming in Missouri. The Missouri Gaming Commission has discretion to approve gaming license applications for both permanently moored ("dockside") riverboat casinos and powered ("excursion") riverboat casinos. On September 20, 1993, the Company filed its initial application with the Missouri Gaming Commission for either a dockside or a cruising gaming license in St. Charles, Missouri, which license was issued on May 27, 1994, thereby making the Company one of the first two entrants in the Missouri riverboat gaming market. Opponents of gaming in Missouri have brought several legal challenges to gaming in the past and may possibly bring similar challenges in the future. There can be no assurances that any future challenges, if brought, would not further interfere with full-scale gaming operations in Missouri, including the operations of the Company and its subsidiaries. On January 25, 1994, as a result of a cause of action brought by anti-gaming interests, the Missouri Supreme Court held that games of chance, including certain games authorized under the Missouri Gaming Law such as bingo and keno, constitute "lotteries" and were therefore prohibited under the Missouri Constitution. A statewide election on April 5, 1994, failed to adopt a constitutional amendment that would have exempted excursion boats and floating facilities from such constitutional prohibition on lotteries. Therefore, in May 1994, the Company commenced operations only with those games which involve some element of skill ("limited gaming"), such as poker and blackjack, that would be constitutionally permissible. The authorization of both games of skill and games of chance ("full-scale gaming") occurred on November 8, 1994 with passage by Missouri voters of a constitutional amendment virtually identical to the measure which was defeated on April 5, 1994. Full-scale gaming became effective on December 9, 1994, and by the end of December 1994, the Company was conducting full-scale gaming on both its excursion and dockside casinos in St. Charles, Missouri. On January 16, 1997, the Missouri Gaming Commission granted Kansas City Station Corporation two (2) Class A licenses to own and operate the River King and River Queen floating gaming facilities. On November 25, 1997, the Supreme Court ruled, in a case brought by anti-gaming interests involving certain operators who compete with Station Casino St. Charles in Maryland Heights, Missouri, that gaming may occur only in artificial spaces that are contiguous to the surface stream of the Missouri and Mississippi rivers. On November 3, 1998, the citizens of the State of Missouri approved a Constitutional amendment which was proposed by initiative petition, that retroactively legalized lotteries, gift enterprises and games of chance aboard excursion gambling boats and floating 14 facilities located within artificial spaces containing water that are within 1,000 feet of the closest edge of the main channel of the Mississippi or Missouri Rivers. This amendment to the Constitution was certified on November 23, 1998. Under the Missouri Gaming Law, the ownership and operation of riverboat gaming facilities in Missouri are subject to extensive state and local regulation. By virtue of its gaming license in Missouri, the Company, any subsidiaries it has or it may form and certain of its officers and employees are subject to the Missouri Gaming Law and the regulations of the Missouri Gaming Commission. As part of the application and licensing process for a gaming license, the applicant must submit detailed financial, operating and other reports to the Missouri Gaming Commission. Each applicant has an ongoing duty to update the information provided to the Missouri Gaming Commission in the application. In addition to the information required of the applicant, directors, officers and other key persons must submit Personal Disclosure Forms which include detailed personal financial information and are subject to thorough investigations. All gaming employees must obtain an occupational license issued by the Missouri Gaming Commission. Operators' licenses are issued through application to the Missouri Gaming Commission, which requires, among other things, (a) investigations into an applicant's character, financial responsibility and experience qualifications and (b) that applicants furnish (i) an affirmative action plan for the hiring and training of minorities and women and (ii) an economic development or impact report. License fees are a minimum of $50,000 for the initial application and $25,000 annually thereafter. The Missouri Gaming Commission may revoke or suspend gaming licenses and impose other penalties for violation of the Missouri Gaming Law and the rules and regulations which may be promulgated thereunder, including, without limitation, forfeiture of all gaming equipment used for improper gaming and fines of up to three times an operator's highest daily amount of gross receipts from wagering on the gambling games conducted during the preceding twelve months. No gaming licensee or occupational licensee may pledge, hypothecate or transfer in any way any license, or any interest in a license, issued by the Missouri Gaming Commission. An ownership interest in a gaming licensee that is not a publicly held entity or a holding company that is not a publicly held entity may not be pledged or hypothecated in any way to, or otherwise be subject to any type of security interest held by, any entity or person other than a regulated bank or saving and loan association without prior approval of the Missouri Gaming Commission. Missouri Gaming Commission regulations prohibit a licensee from consummating any of the following transactions without at least 60 days' prior notice to the Missouri Gaming Commission, and during such period, the Missouri Gaming Commission may disapprove the transaction or require the transaction be delayed pending further investigation; (i) any transfer or issuance of an ownership interest in a gaming licensee that is not a publicly held entity or a holding company that is not a publicly held entity; and (ii) any pledge or hypothecation or grant of any type of security interest in an ownership interest in a gaming licensee that is not a publicly held entity or a holding company that is not a publicly held entity to a regulated bank or saving and loan association; provided that no ownership interest may be transferred in any way pursuant to any pledge, hypothecation or security interest without separate notice to the Missouri Gaming Commission at least thirty days prior to such transfer, which restriction must be specifically included in the grant of pledge, hypothecation or security interest. Missouri Gaming Commission regulations require a licensee to notify the Missouri Gaming Commission of its intention to consummate any of the following transactions at least fifteen days prior to such consummation, and the Missouri Gaming Commission may reopen the licensing hearing prior to or following the consummation date to consider the effect of the transaction on the licensee's suitability; (i) any issuance of ownership interest in a publicly held gaming licensee or a publicly held holding company, if such issuance would involve, directly or indirectly, an amount of ownership interest equaling five percent or greater of the ownership interest in the gaming licensee or holding company after the issuance is complete; (ii) any private incurrence of debt equal to or exceeding one million dollars by a gaming licensee or holding company that is affiliated with the holder of a license; (iii) any public issuance of debt by a gaming licensee or holding company that is affiliated with the holder of a license; and (iv) any significant related party transaction as defined in the regulations. The Missouri Gaming Law imposes operational requirements on riverboat operators, including a charge of two dollars per gaming customer that licensees must pay to the Missouri Gaming Commission, certain minimum payout requirements, a 20% tax on adjusted gross receipts, prohibitions against providing credit to gaming customers (except for the use of credit cards and cashing checks) and a requirement that each licensee reimburse the Missouri Gaming Commission for all costs of any Missouri Gaming Commission staff necessary to protect the public on the licensee's riverboat. Licensees must also submit audited quarterly financial reports to the Commission and pay the associated auditing fees. Other areas of operation which are subject to regulation under Missouri rules are the size, denomination 15 and handling of chips and tokens; the surveillance methods and computer monitoring of electronic games; accounting and audit methods and procedures; and approval of an extensive internal control system. The Missouri rules also require that all of an operator's purchases of chips, tokens, dice, playing cards and electronic gaming devices must be acquired from suppliers licensed by the Missouri Gaming Commission. The Missouri Gaming Law provides for a loss limit of $500 per person per excursion and requires licensees to maintain scheduled excursions with boarding and disembarking times regardless of whether the riverboat cruises. Although the Missouri Gaming Law provides no limit on the amount of riverboat space that may be used for gaming, the Missouri Gaming Commission is empowered to impose such space limitations through the adoption of rules and regulations. Additionally, United States Coast Guard safety regulations could affect the amount of riverboat space that may be devoted to gaming. The Missouri Gaming Law also includes requirements as to the form of riverboats, which must resemble Missouri's riverboat history to the extent practicable and include certain non-gaming amenities. All ten licensees currently operating riverboat gaming operations in Missouri are authorized to conduct all or a portion of their operations on a dockside basis. With respect to the availability of dockside gaming, which may be more profitable than excursion gaming, the Missouri Gaming Commission is empowered to determine on a site-by-site basis where such gaming is appropriate and shall be permitted. On December 27, 1994, Station Casino St. Charles was granted a dockside gaming license for its floating gaming facility by the Missouri Gaming Commission. On April 16, 1996, Station Casino St. Charles, subsequently received approval from the Missouri Gaming Commission to conduct its operations on its excursion gaming riverboat on a continuously docked basis. The U.S. Coast Guard has recommended to the Missouri Gaming Commission that all gaming vessels on the Missouri River be required to remain dockside because certain characteristics of the Missouri River, including turbulence, lack of emergency response infrastructure and potential congestion, create substantially elevated risks for the operation of large capacity passenger vessels. Dockside gaming in Missouri may differ from dockside gaming in other states, such as Mississippi, because the Missouri Gaming Commission has the ability to require "simulated cruising." The simulated cruises are required to be a minimum of two hours and a maximum of four hours. Dockside gaming in Missouri may not be as profitable as dockside gaming in other states because of the admission fee paid for each patron that enters the excursion gambling boat. The Company understands that the Missouri Gaming Commission and offices of the United States Attorney in Missouri are conducting investigations regarding the actions of an attorney who worked on certain Company legal matters in Missouri. The Company believes that the investigations relate to, among other things, certain bonus payments made by the Company to such attorney. The Company has received requests for information and documents from these agencies and is cooperating fully. The Company is unaware of any improprieties on its part. However, due to the uncertainty inherent in any investigation, the Company cannot predict the ultimate outcome of these investigations. If the Company were to be implicated in any wrongdoing, this could lead to further proceedings against the Company, and could result in significant fines and/or other penalties imposed on the Company, which, if imposed, could have a material adverse effect on the Company's business and gaming licenses. GENERAL GAMING REGULATIONS IN OTHER JURISDICTIONS If the Company becomes involved in gaming operations in any other jurisdictions, such gaming operations will subject the Company and certain of its officers, directors, key employees, stockholders and other affiliates ("Regulated Persons") to strict legal and regulatory requirements, including mandatory licensing and approval requirements, suitability requirements, and ongoing regulatory oversight with respect to such gaming operations. Such legal and regulatory requirements and oversight will be administered and exercised by the relevant regulatory agency or agencies in each jurisdiction (the "Regulatory Authorities"). The Company and the Regulated Persons will need to satisfy the licensing, approval and suitability requirements of each jurisdiction in which the Company seeks to become involved in gaming operations. These requirements vary from jurisdiction to jurisdiction, but generally concern the responsibility, financial stability and character of the owners and managers of gaming operations as well as persons financially interested or involved in gaming operations. In general, the procedures for gaming licensing, approval and finding of suitability require the Company and each Regulated Person to submit detailed personal history information and financial information to demonstrate that the proposed gaming operation has adequate financial resources generated from suitable sources and adequate procedures to comply with the operating controls and requirements imposed by law and regulation in each jurisdiction, followed by a thorough investigation by such Regulatory Authorities. In general, the Company and each Regulated Person must pay the costs of such investigation. An application for any gaming license, approval or finding of suitability may be denied for any cause that the Regulatory Authorities deem reasonable. Once obtained, licenses and approvals may be subject to periodic renewal and generally are not transferable. The Regulatory Authorities may at any 16 time revoke, suspend, condition, limit or restrict a license, approval or finding of suitability for any cause they deem reasonable. Fines for violations may be levied against the holder of a license or approval and in certain jurisdictions, gaming operation revenues can be forfeited to the state under certain circumstances. There can be no assurance that the Company will obtain all of the necessary licenses, approvals and findings of suitability or that its officers, directors, key employees, other affiliates and certain other stockholders will satisfy the suitability requirements in one or more jurisdictions, or that such licenses, approvals and findings of suitability, if obtained, will not be revoked, limited, suspended or not renewed in the future. Failure by the Company to obtain, or the loss or suspension of, any necessary licenses, approval or findings of suitability would prevent the Company from conducting gaming operations in such jurisdiction and possibly in other jurisdictions. The Company may be required to submit detailed financial and operating reports to Regulatory Authorities. The laws, regulations and procedures pertaining to gaming are subject to the interpretation of the Regulatory Authorities and may be amended. Any changes in such laws, regulations, or their interpretations could have a material adverse effect on the Company. EMPLOYEES As of December 31, 1999, the Company and its subsidiaries had approximately 10,700 employees. From time to time, certain employees of the Company are contacted by unions and the Company engages in discussions with such employees regarding establishment of collective bargaining agreements. In 1998, approximately 12 of the Company's employees have voted to be represented by a union. While the Company is from time to time faced with such movements by employees, the Company does not believe that such movements will have any broad-based impact on its employees; however there can be no assurances to that effect. Management believes that it has good relationships with its employees. ITEM 2. PROPERTIES Palace Station is situated on approximately 39 acres located on the west side of Las Vegas, Nevada. The Company owns 26 acres and leases the remaining 13 acres pursuant to five long-term ground leases with unaffiliated third parties. The property is subject to a lien to secure borrowings under the Amended Bank Facility. Boulder Station is situated on approximately 46 acres located on the east side of Las Vegas, Nevada. The Company owns 19 acres and leases the remaining 27 acres from a trust pursuant to a long-term ground lease. The trustee of such trust is Bank of America National Trust and Savings Association ("Bank of America NT&SA") and the beneficiary of which is KB Enterprises, an affiliated company owned by Frank J. Fertitta, Jr. and Victoria K. Fertitta (the "Related Lessor"), the parents of Frank J. Fertitta III, Chairman of the Board and Chief Executive Officer of the Company. The lease has a maximum term of 65 years, ending in June 2058. The lease provides for monthly payments of $135,525 through June 2008. In July 2008, and every ten years thereafter, the rent will be adjusted by a cost of living factor. In July 2003, and every ten years thereafter, the rent will be adjusted to the product of the fair market value of the land and the greater of (i) the then prevailing annual rate of return for comparably situated property or (ii) 8% per year. In no event will the rent for any period be less than the immediately preceding period. Pursuant to the ground lease, the Company has an option, exercisable at five-year intervals beginning in June 1998, to purchase the land at fair market value. The Company did not exercise its June 1998 option. The Company believes that the terms of the ground lease are as fair to the Company as could be obtained from an independent third party. The Company's leasehold interest in the property and the acreage it owns directly are subject to a lien to secure borrowings under the Amended Bank Facility. Texas Station is situated on approximately 47 acres located in North Las Vegas, Nevada. The Company leases this land from a trust pursuant to a long-term ground lease. The trustee of this trust is Bank of America NT&SA, the beneficiary of which is Texas Gambling Hall & Hotel, Inc., an affiliate company of the Related Lessor. The lease has a maximum term of 65 years, ending in July 2060. The lease provides for monthly rental payments of $150,000 through June 2000. In July 2000, and every ten years thereafter, the rent will be adjusted to the product of the fair market value of the land and the greater of (i) the then prevailing annual rate of return being realized for owners of comparable land in Clark County or (ii) 8% per year. The rent will be further adjusted by a cost of living factor after the first ten years and every ten years thereafter. In no event will the rent for any period be less than the immediately preceding period. Pursuant to the ground lease, the Company has an option, exercisable at five-year intervals beginning in May 2000, to purchase the land at fair market value. Pursuant to the ground lease, the lessor will have a right to put the land to the Company, exercisable 17 no later than one year after the first to occur of (a) a change of control (as defined in the lease), or (b) delivery of written notice that such a change of control is anticipated, at a purchase price equal to fair market value as determined by negotiation. The Company believes that the terms of the ground lease are as fair to the Company as could be obtained from an independent third party. The Company's leasehold interest in the property is subject to a lien to secure borrowings under the Amended Bank Facility. Sunset Station is situated on approximately 105 acres located in the Green Valley/Henderson area of Las Vegas, Nevada. The Company leases approximately 48 acres pursuant to a long-term ground lease with an unaffiliated third party. The lease was entered into in June 1994, and has a term of 65 years with monthly rental payments of $120,000, adjusted on each subsequent five-year anniversary by a cost of living factor. In June 2001, the Company has an option to purchase this land for $23.8 million. Additionally, in June 2001, the lessor has an option to sell this land to the Company for $21.8 million. Of the remaining land, approximately 52 acres were purchased by the Company in September 1995, for approximately $11.0 million. Station Casino St. Charles is situated on approximately 52 acres located immediately north of Interstate 70 on the edge of the Missouri River in St. Charles, Missouri. The Company owns the entire 52 acres. The Company's ownership interest in the St. Charles property is subject to liens to secure borrowings under the Amended Bank Facility. Station Casino Kansas City is situated on approximately 183 acres in Kansas City, Missouri. The Company entered into a joint venture with an unaffiliated third party to acquire the property. Station Casino Kansas City leases 171 acres of the site from the joint venture with current monthly payments of $93,636. Commencing April 1, 1998, and every anniversary thereafter, the rent shall be adjusted by a cost of living factor of not more than 5% or less than 2% per annum. The lease expires March 31, 2006, with an option to extend the lease for up to eight renewal periods of ten years each, plus one additional seven year period. In connection with the joint venture agreement, the Company received an option providing for the right to acquire the joint venture partner's interest in this joint venture. The Company has the option to acquire this interest at any time after April 1, 2002 through April 1, 2011, for $11.7 million, however, commencing April 1, 1998, the purchase price will be adjusted by a cost of living factor of not more than 5% or less than 2% per annum. The Company paid $2.6 million for this option. The Company's leasehold interest in the property is subject to a lien to secure borrowings under the Amended Bank Facility, and under certain circumstances the Amended Bank Facility permits the lenders to force the exercise of such option. The Company has acquired or leased several parcels of land in various jurisdictions as part of the Company's development activities. Included in land for held development at December 31, 1999 is approximately $18.8 million related to land which had been acquired for potential gaming projects in jurisdictions where gaming has been approved. Subsequent to December 31, 1999, the Company acquired additional parcels of land for potential gaming projects. The cost of these new parcels was approximately $30.2 million. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are defendants in various lawsuits relating to routine matters incidental to their business. As with all litigation, no assurance can be provided as to the outcome of the following matters and litigation inherently involves significant costs. SETTLEMENT OF CRESCENT LITIGATION On January 16, 1998, the Company entered into an Agreement and Plan of Merger, as amended (the "Merger") with Crescent Real Estate Equities Company, a Texas real estate investment trust ("Crescent"). The Company wrote off $2.9 million of costs incurred related to the Merger. The Merger became subject to litigation between the two companies. On April 14, 1999, the Company announced that it had settled its lawsuits with Crescent arising out of the failed Merger. Under the terms of the settlement agreement, Crescent paid the Company $15 million, and the parties have released each other from all claims. 18 LOW WATER LEVEL AT STATION CASINO ST. CHARLES; EPA INVESTIGATION During December 1998 and January 1999, the water level of the Missouri River was well below normal. In addition, over time silt and debris flowing downstream have built up under the gaming barges and other ancillary barges at Station Casino St. Charles. These circumstances have caused a portion of these barges, at times, to touch the river bottom. Because these barges have touched the river bottom, the American Bureau of Shipping ("ABS") decertified the barges on January 8, 1999. As a result of the decertification, the Missouri Gaming Commission expressed concern regarding the effect of the low water level on the barges. However, based upon improvement in the water level and the Company's agreement to work with ABS to re-certify all of the barges at a time when the river levels permit, the Missouri Gaming Commission allowed the gaming facility to remain open. On November 11, 1999, ABS recertified the barges. The Company continues to monitor the situation very carefully and believes that the facility should remain in operation. However, there can be no assurance that the Company's assessment will not change or that the relevant authorities will continue to permit the operation of the facility. A prolonged closure of the facility as a result of the low water level would have a material adverse effect on the Company's business, financial position and results of operations. The Company has taken steps and intends to take further steps to remedy the problems caused by the low water level. These further steps include dredging material from under the barges. The Company does not expect the cost of these remedial activities to be material, although there can be no assurance that such costs will not exceed the Company's expectations. Dredging and construction activities generally require permits from the United States Army Corps of Engineers (the "Corps of Engineers"). The Company has received certain permits to continue dredging activities. The Company is in the process of applying for additional permits which will allow it to dredge more efficiently than the current permit. There can be no assurance that the Corps of Engineers will grant such permits or that they will be granted on a timely basis. In the event that low water levels return, the Company could be forced to close the facility. The Company's ability to receive the required permits could be adversely affected by the investigation described below. On February 3, 1999, the Company received a subpoena issued by the EPA requesting that documentation relating to the Company's dredging activities at the facility be furnished to the Grand Jury in the United States District Court for the Eastern District of Missouri. Several employees and persons who contracted to work for the Company received similar subpoenas. The Company believes that the EPA is investigating allegations that the Company or the Company's contractors dredged and disposed of silt and debris from the area of the facility either without proper permits or without complying with such permits. The Company has completed the investigation of the substance of the allegations and continues to cooperate fully with the EPA. The investigation could lead to further proceedings against the Company which could result in significant fines and other penalties imposed on the Company. On December 9, 1999, the Company and the United States, on behalf of the Corps of Engineers, tentatively entered into a "Consent Decree" regarding the alleged dredging activities. On February 15, 2000, the United States District Court for the Eastern District of Missouri, after public notice and passage of the comment period, approved the Consent Decree. Subsequently, the Consent Decree was published in the National Register without comment or objection. As a result, the approval of the Consent Decree and the expiration of the notice period now brings resolution to this matter. POULOS/AHEARN CASE On April 26, 1994, a suit seeking status as a class action lawsuit was filed by plaintiff, William H. Poulos, et al., as class representative, in the United States District Court, Middle District of Florida, naming 41 manufacturers, distributors and casino operators of video poker and electronic slot machines, including the Company. On May 10, 1994, a lawsuit alleging substantially identical claims was filed by another plaintiff, William Ahearn, et al., as class representative, in the United States District Court, Middle District of Florida, against 48 manufacturers, distributors and casino operators of video poker and electronic slot machines, including the Company and most of the other major hotel/casino companies. The lawsuits allege that the defendants have engaged in a course of fraudulent and misleading conduct intended to induce persons to play such games based on a false belief concerning how the gaming machines operate, as well as the extent to which there is an opportunity to win. The two lawsuits have been consolidated into a single action, and have been transferred to the United States District Court for the District of Nevada. On September 26, 1995, a lawsuit alleging substantially identical claims was filed by plaintiff, Larry Schreier, et. al, as class representative, in the United States District Court for the District of Nevada, naming 45 manufacturers, distributors, and casino operators of video poker and electronic slot machines, including the Company. Motions to dismiss the Poulos/Ahearn and Schreier cases were filed by defendants. On April 17, 1996, the Poulos/Ahearn lawsuits were dismissed, but plaintiffs were given leave to file Amended Complaints on or before May 31, 1996. On May 31, 1996, an Amended Complaint was filed, naming William H. Poulos, et. al, as plaintiff. Defendants filed a motion to dismiss. On August 15, 1996, the Schreier lawsuit was dismissed with leave to amend. On September 27, 1996, Schreier filed an Amended Complaint. Defendants filed motions to dismiss the Amended 19 Complaint. In December 1996, the Court consolidated the Poulos/Ahearn, the Schreier, and a third case not involving the Company and ordered all pending motions be deemed withdrawn without prejudice, including Defendants' Motions to Dismiss the Amended Complaints. The plaintiffs filed a Consolidated Amended Complaint on February 13, 1997. On or about December 19, 1997, the Court issued formal opinions granting in part and denying in part the defendants' motion to dismiss. In so doing, the Court ordered plaintiffs to file an amended complaint in accordance with the Court's orders in January of 1998. Accordingly, plaintiffs amended their complaint and filed it with the United Stated District Court for the District of Nevada in February 1998. The Company and all other defendants continue to deny the allegations contained in the amended complaint filed on behalf of plaintiffs. The plaintiffs are seeking compensatory, special, consequential, incidental, and punitive damages in unspecified amounts. The defendants have committed to vigorously defend all claims and allegations contained in the consolidated action. The parties have fully briefed the issues regarding class certification, which are currently pending before the court. The Company does not expect that the lawsuits will have a material adverse effect on the Company's financial position or results of operations. NICOLE ANDERSON CASE A suit seeking status as a class action lawsuit was filed by plaintiff Nicole Anderson, et. al., as class representative, on September 24, 1997, in the United States District Court for the Eastern District of Missouri, Eastern Division. The lawsuit alleges certain racially based discriminatory action at Station Casino St. Charles and seeks injunctive relief and compensatory, special, consequential, incidental and punitive damages in unspecified amounts. On or about October 24, 1997, plaintiff filed her first amended complaint. On November 24, 1997, the Company filed its answer to plaintiff's first amended complaint which denied the allegations contained therein. On August 25, 1998, a hearing was held to determine whether this lawsuit could be certified as a class action. The Court conditionally certified a subclass of dealers in the table game department; the other plaintiffs may proceed individually with their claims. The parties have entered into a settlement agreement which has been submitted to the United States District Court for the Eastern District of Missouri, Eastern Division, to determine the fairness, reasonableness and adequacy of the terms of settlement and whether an order and final judgment should be entered approving the proposed settlement agreement. On October 18, 1999, the order and final judgment was issued by the United States District Court for the Eastern District of Missouri. STEPHEN B. SMALL CASE A class action lawsuit was filed by plaintiff Stephen B. Small, et al., as class representative, on November 28, 1997, in the United States District Court for the Western District of Missouri, naming four gaming operators in Kansas City, Missouri, including Kansas City Station Corporation. The lawsuit alleged that the defendants are conducting gaming operations that are not located on the Missouri River in violation of certain state and federal statutes. The plaintiff also sought compensatory, special, consequential, and incidental damages in unspecified amounts. On September 1, 1998, the United States District Court granted Kansas City Station Corporation's motion to dismiss the lawsuit. On February 16, 1999, the plaintiff served the defendants with a notice of appeal of the federal court dismissal. On October 30, 1998, the plaintiff filed a similar lawsuit in the Circuit Court of Cole County, Missouri. The lawsuit alleged that the operators were conducting illegal games of chance prior to December 3, 1998, the effective date of a Constitutional amendment passed by Missouri voters on November 3, 1998, legalizing gaming facilities within 1,000 feet of the main channel of the Mississippi and Missouri Rivers. On February 9, 1999, the Cole County Circuit Court granted Kansas City Station Corporation's motion to dismiss the lawsuit. On February 19, 1999, the plaintiff served the defendants with a notice of appeal of the state court dismissal. Management believes that the plaintiff's claims are without merit and does not expect that the lawsuit will have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of fiscal year 1999. 20 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock trades on the New York Stock Exchange under the symbol "STN". Prior to September 5, 1996, the common stock traded on the Nasdaq Stock Market under the symbol "STCI". The following table sets forth, for the periods indicated, the high and low sale price per share of the Common Stock as reported on the New York Stock Exchange.
HIGH LOW ---- --- FISCAL YEAR ENDING DECEMBER 31, 1999 ------------------------------------ First Quarter $ 14.88 $ 7.94 Second Quarter 20.38 12.25 Third Quarter 24.63 17.00 Fourth Quarter 27.38 16.50 TRANSITION PERIOD ENDING DECEMBER 31, 1998 ------------------------------------------ First Quarter $ 15.88 $ 13.19 Second Quarter 15.31 5.06 Third Quarter 8.50 4.00
As of March 3, 2000, there were 653 holders of record of the Company's common stock. The Company has never paid cash dividends on any shares of Common Stock. The Company does not intend to pay cash dividends in the foreseeable future so that it may reinvest its earnings in the development of its business. The payment of dividends in the future will be at the discretion of the Board of Directors of the Company. Restrictions imposed by the Company's debt instruments and other agreements, limit the payment of dividends by the Company (see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Description of Certain Indebtedness and Capital Stock"). 21 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA On November 6, 1998 the Company filed a Form 8-K announcing its change in fiscal year end from March 31 of each year to December 31 of each year. This change is effective for the nine month period ended December 31, 1998 (the "Transition Period 1998"). The selected consolidated financial data presented below as of and for the Company's fiscal years ended March 31, 1996, 1997 and 1998, for the Transition Period 1998, and for the fiscal year ended December 31, 1999 have been derived from consolidated financial statements which, except for 1996 and 1997, are contained elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data set forth below are qualified in their entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, the notes thereto and other financial and statistical information included elsewhere in this Annual Report on Form 10-K.
FOR THE YEAR ENDED TRANSITION DECEMBER 31, PERIOD FOR THE YEARS ENDED MARCH 31, --------------------------------------- 1999 1998 1998 1997 1996 ------------- ------------- ------------ ------------ ------------ (amounts in thousands, except per share amounts) OPERATING RESULTS: Net revenues ............................................... $ 942,469 $ 642,214 $ 769,610 $ 583,515 $ 466,857 Operating income ........................................... 28,871 64,696 84,186 58,123 69,464 Income (loss) before income taxes and extraordinary item .. (47,223) (9,864) (4,120) 21,378 40,051 Extraordinary item-loss on early retirement of debt, net of applicable income tax benefit ................... (10,653) (3,104) (2,042) - - Net income (loss) applicable to common stock ............... (44,758) (17,531) (12,441) 6,518 25,419 Basic and diluted earnings (loss) per common share ......... $ (1.14) $ (0.50) $ (0.35) $ 0.18 $ 0.75 BALANCE SHEET DATA: Total assets ............................................... $ 1,276,273 $ 1,531,925 $ 1,300,216 $ 1,234,118 $ 827,314 Long-term debt ............................................. 942,480 1,147,266 900,226 760,963 464,998 Stockholders' equity ....................................... 216,801 269,406 286,887 298,848 278,470
22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Consolidated Financial Data" and the financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. RESULTS OF OPERATIONS The following table highlights the results of operations for the Company (dollars in thousands):
Fiscal Twelve Nine Fiscal Year Months Months Year Ended Ended Transition Ended Ended December 31, December 31, Period December 31, March 31, 1999 1998 1998 1997 1998 ------------ ------------ ---------- ------------ --------- (unaudited) (unaudited) NET REVENUES - TOTAL $ 942,469 $ 847,015 $ 642,214 $ 564,809 $ 769,610 Nevada Operations (a) 584,852 526,854 397,908 341,447 470,393 Missouri Operations (a) 313,439 290,160 219,734 203,374 273,800 Other (a) 44,178 30,001 24,572 19,988 25,417 OPERATING INCOME (LOSS) - TOTAL $ 28,871 $ 92,380 $ 64,696 $ 56,502 $ 84,186 Nevada Operations (a) 147,217 111,902 83,669 60,028 88,261 Missouri Operations (a) (85,269) (1,528) (5,056) 6,358 9,886 Other (a) (33,077) (17,994) (13,917) (9,884) (13,961) CASH FLOWS FROM: Operating activities $ 173,058 $ 108,321 $ 76,692 $ 73,326 $ 104,955 EBITDA, AS ADJUSTED (b) - TOTAL $ 236,970 $ 192,384 $ 147,682 $ 117,764 $ 162,466 Nevada Operations (a) 186,677 150,413 113,284 96,029 133,158 Missouri Operations (a) 69,223 54,314 43,163 29,640 40,791 Other (a) (18,930) (12,343) (8,765) (7,905) (11,483) EBITDA, AS ADJUSTED (b), ADJUSTED FOR THE SUNSET EQUIPMENT LEASE - TOTAL $ 242,890 $ 200,952 $ 154,186 $ 121,942 $ 168,708 Nevada Operations (a) 192,597 158,981 119,788 100,207 139,400
(a) The Nevada Operations include the accounts of: Palace Station, Boulder Station, Texas Station and Sunset Station. The Missouri Operations include the accounts of: Station Casino St. Charles and Station Casino Kansas City. Other includes the operations of Wild Wild West, which opened in July 1998, the Company's investment in Barley's, Southwest Gaming and Corporate expense. (b) "EBITDA, As Adjusted" consists of operating income plus depreciation, amortization, preopening expenses and impairment loss. The Company believes that in addition to cash flows and net income, EBITDA, As Adjusted is a useful financial performance measurement for assessing the operating performance of the Company. Together with net income and cash flows, EBITDA, As Adjusted provides investors with an additional basis to evaluate the ability of the Company to incur and service debt and incur capital expenditures. To evaluate EBITDA, As Adjusted and the trends it depicts, the components should be considered. The impact of interest, taxes, depreciation and amortization, preopening expenses and impairment loss, each of which can significantly affect the Company's results of operations and liquidity and should be considered in evaluating the Company's operating performance, cannot be determined from EBITDA, As Adjusted. Further, EBITDA, As Adjusted does not represent net income or cash flows from operating, financing and investing activities as defined by generally accepted accounting principles ("GAAP") and does not necessarily indicate cash flows will be sufficient to fund cash needs. It should not be considered as an alternative to net income, as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. In addition, it should be noted that not all gaming companies that report EBITDA or adjustments to such measures may calculate EBITDA, or such adjustments in the same manner as the Company, and therefore, the Company's measure of EBITDA, As Adjusted may not be comparable to similarly titled measures used by other gaming companies. 23 Consolidated net revenues, cash flows from operating activities, and EBITDA, As Adjusted for the fiscal year ended December 31, 1999 increased as compared to the Transition Period 1998. These increases are due to the Transition Period 1998 consisting of nine months as compared to the fiscal year ended December 31, 1999, which is twelve months. The above table presents certain results of operations from the unaudited twelve month period ended December 31, 1998 for comparison purposes. Consolidated net revenues, operating income, cash flows from operating activities and EBITDA, As Adjusted for the Transition Period 1998 decreased as compared to the fiscal year ended March 31, 1998. These decreases are due to the Transition Period 1998 consisting of nine months as compared to the fiscal year ended March 31, 1998, which is twelve months. The above table presents certain results of operations from the unaudited nine month period ended December 31, 1997 for comparison purposes. CONSOLIDATED NET REVENUES The increase in consolidated net revenues for the fiscal year ended December 31, 1999 as compared to the twelve months ended December 31, 1998 is due to increased revenues at all of the Company's properties. Increased revenues at the Nevada Operations are partially a result of the completed master-planned expansions at Texas Station and Sunset Station, which were completed in February 1999 and November 1998, respectively. In addition, revenues at the Nevada Operations increased due to the introduction of the Boarding Pass player rewards program in April 1999, which makes it more convenient for customers to redeem points earned from gaming activity at any of the Nevada properties. Net revenues at the Missouri Operations increased 8% primarily due to Station Casino Kansas City which generated a 13% increase in net revenues. Consolidated net revenues increased for the Transition Period 1998 as compared to the nine months ended December 31, 1997 due to increased revenues from the Nevada properties generally, and results from Sunset Station, which opened in June 1997, are included for only seven months in the nine months ended December 31, 1997. Also, revenues from the Station Casino Kansas City facility continued to steadily improve. Net revenues at Station Casino St. Charles declined 5% as a result of significant competition in the St. Louis market. OPERATING INCOME/OPERATING MARGIN The Company's operating income was impacted by certain charges in each of the above periods that affect the ability to analyze year to year comparisons. The following table identifies these charges (dollars in thousands):
Fiscal Twelve Nine Fiscal Year Months Months Year Ended Ended Transition Ended Ended December 31, December 31, Period December 31, March 31, 1999 1998 1998 1997 1998 ------------ ----------- ---------- ------------ ----------- (unaudited) (unaudited) Operating income ...................................... $ 28,871 $ 92,380 $ 64,696 $ 56,502 $ 84,186 OPERATING MARGIN .............................. 3.1% 10.9% 10.1% 10.0% 10.9% Certain charges: Impairment loss ............................... $137,435 $ 30,011 $ 30,011 ---- ---- Preopening expenses ........................... ---- ---- ---- $ 10,866 $ 10,866 Operating income, excluding certain charges ........... $166,306 $122,391 $ 94,707 $ 67,368 $ 95,052 OPERATING MARGIN, EXCLUDING CERTAIN CHARGES .... 17.6% 14.4% 14.7% 11.9% 12.4%
Consolidated operating income, excluding certain charges, improved by $43.9 million in the fiscal year ended December 31, 1999 as compared to the twelve months ended December 31, 1998 with operating income at all of the Company's properties increasing. The increases at the Nevada properties are attributed to the same factors affecting consolidated net revenues discussed above and the increases at the Missouri properties are primarily attributed to a 95.2% increase in operating income, excluding certain charges, at Station Casino Kansas City due to a significant 24 improvement in operations at this property. In addition, the decline in the prior year at Station Casino St. Charles was reversed as the property posted a $1.6 million increase in operating income, excluding certain charges. The consolidated operating margin, excluding certain charges, improved in the fiscal year ended December 31, 1999 as compared to the twelve months ended December 31, 1998, due to the operating margins at Sunset Station and Station Casino Kansas City improving over 600 basis points and smaller increases at all of the other properties. Operating margin, excluding certain charges, improved in the Transition Period 1998 as compared to the fiscal year ended March 31, 1998 primarily as a result of significantly improved operations at Station Casino Kansas City. Operating income, excluding certain charges at Station Casino Kansas City, improved by $17.8 million in the Transition Period 1998 as compared to the nine months ended December 31, 1997. The only casino property experiencing a decline in operating income, excluding certain charges, was Station Casino St. Charles, which experienced a $4.4 million decline due to the increased competition discussed above. The following table highlights the various sources of revenues and expenses for the Company as compared to prior periods (dollars in thousands):
Fiscal Twelve Nine Fiscal Year Months Months Year Ended Ended Transition Ended Ended December 31, December 31, Period December 31, March 31, 1999 1998 1998 1997 1998 ------------ ------------ ----------- ------------ ----------- (unaudited) (unaudited) Casino revenues $ 764,089 $ 673,124 $ 509,149 $ 436,872 $ 600,847 Casino expenses 356,365 328,953 249,353 211,502 291,102 MARGIN 53.4% 51.1% 51.0% 51.6% 51.6% Food and beverage revenues $ 141,116 $ 138,044 $ 104,538 $ 97,859 $ 131,365 Food and beverage expenses 88,898 88,423 66,121 67,626 89,928 MARGIN 37.0% 35.9% 36.7% 30.9% 31.5% Room revenues $ 42,870 $ 39,678 $ 30,040 $ 27,692 $ 37,330 Room expenses 15,860 14,975 11,515 10,001 13,461 MARGIN 63.0% 62.3% 61.7% 63.9% 63.9% Other revenues $ 62,286 $ 59,924 $ 47,663 $ 41,233 $ 53,494 Selling, general and administrative $ 190,753 $ 181,723 $ 136,649 $ 128,196 $ 173,270 PERCENT OF NET REVENUES 20.2% 21.5% 21.3% 22.7% 22.5% Corporate expenses $ 23,007 $ 15,661 $ 11,431 $ 10,391 $ 14,621 PERCENT OF NET REVENUES 2.4% 1.8% 1.8% 1.8% 1.9%
CASINO. Casino revenues increased for the fiscal year ended December 31, 1999 as compared to the twelve months ended December 31, 1998 as a result of the same factors affecting consolidated net revenues discussed above. The casino profit margin increased to 53.4% for the fiscal year ended December 31, 1999 from 51.1% for the twelve months ended December 31, 1998 with all properties improving their margin with the exception of Boulder Station which decreased slightly. Casino profit margin for the Transition Period 1998 remained relatively consistent with results for the nine months ended December 31, 1997. FOOD AND BEVERAGE. Food and beverage revenues for the fiscal year ended December 31, 1999 increased 2.2% over food and beverage revenues for the twelve months ended December 31, 1998. This increase is primarily due to the completion of the expansion projects at Sunset Station and Texas Station. These increases in food and beverage revenues in Nevada were offset by decreases at the Missouri properties. Also, food and beverage revenues increased due to selected menu price increases, which were offset by a decrease in food covers at all of the properties. Food and 25 beverage net profit margins increased to 37.0% for the fiscal year ended December 31, 1999 from 35.9% for the twelve months ended December 31, 1998. Food and beverage revenues for the Transition Period 1998 increased 6.8% over food and beverage revenues for the nine months ended December 31, 1997. The primary reason for this increase is the results from Sunset Station, which opened in June 1997, are included for only seven months in the nine months ended December 31, 1997. The increase in food and beverage revenues is less than the overall increase in revenues. This is primarily due to a decline in food and beverage revenues at Station Casino Kansas City. In the prior year's period, the Company was very aggressive in promoting Station Casino Kansas City's food operations. Food and beverage net profit margins improved to 36.7% for the Transition Period 1998, from 30.9% in the nine months ended December 31, 1997. This increase in margin is due to improvement at the Company's Nevada Operations, primarily as a result of continued focus on cost control, as well as selected menu price increases. ROOM. Room revenues for the fiscal year ended December 31, 1999 increased 8.0% over room revenues for the twelve months ended December 31, 1998. The primary reason for this increase is the opening of the Wild Wild West Gambling Hall & Hotel in July 1998, which contributed $2.3 million of room revenues in the fiscal year ended December 31, 1999 as compared to $1.1 million of room revenues in the twelve months ended December 31, 1998. The company-wide room occupancy decreased to 89% in the fiscal year ended December 31, 1999 as compared to 90% in the twelve months ended December 31, 1998 due to the Company increasing room rates at the properties. The average daily room rate increased to $54 in the fiscal year ended December 31, 1999 as compared to $51 in the twelve months ended December 31, 1998. Room revenues for the Transition Period 1998 increased 8.5% over room revenues for the nine months ended December 31, 1997. The primary reason for this increase is the results from Sunset Station, which opened in June 1997, are included for only seven months in the nine months ended December 31, 1997. Additionally, the Company opened the Wild Wild West Gambling Hall & Hotel in July 1998, which contributed $1.1 million of room revenues in the Transition Period 1998. Offsetting these increases was a decline in room revenues at Palace Station and Boulder Station. These declines were primarily a result of a lower average daily room rate. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). As a percent of net revenues, SG&A decreased to 20.2% in the fiscal year ended December 31, 1999 as compared to 21.5% in the twelve months ended December 31, 1998. As a percent of net revenues, SG&A decreased to 21.3% in the Transition Period 1998 as compared to 22.7% in the nine months ended December 31, 1997. These decreases are due primarily to the fine tuning of operations at Sunset Station and Station Casino Kansas City. In the Company's experience, when a new property opens, SG&A as a percent of net revenues is higher than normal, and reduces as the property's operations mature. Also, due to the fixed cost nature of some of these expenses, they decrease on a percentage basis as the Company continues to increase revenue. CORPORATE EXPENSES. Corporate expenses as a percent of net revenues increased to 2.4% in the fiscal year ended December 31, 1999 as compared to 1.8% in the twelve months ended December 31, 1998. The Company has increased its corporate infrastructure as it continues to lay the foundation for future growth. Corporate expenses as a percent of net revenues for the Transition Period 1998 were consistent with the nine months ended December 31, 1997. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $0.7 million in the fiscal year ended December 31, 1999 to $70.7 million as compared to $70.0 million in the twelve months ended December 31, 1998. This increase is due to the completion of the expansion projects at Sunset Station and Texas Station which were completed in November 1998 and February 1999, respectively. This increase was offset by decreases at Boulder Station and Station Casino St. Charles as a portion of the original equipment became fully depreciated during the fiscal year ended December 31, 1999, as both properties have been open for five years. In addition, Palace Station had a large purchase of slot machines in 1994 that became fully depreciated during the fiscal year ended December 31, 1999. Depreciation at Station Casino St. Charles should also decline going forward, due to the write-off of assets noted below, while depreciation at Sunset Station should increase due to the purchase of various equipment leases in 1999. 26 Depreciation and amortization increased $2.6 million in the Transition Period 1998 to $53.0 million as compared to $50.4 million in the nine months ended December 31, 1997. This increase is due to the results of Sunset Station being included for only seven months in the nine months ended December 31, 1997. IMPAIRMENT LOSS. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company recorded an impairment loss of $137.4 million in the fiscal year ended December 31, 1999 and $30.0 million in the Transition Period 1998 to adjust the carrying value of its fixed assets and land held for development to their estimated fair value. In the fiscal year ended December 31, 1999, approximately $125.2 million of the impairment loss was related to Station Casino St. Charles. In the fourth quarter of 1999, the Company made a decision to reconfigure the existing Station Casino St. Charles facility to a more efficient layout in response to the new open boarding rules promulgated by the Missouri Gaming Commission that began in September 1999 in the St. Louis market. All gaming operations will be moved to the existing barge by the end of the first quarter of 2000. The existing riverboat is expected to be sold after the reconfiguration is complete. In accordance with SFAS No. 121, the riverboat and miscellaneous other fixed assets were written down by approximately $15 million to their net realizable value. In addition, the Company performed an evaluation of the carrying values of the remaining assets in St. Charles and determined a $110 million write-down of the asset values was necessary. The write-down was deemed appropriate after a review of the property's asset valuations relative to the Company's near-term investment objectives. The balance of the impairment loss in the fiscal year ended December 31, 1999, resulted primarily from the Company's determination that it will sell a 40-acre parcel of land in Henderson, Nevada, that it recently acquired. Future development of the property will be limited to non-gaming purposes. The resulting write-down of the parcel was necessary to reflect the value of the land as a non-gaming site. In the Transition Period 1998, the impairment loss principally involves assets at the Station Casino St. Charles facility, including a riverboat formerly used in the Missouri operations, capitalized project costs associated with various parcels of land determined to have no value, and several parcels of land within close proximity to the St. Charles, Missouri site that were being held for future development. The fair value of the impaired assets was primarily determined through the market's interest in riverboats and barges, and on the comparable sales prices on parcels of land in the St. Charles area. The total amount of the impairment loss in the Transition Period 1998 related to this category of assets was approximately $23.4 million. In addition to the assets described above, the most significant portion of the remaining impairment loss in the Transition Period 1998 relates to several parcels of land in Nevada and Texas that the Company had acquired in the past for either defensive or expansion purposes. The value of these parcels was determined based on sales prices for comparable parcels of land on the market. The following two circumstances led to the Company's decision to write-down these assets to their fair market value: (1) the passage, in Nevada, of legislation which places significantly higher requirements on land to be zoned for gaming purposes, and (2) the termination of the Plan of Merger with Crescent Real Estate Equities Company (see "Part I. Item 3. Legal Proceedings - Settlement of Crescent Litigation"). Included in other assets, net on the accompanying consolidated balance sheet as of December 31, 1999, is $26.1 million related primarily to parcels of land. The Company is actively attempting to dispose of these non-strategic assets and expects to complete the sale of certain of these assets in the first half of calendar year 2000. PREOPENING EXPENSES. Prior to December 31, 1998, the Company capitalized preopening expenses associated with its construction projects, including Sunset Station, which opened in June 1997. Such amounts were expensed upon the opening of the related project. During the fiscal year ended March 31, 1998, the Company expensed preopening expenses of $10.9 million related primarily to this project. Preopening expenses incurred after January 1, 1999 will be expensed as incurred. INTEREST EXPENSE, NET. Interest costs incurred (expensed and capitalized) decreased 6.2% to $85.4 million for the fiscal year ended December 31, 1999 as compared to $91.0 million in the twelve months ended December 31, 1998. This decrease is due to a decline of $17.2 million in total long-term debt from the prior year and to a reduction in average interest rates on long-term debt to 9.0% from 9.6% in the prior year. Interest costs incurred (expensed and capitalized) for the Transition Period 1998 of $67.6 million remained consistent with interest costs incurred for the nine months ended December 31, 1997 of $68.9 million. 27 OTHER INCOME/EXPENSE. During the fourth quarter of the fiscal year ended December 31, 1999, the Company wrote off $2.4 million of costs incurred related to the termination of the Flamingo Hilton Kansas City acquisition. The acquisition was terminated when the Missouri Gaming Commission (the "Commission") informed the Company that it would not be able to complete its licensing investigation on or before the termination date set forth in the acquisition agreement. The Company believes the Commission was unable to complete its licensing investigation in the required time frame because of the investigation of the actions of an attorney who worked on the Company's legal matters in Missouri (see "Regulation and Licensing - Missouri Gaming Regulations"). In April 1999, the Company received a $15.0 million settlement payment from Crescent Real Estate Equities, Inc., which is included in the "Merger settlement, net of related legal costs" line on the accompanying Consolidated Statements of Operations (see "Part I. Item 3. Legal Proceedings - Settlement of Crescent Litigation"). In 1999, the Company recorded an extraordinary charge of $10.4 million (net of applicable tax benefit) to reflect the write-off of the unamortized debt discount, unamortized loan costs and the premium to redeem the 95/8% senior subordinated notes, which were repaid on January 4, 1999. In addition, the Company also recorded an extraordinary charge of $0.3 million (net of applicable tax benefit) related to the write-off of unamortized loan costs on the Company's $75.0 million secured term loan facility. LIQUIDITY AND CAPITAL RESOURCES During the fiscal year ended December 31, 1999, the Company generated cash flows from operating activities of $173.1 million. At December 31, 1999, the Company had total available borrowings of $530.8 million under the Amended Bank Facility, of which $377.3 million was directly outstanding and $4.8 million was reserved for the potential payment of an outstanding letter of credit. Total available borrowings will reduce beginning March 31, 2000 and each quarter thereafter in accordance with the terms of the Amended Bank Facility (see "Description of Certain Indebtedness and Capital Stock-Amended Bank Facility"). The Company also had $73.1 million in cash and cash equivalents. During the year ended December 31, 1999, total capital expenditures were approximately $76.4 million, of which approximately (i) $30.3 million was associated with the purchase of equipment previously under operating leases at Sunset Station, (ii) $16.2 million was associated with the expansion project at Texas Station, (iii) $22.3 million was for maintenance capital expenditures, and (iv) $7.6 million was associated with various other projects. The Company's primary capital requirements during fiscal year 2000 are expected to include (i) another expansion project at Texas Station, estimated to cost approximately $55 million, (ii) equity contributions to the proposed Green Valley Ranch project expected to be approximately $40 million, (iii) strategic land purchases throughout the Las Vegas area, (iv) opportunistic repurchases of the Company's Common Stock, (v) maintenance capital expenditures, and (vi) principal and interest payments on indebtedness. The Company believes that cash flows from operations, borrowings under the Amended Bank Facility, vendor and lease financing of equipment, and existing cash balances will be adequate to satisfy the Company's anticipated uses of capital during fiscal year 2000. The Company, however, continually is evaluating its financing needs. If more attractive financing alternatives or expansion, development or acquisition opportunities become available to the Company, the Company may amend its financing plans assuming such financing would be permitted under its existing debt agreements (See "Description of Certain Indebtedness and Capital Stock") and other applicable agreements. FUTURE DEVELOPMENT GREEN VALLEY PROJECT A 50/50 joint venture between the Company and GCR Gaming, LLC has proposed to build a new resort/casino in Henderson, Nevada. Construction is expected to commence during the third quarter of 2000 and is expected to be completed in the fourth quarter of 2001. The estimated construction cost of this project is $270 to $280 million. The project is expected to be funded with total equity contributions from the partners of approximately $80 million and third party financing for the remainder. If third party financing cannot be obtained or is insufficient to fund the construction costs, the Company and GCR Gaming, LLC would be obligated to contribute amounts necessary to finance the construction and opening of the project. 28 LAND ACQUISITION In addition to the Green Valley Project, the Company has purchased or has options to purchase an additional 151 acres of land for two additional gaming sites in the Las Vegas Valley which will be used for future development. The Rhodes Ranch site consists of two parcels totaling 83 acres, located at the intersection of Durango Road and the Southern Beltway/I-215 located in the southwest quadrant of Las Vegas. The Boulder/Tropicana site is a 68-acre site consisting of two parcels at the intersection of Boulder Highway and Tropicana Avenue in eastern Las Vegas. The Company is leasing (with an option to purchase) 34 acres of the site and has entered into an option to purchase the adjacent 34-acre parcel. The Company paid $30.2 million for the land mentioned above and will make combined lease and option payments of $1.6 million per year. The Company has no immediate plans to develop these sites. The Company's capital requirements in 2000 could also include amounts necessary to fund the proposed development of the project with the United Auburn Indian Community to the extent development of such project is commenced in 2000. In addition, the Company has in the past, and may in the future, make acquisitions and enter into joint ventures on an opportunistic basis. While the Company has not entered into any agreement with respect to any such future acquisition or joint venture other than as disclosed in this report, the Company's capital requirements in 2000 may include amounts necessary to permit the Company to pursue such expansion activities. YEAR 2000 READINESS The Company did not encounter any Year 2000 problems. The total cost to the Company of making the Company's systems Year 2000 compliant was approximately $3.0 million. The majority of this cost related to the acquisition of new computer hardware to replace the systems which were not Year 2000 compliant and the purchase of new software to replace non-compliant software. These costs were capitalized and will be depreciated over their expected useful life. To the extent existing hardware or software was replaced, the Company recognized a loss currently for the undepreciated balance. This loss is included in the above cost. LOW WATER LEVEL AT STATION CASINO ST. CHARLES During December 1998 and January 1999, the water level of the Missouri River was well below normal. In addition, over time silt and debris flowing downstream have built up under the gaming barges and other ancillary barges at Station Casino St. Charles. These circumstances have caused a portion of these barges, at times, to touch the river bottom. Because these barges have touched the river bottom, the American Bureau of Shipping decertified the barges on January 8, 1999. As a result of the decertification, the Missouri Gaming Commission expressed concern regarding the effect of the low water level on the barges. However, based upon improvement in the water level and the Company's agreement to work with the American Bureau of Shipping to re-certify all of the barges at a time when the river levels permit, the Missouri Gaming Commission allowed the gaming facility to remain open. On November 11, 1999, the American Bureau of Shipping recertified the barges. The Company continues to monitor the situation very carefully and believes that the facility should remain in operation. However, there can be no assurance that the Company's assessment will not change or that the relevant authorities will continue to permit the operation of the facility. A prolonged closure of the facility as a result of the low water level would have a material adverse effect on the Company's business, financial position and results of operations. REGULATION AND TAXES The Company is subject to extensive regulation by the Nevada and Missouri gaming authorities and will be subject to regulation, which may or may not be similar to that in Nevada, by any other jurisdiction in which it may conduct gaming activities in the future. Changes in applicable laws or regulations could have a significant impact on the Company's operations. Pursuant to legislation enacted in 1996, a federal commission conducted a two-year study of the gaming industry in the United States and reported its findings and recommendations to Congress. To date there have been no changes to existing laws or regulations as a result of this report. 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 such law, affecting the gaming industry. Proposals in recent years that have not been 29 enacted included a federal gaming tax and increases in state or local taxes, however, we have no assurances that future proposals, including a recent proposal in Nevada, will not be enacted. This recent proposal in Nevada would increase the tax on gaming revenue from 6 1/4% to 11 1/4%. If enacted, this proposal would have a material impact on the results of operations for the Company. Management believes that the Company's 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 such law. Such changes, if adopted, could have a material adverse effect on the Company's operating results. DESCRIPTION OF CERTAIN INDEBTEDNESS AND CAPITAL STOCK AMENDED BANK FACILITY In August 1999, the Company amended its existing bank credit facility (the "Revolving Facility") and entered into a new $200.0 million secured term loan facility (the "Term Loan") (collectively, "the Amended Bank Facility"). The Amended Bank Facility is secured by substantially all of the assets of Palace Station, Boulder Station, Texas Station, Sunset Station, Station Casino St. Charles and Station Casino Kansas City (the "Borrowers"). The proceeds from the Term Loan were used to repay the Company's existing $75.0 million secured term loan facility and to reduce outstanding borrowings under the Company's Revolving Facility. The Company recorded an extraordinary charge of $0.3 million (net of applicable tax benefit) to reflect the write-off of the unamortized loan costs on the refinanced $75.0 million secured term loan facility. The Term Loan matures on December 31, 2005 and amortizes in installments of $0.5 million on each fiscal quarter end from March 31, 2000 until and including December 31, 2004 and of $47.5 million on each fiscal quarter end thereafter. The interest rate on the Term Loan is 2.50% above the Eurodollar Rate. The Term Loan contains financial covenants substantially identical to the covenants in the indentures governing the Company's senior subordinated notes. The Revolving Facility provides for borrowings up to an aggregate principal amount of $330.8 million at December 31, 1999. The Revolving Facility matures on September 30, 2003. The availability under the Revolving Facility will reduce by $14.0 million on March 31, 2001 and June 30, 2001; by $17.5 million on September 30, 2001, December 31, 2001, March 31, 2002, June 30, 2002 and September 30, 2002; and by $30.6 million on each fiscal quarter end thereafter. Borrowings under the Revolving Facility bear interest at a margin above the Alternate Base Rate or the Eurodollar Rate (each, as defined in the Revolving Facility), as selected by the Company. The margin above such rates, and the fee on the unfunded portions of the Revolving Facility, will vary quarterly based on the Company's combined consolidated ratio of debt to EBITDA (each, as defined in the Revolving Facility). As of December 31, 1999, the Borrower's margin above the Eurodollar Rate on borrowings under the Revolving Facility was 1.63%. The maximum margin for Eurodollar Rate borrowings is 2.75%. The maximum margin for Alternate Base Rate borrowings is 1.50%. As of December 31, 1999, the fee for the unfunded portion of the Revolving Facility was 40 basis points. The Revolving Facility contains certain financial and other covenants. These include a maximum funded debt to Adjusted EBITDA ratio for the Borrowers combined of 2.50 to 1.00 for each fiscal quarter, a minimum fixed charge coverage ratio for the preceding four quarters for the Borrowers combined of 1.50 to 1.00 for each fiscal quarter, limitations on indebtedness, limitations on asset dispositions, limitations on investments, limitations on prepayments of indebtedness and rent and limitations on capital expenditures. As of December 31, 1999, the Borrowers combined funded debt to Adjusted EBITDA ratio was 1.52 to 1.00 and their combined fixed charge coverage ratio for the preceding four quarters ended December 31, 1999 was 2.55 to 1.00. A tranche of the Revolving Facility contains a minimum tangible net worth requirement for Palace Station and certain restrictions on distributions of cash from Palace Station to the Company. As of December 31, 1999, Palace Station's tangible net worth exceeded the requirement by approximately $9.3 million. These covenants limit Palace Station's ability to make payments to the Company, a significant source of anticipated cash for the Company. In addition, the Revolving Facility has financial and other covenants relating to the Company. These include a tangible net worth covenant and a covenant limiting the consolidated funded debt to Adjusted EBITDA ratio to no more than 5.00 to 1.00 on December 31, 1999 and reducing quarterly to 4.00 to 1.00 on September 30, 2001. Other covenants limit prepayments of indebtedness or rent (including, subordinated debt other than refinancings meeting certain criteria), limitations on asset dispositions, limitation on dividends, limitations on indebtedness, limitations on investments and limitations on capital expenditures. The Revolving Facility also prohibits the Company from holding excess cash and cash equivalents. As of December 31, 1999, the Company's consolidated funded debt to Adjusted EBITDA ratio was 3.93 to 30 1.00. The Company has pledged the stock of all of its subsidiaries except Kansas City Station Corporation and St. Charles Riverfront Station, Inc. and has agreed to pledge the stock of the latter two subsidiaries upon regulatory approval (which is expected to be obtained). SENIOR SUBORDINATED NOTES The Company has $542.3 million, net of unamortized discount of $5.6 million, of senior subordinated notes outstanding as of December 31, 1999, $198 million of these notes bear interest, payable semi-annually, at a rate of 101/8% per year, $150 million of these notes bear interest, payable semi-annually, at a rate of 93/4% per year and $199.9 million of these notes bear interest, payable semi-annually, at a rate of 87/8% per year (collectively the "Notes"). The indentures governing the Notes (the "Indentures") contain certain customary financial and other covenants which limit the Company and its subsidiaries' ability to incur additional debt and to pay dividends. At December 31, 1999, the Company's Consolidated Coverage Ratio (as defined) was 1.32 to 1.00. The Indentures provide that the Company may not incur additional indebtedness, other than specified types of indebtedness, unless the Consolidated Coverage Ratio is at least 2.00 to 1.00. As a result, the covenant limits the Company's ability to incur additional indebtedness for borrowings under the Amended Bank Facility not to exceed the greater of $200 million or 1.5 times Operating Cash Flow (as defined) for the four most recent quarters, plus $15 million. The limitation on the incurrence of additional indebtedness and dividend restrictions in the Indentures significantly restrict the Company's ability to pay dividends on its capital stock. The Indentures also give the holders of the Notes the right to require the Company to purchase the Notes at 101% of the principal amount of the Notes plus accrued interest thereon upon a Change of Control and Rating Decline (each as defined in the Indentures) of the Company. SUNSET OPERATING LEASE The Company entered into an operating lease for furniture, fixtures and equipment (the "Equipment") with a cost of up to $40.0 million, dated as of September 25, 1996 (the "Sunset Operating Lease") with First Security Trust Company of Nevada. A total of $35.7 million of this facility had been drawn. The Company incurred approximately $2.0 million of rent expense per quarter related to the Sunset Operating Lease. In October 1999, the Company exercised its option to purchase the equipment for approximately $27.0 million. The purchase price was funded with borrowings from the Company's Revolving Facility. COMMON STOCK The Company is authorized to issue up to 90,000,000 shares of its common stock, $0.01 par value per share (the "Common Stock"), 42,455,999 shares of which were issued and 778,329 shares were held in treasury as of December 31, 1999. Each holder of the Common Stock is entitled to one vote for each share held of record on each matter submitted to a vote of stockholders. Holders of the Common Stock have no cumulative voting, conversion, redemption or preemptive rights or other rights to subscribe for additional shares other than pursuant to the Rights Plan described below. Subject to any preferences that may be granted to the holders of the Company's preferred stock, each holder of Common Stock is entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor as well as any distributions to the stockholders and, in the event of liquidation, dissolution or winding up of the Company, is entitled to share ratably in all assets of the Company remaining after payment of liabilities. RIGHTS PLAN On October 6, 1997, the Company declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of Common Stock. The dividend was paid on October 21, 1997. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock, par value $0.01 per share ("Preferred Shares") of the Company at a price of $40.00 per one one-hundredth of a Preferred Share, subject to adjustment. The Rights are not exercisable until the earlier of 10 days following a public announcement that a person or group of affiliated or associated persons have acquired beneficial ownership of 15% or more of the outstanding Common Stock ("Acquiring Person") or 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding Common Stock. 31 The Rights will expire on October 21, 2007. Acquiring Persons do not have the same rights to receive Common Stock as other holders upon exercise of the Rights. Because of the nature of the Preferred Shares' dividend, liquidation and voting rights, the value of one one-hundredth interest in a Preferred Share purchasable upon exercise of each Right should approximate the value of one Common Share. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, the proper provisions will be made so that each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter become void), will thereafter have the right to receive upon exercise that number of shares of Common Stock having a market value of two times the exercise price of the Right. In the event that the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold after a person or group has become an Acquiring Person, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon exercise thereof, that number of shares of Common Stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. Because of the characteristics of the Rights in connection with a person or group of affiliated or associated persons becoming an Acquiring Person, the Rights may have the effect of making an acquisition of the Company more difficult and may discourage such an acquisition. PREFERRED STOCK The Company is authorized to issue up to 5,000,000 shares of its preferred stock, $0.01 par value per share (the "Preferred Stock"). As of June 14, 1999, the Company redeemed all 2,070,000 shares of its $3.50 Convertible Preferred Stock in exchange for 6,741,632 shares of the Company's Common Stock. The Board of Directors, without further action by the holders of Common Stock, may issue shares of Preferred Stock in one or more series and may fix or alter the rights, preferences, privileges and restrictions, including the voting rights, redemption provisions (including sinking fund provisions), dividend rights, dividend rates, liquidation rates, liquidation preferences, conversion rights and the description and number of shares constituting any wholly unissued series of Preferred Stock. Except as described above, the Board of Directors, without further stockholder approval, may issue shares of Preferred Stock with rights that could adversely affect the rights of the holders of Common Stock. The issuance of shares of Preferred Stock under certain circumstances could have the effect of delaying or preventing a change of control of the Company or other corporate action. TREASURY STOCK The Company is authorized to repurchase up to approximately 6.3 million shares of its Common Stock. As of December 31, 1999, the Company had purchased 0.8 million shares at a cost of $11.9 million. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. The Company's primary exposure to market risk is interest rate risk associated with its long-term debt. The Company attempts to limit its exposure to interest rate risk by managing the mix of its long-term fixed-rate borrowings and short-term borrowings under the Amended Bank Facility. Borrowings under the Amended Bank Facility bear interest, at the Company's option, at a specified premium over the prime rate or at a specified premium over the one-, two-, three-, or six-month London Interbank Offered Rate ("LIBOR"). However, the amount of outstanding borrowings is expected to fluctuate and may be reduced from time to time. The Revolving Facility matures in September 2003 and the Amended Bank Facility matures in December 2005. The following table provides information about the Company's long-term debt at December 31, 1999 (see also "Description of Certain Indebtedness and Capital Stock") (amounts in thousands):
Maturity Face Carrying Estimated Date Amount Value Fair Value ---------------------- ----------- --------- ---------- Revolving Facility at a weighted average interest rate of approximately 7.94%............ September 2003 $177,300 $177,300 $177,300 Term Loan, interest at 8.69%......................... December 2005 200,000 200,000 200,000 8 7/8% senior subordinated notes..................... December 2008 199,900 199,900 192,863 9 3/4% senior subordinated notes..................... April 2007 150,000 145,326 150,405 10 1/8% senior subordinated notes.................... March 2006 198,000 197,087 203,267 Other notes, interest ranging from 7.83% to 9.00%.... Various to June 2007 22,867 22,867 22,867 ----------- --------- --------- Total $948,067 $942,480 $946,702 =========== ======== ==========
32
ITEM 8. FINANCIAL STATEMENTS INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Report of Independent Public Accountants............................................................................ 34 Consolidated Balance Sheets......................................................................................... 35 Consolidated Statements of Operations............................................................................... 36 Consolidated Statements of Stockholders' Equity..................................................................... 37 Consolidated Statements of Cash Flows............................................................................... 38 Notes to Consolidated Financial Statements.......................................................................... 39
33 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Station Casinos, Inc.: We have audited the accompanying consolidated balance sheets of Station Casinos, Inc. (a Nevada corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1999, for the nine months ended December 31, 1998 and for the year ended March 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Station Casinos, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the year ended December 31, 1999, for the nine months ended December 31, 1998 and for the year ended March 31, 1998, in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Las Vegas, Nevada January 24, 2000 34
STATION CASINOS, INC. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- ASSETS Current assets: Cash and cash equivalents ..................................................... $ 73,072 $ 59,040 Cash - restricted for payment of long-term debt - defeased January 4, 1999 ... - 202,383 Accounts and notes receivable, net ............................................ 12,346 18,372 Inventories ................................................................... 6,013 5,466 Prepaid gaming tax ............................................................ 10,035 8,908 Prepaid expenses .............................................................. 8,219 6,786 Deferred income tax ........................................................... 10,519 4,981 ------------- ------------- Total current assets ...................................................... 120,204 305,936 Property and equipment, net ................................................... 1,025,753 1,147,890 Land held for development ..................................................... 18,839 17,009 Deferred income tax, net ...................................................... 21,823 - Other assets, net ............................................................. 89,654 61,090 ============= ============= Total assets .............................................................. $ 1,276,273 $ 1,531,925 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ............................................. $ 8,647 $ 13,323 Accounts payable .............................................................. 11,998 18,636 Accrued payroll and related ................................................... 25,065 18,162 Construction contracts payable ................................................ 750 10,399 Accrued interest payable ...................................................... 12,341 15,306 Accrued progressives .......................................................... 8,877 7,438 Accrued expenses and other current liabilities ................................ 50,011 34,672 ------------- ------------- Total current liabilities ................................................. 117,689 117,936 Long-term debt, less current portion .......................................... 933,833 946,308 9 5/8% Senior subordinated notes - defeased January 4, 1999 ................... - 187,635 Other long-term liabilities, net .............................................. 7,950 10,640 ------------- ------------- Total liabilities ......................................................... 1,059,472 1,262,519 ------------- ------------- Commitments and contingencies (Note 6) Stockholders' equity: Preferred stock, par value $.01; authorized 5,000,000 shares; 0 and 2,070,000 convertible preferred shares issued and outstanding .............. - 103,500 Common stock, par value $.01; authorized 90,000,000 shares; 42,455,999 and 35,312,192 shares issued .................................... 424 353 Treasury stock, 778,329 and 213,008 shares, at cost ........................... (11,862) (2,006) Additional paid-in capital .................................................... 282,294 168,867 Deferred compensation - restricted stock ...................................... (7,432) (159) Accumulated deficit .......................................................... (45,907) (1,149) Accumulated other comprehensive income ........................................ (716) - ------------- ------------- Total stockholders' equity ................................................ 216,801 269,406 ------------- ------------- Total liabilities and stockholders' equity ................................ $ 1,276,273 $ 1,531,925 ============= =============
The accompanying notes are an integral part of these consolidated statements. 35 STATION CASINOS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE YEAR FOR THE NINE FOR THE YEAR ENDED MONTHS ENDED ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 MARCH 31, 1998 --------------------- -------------------- -------------------- (SEE NOTE 1) Operating revenues: Casino ................................................ $ 764,089 $ 509,149 $ 600,847 Food and beverage ..................................... 141,116 104,538 131,365 Room .................................................. 42,870 30,040 37,330 Other ................................................. 62,286 47,663 53,494 -------------- -------------- -------------- Gross revenues ................................... 1,010,361 691,390 823,036 Promotional allowances ................................ (67,892) (49,176) (53,426) -------------- -------------- -------------- Net revenues ..................................... 942,469 642,214 769,610 -------------- -------------- -------------- Operating costs and expenses: Casino ................................................ 356,365 249,353 291,102 Food and beverage ..................................... 88,898 66,121 89,928 Room .................................................. 15,860 11,515 13,461 Other ................................................. 30,616 19,463 24,762 Selling, general and administrative ................... 190,753 136,649 173,270 Corporate expense ..................................... 23,007 11,431 14,621 Depreciation and amortization ......................... 70,664 52,975 67,414 Impairment loss ....................................... 137,435 30,011 - Preopening expenses ................................... - - 10,866 -------------- -------------- -------------- 913,598 577,518 685,424 -------------- -------------- -------------- Operating income ............................................ 28,871 64,696 84,186 -------------- -------------- -------------- Other income (expense): Interest expense, net ................................. (84,618) (66,127) (78,826) Interest expense - defeasance, net .................... - (835) - Abandoned acquisition costs ........................... (2,409) - - Merger settlement, net of related legal costs ......... 12,824 (2,943) - Write-off of costs to elect REIT status ............... - - (2,914) Other ................................................. (1,891) (4,655) (6,566) -------------- -------------- -------------- (76,094) (74,560) (88,306) -------------- -------------- -------------- Loss before income taxes and extraordinary item ............. (47,223) (9,864) (4,120) Income tax benefit .......................................... 14,929 871 966 -------------- -------------- -------------- Loss before extraordinary item .............................. (32,294) (8,993) (3,154) Extraordinary item - loss on early retirement of debt, net of applicable income tax benefit ........................ (10,653) (3,104) (2,042) -------------- -------------- -------------- Net loss .................................................... (42,947) (12,097) (5,196) Preferred stock dividends ................................... (1,811) (5,434) (7,245) -------------- -------------- -------------- Net loss applicable to common stock ......................... $ (44,758) $ (17,531) $ (12,441) ============== ============== ============== Weighted average common shares outstanding .................. 39,128,094 35,311,715 35,309,189 ============== ============== ============== Basic and diluted loss per common share: Loss applicable to common stock, before extraordinary item ............................... $ (0.87) $ (0.41) $ (0.29) Extraordinary item ....................................... $ (0.27) $ (0.09) $ (0.06) Loss applicable to common stock .......................... $ (1.14) $ (0.50) $ (0.35)
The accompanying notes are an integral part of these consolidated statements. 36 STATION CASINOS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (AMOUNTS IN THOUSANDS)
DEFERRED ADDITIONAL COMPENSATION- PREFERRED COMMON TREASURY PAID - IN RESTRICTED STOCK STOCK STOCK CAPITAL STOCK ------------ ------------ ------------ ------------- ------------- Balances, March 31,1997 ........... $ 103,500 $ 353 $ -- $ 167,397 $ (1,225) Exercise of stock options ......... -- -- -- 26 -- Cancellation of restricted stock ........................... -- -- -- (243) 243 Amortization of deferred compensation .................... -- -- -- -- 454 Preferred stock dividends ......... -- -- -- -- -- Net loss .......................... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------- Balances, March 31, 1998 .......... 103,500 353 -- 167,180 (528) Exercise of stock options ......... -- -- -- 36 -- Amortization of deferred compensation .................... -- -- -- -- 369 Preferred stock dividends ......... -- -- -- -- -- Purchase of treasury stock, at cost (213 shares) ............... -- -- (2,006) -- -- Other ............................. -- -- -- 1,651 -- Net loss .......................... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------- Balances, December 31, 1998, (see Note 1) .................... 103,500 353 (2,006) 168,867 (159) Exercise of stock options ......... -- 1 -- 827 -- Issuance of restricted stock ...... -- 3 -- 7,510 (7,513) Amortization of deferred compensation .................... -- -- -- -- 240 Preferred stock dividends.......... -- -- -- -- -- Preferred stock conversion ........ (103,500) 67 -- 103,746 -- Purchase of treasury stock, at cost (565 shares) ............... -- -- (9,856) -- -- Other ............................. -- -- -- 1,344 -- Asset held for sale market valuation adjustment ............ -- -- -- -- -- Net loss .......................... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------- Balances, December 31, 1999 ....... $ -- $ 424 $ (11,862) $ 282,294 $ (7,432) ============ ============ ============ ============ ============= RETAINED ACCUMULATED EARNINGS OTHER TOTAL (ACCUMULATED COMPREHENSIVE STOCKHOLDERS' DEFICIT) INCOME EQUITY ------------ ------------ ------------ Balances, March 31,1997 ........... $ 28,823 $ -- $ 298,848 Exercise of stock options ......... -- -- 26 Cancellation of restricted stock ........................... -- -- -- Amortization of deferred compensation .................... -- -- 454 Preferred stock dividends ......... (7,245) -- (7,245) Net loss .......................... (5,196) -- (5,196) ------------ ------------ ------------ Balances, March 31, 1998 .......... 16,382 -- 286,887 Exercise of stock options ......... -- -- 36 Amortization of deferred compensation .................... -- -- 369 Preferred stock dividends ......... (5,434) -- (5,434) Purchase of treasury stock, at cost (213 shares) ............... -- -- (2,006) Other ............................. -- -- 1,651 Net loss .......................... (12,097) -- (12,097) ------------ ------------ ------------ Balances, December 31, 1998, (see Note 1) .................... (1,149) -- 269,406 Exercise of stock options ......... -- -- 828 Issuance of restricted stock ...... -- -- -- Amortization of deferred compensation .................... -- -- 240 Preferred stock dividends.......... (1,811) -- (1,811) Preferred stock conversion ........ -- -- 313 Purchase of treasury stock, at cost (565 shares) ............... -- -- (9,856) Other ............................. -- -- 1,344 Asset held for sale market valuation adjustment ............ -- (716) (716) Net loss .......................... (42,947) -- (42,947) ------------ ------------ ------------ Balances, December 31, 1999 ....... $ (45,907) $ (716) $ 216,801 ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. 37 STATION CASINOS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
FOR THE YEAR FOR THE NINE FOR THE YEAR ENDED MONTHS ENDED ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 MARCH 31,1998 ------------------- ------------------- --------------- (SEE NOTE 1) Cash flows from operating activities: Net loss ........................................................... $ (42,947) $ (12,097) $ (5,196) -------------- -------------- -------------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization .................................. 70,664 52,975 67,414 Amortization of debt discount and issuance costs ............... 2,659 4,254 6,443 Loss on early retirement of debt ............................... 16,389 4,775 2,668 Merger and related legal costs ................................. - 2,943 - Impairment loss ................................................ 137,435 30,011 - Write-off of costs to elect REIT status ........................ - - 2,914 Preopening expenses ............................................ - - 10,866 (Decrease) increase in deferred income tax ..................... (32,733) (6,410) 2,854 Changes in assets and liabilities: Decrease (increase) in accounts and notes receivable, net .... 6,026 (5,598) (4,845) Increase in inventories and prepaid expenses and other ....... (3,113) (2,839) (3,228) (Decrease) increase in accounts payable ...................... (6,893) 2,138 (4,608) Increase in accrued expenses and other current liabilities ... 25,170 9,531 23,160 Other, net ..................................................... 401 (2,991) 6,513 -------------- -------------- -------------- Total adjustments .................................... 216,005 88,789 110,151 -------------- -------------- -------------- Net cash provided by operating activities ............ 173,058 76,692 104,955 -------------- -------------- -------------- Cash flows from investing activities: Capital expenditures ........................................... (76,344) (96,482) (130,853) Proceeds from sale of property and equipment ................... 5,025 5,998 4,925 Assets held for sale ........................................... (37,468) - - Decrease in construction contracts payable ..................... (9,649) (135) (84,301) Preopening expenses ............................................ - - (8,551) Other, net ..................................................... (13,217) (3,152) (627) -------------- -------------- -------------- Net cash used in investing activities ................ (131,653) (93,771) (219,407) -------------- -------------- -------------- Cash flows from financing activities: (Payments) borrowings under bank facility, net ................. (1,700) 55,000 47,000 Payments under the Sunset loan agreement ....................... - - (46,000) Proceeds from notes payable .................................... - - 16,239 Principal payments on notes payable ............................ (16,004) (11,780) (27,030) Proceeds from the issuance of senior subordinated notes ........ - 199,900 144,287 Defeasance of 9 5/8% senior subordinated notes ................. (201,670) - - Purchase of treasury stock ..................................... (9,856) (2,006) - Dividends paid on preferred stock .............................. (1,811) (5,434) (7,245) Exercise of stock options ...................................... 828 36 26 Debt issuance costs and other, net ............................. 457 (7,372) (5,189) -------------- -------------- -------------- Net cash (used in) provided by financing activities .. (229,756) 228,344 122,088 -------------- -------------- -------------- Cash and cash equivalents: (Decrease) increase in cash and cash equivalents ............... (188,351) 211,265 7,636 Balance, beginning of year ..................................... 261,423 50,158 42,522 -------------- -------------- -------------- Balance, end of year ........................................... $ 73,072 $ 261,423 $ 50,158 ============== ============== ============== Supplemental cash flow disclosures: Cash paid for interest, net of amounts capitalized ............. $ 85,176 $ 65,275 $ 66,691 Cash paid for income taxes, net ................................ $ 15,202 $ 519 $ 92 Property and equipment purchases financed by debt .............. $ 35 $ 2,978 $ 3,532 Preferred stock converted to common stock and additional paid-in capital .............................................. $ 100,131 $ - $ - Market valuation adjustment for asset held for sale ............ $ 716 $ - $ -
The accompanying notes are an integral part of these consolidated statements. 38 STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION BASIS OF PRESENTATION AND ORGANIZATION Station Casinos, Inc. (the "Company"), a Nevada Corporation, is an established multi-jurisdictional gaming and entertainment enterprise that currently owns and operates four major hotel/casino properties and two smaller casino properties in Las Vegas, Nevada, and gaming and entertainment complexes in St. Charles and Kansas City, Missouri. The Company also owns and provides slot route management services in southern Nevada. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Palace Station Hotel & Casino, Inc. ("Palace Station"), Boulder Station, Inc. ("Boulder Station"), Texas Station, Inc. ("Texas Station"), Sunset Station, Inc. ("Sunset Station"), St. Charles Riverfront Station, Inc. ("Station Casino St. Charles"), Kansas City Station Corporation ("Station Casino Kansas City"), Southwest Gaming Services, Inc. ("SGSI") and Tropicana Station, Inc., the operator of the Wild Wild West Gambling Hall & Hotel ("Wild Wild West"), which opened in July 1998. The Company also owns a 50% interest in Town Center Amusements, Inc. d.b.a. Barley's Casino & Brewing Company ("Barley's"). All significant intercompany accounts and transactions have been eliminated. CHANGE IN FISCAL YEAR On November 6, 1998, the Company filed a Form 8-K announcing its change in fiscal year end from March 31 of each year to December 31 of each year. This change is effective for the nine month period ended December 31, 1998 (the "Transition Period 1998"). Selected consolidated financial data for the twelve months ended December 31, 1998 is presented below, for comparison purposes only (amounts in thousands, unaudited). Net revenues.................................................. $ 847,015 Operating income.............................................. 92,380 Loss before income taxes and extraordinary item............... (10,092) Income tax benefit............................................ 453 Extraordinary item, net of applicable income tax benefit...... (5,146) Net loss...................................................... (14,785) Net loss applicable to common stock........................... (22,030) Loss per common share applicable to common stock.............. (0.62)
USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include investments purchased with an original maturity of 90 days or less. INVENTORIES Inventories are stated at the lower of cost or market; cost being determined on a first-in, first-out basis. 39 STATION CASINOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the terms of the capitalized lease, whichever is less. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred. CAPITALIZATION OF INTEREST The Company capitalizes interest costs associated with debt incurred in connection with major construction projects. Interest capitalization ceases once the project is substantially complete or no longer undergoing construction activities to prepare it for its intended use. When no debt is specifically identified as being incurred in connection with such construction projects, the Company capitalizes interest on amounts expended on the project at the Company's weighted average cost of borrowed money. Interest capitalized for the fiscal year ended December 31, 1999 was approximately $0.4 million, for the Transition Period 1998 was approximately $1.2 million and for the fiscal year ended March 31, 1998 was approximately $12.8 million. DEBT ISSUANCE COSTS Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense over the terms of the related debt agreements. PREOPENING EXPENSES During the construction of and prior to the opening of a facility, all operating expenses, including incremental salaries and wages directly related thereto, were capitalized as preopening expenses. The construction phase typically covers a period of 12 to 24 months. The majority of preopening costs are incurred in the three months prior to opening. The Company expensed preopening expenses immediately upon the opening of the related facility. During the fiscal year ended March 31, 1998, the Company incurred preopening expenses of $10.9 million, substantially related to the opening of Sunset Station. During the fiscal year ended December 31, 1999 and the Transition Period 1998, the Company had no preopening expenses. Effective January 1, 1999, Statement of Position 98-5, "Reporting on the Costs of Start-up Activities", changed the manner in which the Company accounts for preopening expenses. Preopening expenses incurred after January 1, 1999 will be expensed as incurred. REVENUES AND PROMOTIONAL ALLOWANCES In accordance with industry practice, the Company recognizes as casino revenues the net win from gaming activities, which is the difference between gaming wins and losses. All other revenues are recognized as the service is provided. Revenues include the retail value of accommodations and food and beverage provided on a complimentary basis to customers. The estimated departmental costs of providing such promotional allowances are included in casino costs and expenses and consist of the following (amounts in thousands):
FOR THE FOR THE YEAR ENDED TRANSITION YEAR ENDED DECEMBER 31, PERIOD MARCH 31, 1999 1998 1998 ---------------- --------------- -------------- Food and beverage............................................... $ 51,916 $ 38,816 $ 40,573 Room............................................................ 2,527 1,877 3,027 Other........................................................... 3,106 1,932 2,828 --------------- --------------- -------------- Total......................................................... $ 57,549 $ 42,625 $ 46,428 =============== =============== ==============
40 EARNINGS (LOSS) APPLICABLE TO COMMON STOCK In the fiscal year ended March 31, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This statement replaces previously reported earnings per share ("EPS") with basic EPS and diluted EPS. Basic EPS is computed by dividing net income (loss) applicable to common stock by the weighted average common shares outstanding during the period. Diluted EPS reflects the additional dilution for all potentially dilutive securities such as stock options and convertible preferred stock. Diluted EPS is not presented separately because the exercise of stock options and the conversion of the convertible preferred stock does not have a dilutive effect on the per share amounts. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings, and is effective for financial statements issued for fiscal years beginning after December 15, 1997. The Company has adopted SFAS No. 130 as reflected in the accompanying consolidated financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes additional standards for segment reporting in financial statements and is effective for fiscal years beginning after December 15, 1997. The Company currently operates in only one segment. RECLASSIFICATIONS Certain amounts in the Transition Period 1998 and the March 31, 1998 consolidated financial statements have been reclassified to conform to the December 31, 1999 presentation. These reclassifications had no effect on the Company's net loss. 2. ACCOUNTS AND NOTES RECEIVABLE Components of accounts and notes receivable are as follows (amounts in thousands):
DECEMBER 31, ---------------------------------- 1999 1998 --------------- ------------ Casino................................................................. $ 7,496 $ 6,238 Hotel.................................................................. 2,546 1,743 Insurance Proceeds (see Note 3)........................................ - 7,239 Other.................................................................. 5,263 5,187 ------------ ------------ 15,305 20,407 Allowance for doubtful accounts........................................ (2,959) (2,035) ------------- ------------- Accounts and notes receivable, net................................ $ 12,346 $ 18,372 ============= =============
41 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following as of December 31, 1999 and 1998 (amounts in thousands):
DECEMBER 31, --------------------------------- ESTIMATED LIFE (YEARS) 1999 1998 ---------------------- --------------- --------------- Land ................................................ - $ 36,737 $ 37,864 Land leases acquired................................. 48-52 4,995 4,685 Buildings and leasehold improvements................. 31-45 765,042 728,642 Boats and barges..................................... 20-45 67,009 100,086 Furniture, fixtures and equipment.................... 3-7 284,167 251,681 Construction in progress............................. - 119,353 224,572 --------------- --------------- 1,277,303 1,347,530 Accumulated depreciation and amortization............ (251,550) (199,640) --------------- --------------- Property and equipment, net..................... $ 1,025,753 $ 1,147,890 =============== ===============
At December 31, 1999 and 1998, substantially all property and equipment of the Company is pledged as collateral for long-term debt. CONSTRUCTION IN PROGRESS In the fall of 1996, the Company commenced an expansion project at Station Casino St. Charles which included the building of a backwater basin containing two new gaming vessels and a new retail and entertainment complex. Since December 31, 1997, construction on the Station Casino St. Charles expansion project has been halted. Included in construction in progress at December 31, 1999 is approximately $101.0 million related to the Station Casino St. Charles expansion project (see Asset Impairment discussion below). ASSET IMPAIRMENT In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company recorded an impairment loss of $137.4 million in the fiscal year ended December 31, 1999 and $30.0 million in the Transition Period 1998 to adjust the carrying value of its fixed assets and land held for development to their estimated fair value. In the fiscal year ended December 31, 1999, approximately $125.2 million of the impairment loss was related to Station Casino St. Charles. In the fourth quarter of 1999, the Company made a decision to reconfigure the existing Station Casino St. Charles facility to a more efficient layout in response to the new open boarding rules promulgated by the Missouri Gaming Commission that began in September 1999 in the St. Louis market. All gaming operations will be moved to the existing barge by the end of the first quarter of 2000. The existing riverboat is expected to be sold after the reconfiguration is complete. In accordance with SFAS No. 121, the riverboat and miscellaneous other fixed assets were written down by approximately $15 million to their net realizable value. In addition, the Company performed an evaluation of the carrying values of the remaining assets in St. Charles and determined a $110 million write-down of the asset values was necessary. The write-down was deemed appropriate after a review of the property's asset valuations relative to the Company's near-term investment objectives. The balance of the impairment loss in the fiscal year ended December 31, 1999, resulted primarily from the Company's determination that it will sell a 40-acre parcel of land in Henderson, Nevada, that it recently acquired. Future development of the property will be limited to non-gaming purposes. The resulting write-down of the parcel was necessary to reflect the value of the land as a non-gaming site. In the Transition Period 1998, the impairment loss principally involves assets at the Station Casino St. Charles facility, including a riverboat formerly used in the Missouri operations, capitalized project costs associated with various parcels of land determined to have no value, and several parcels of land within close proximity to the St. Charles, Missouri site that were being held for future development. The fair value of the impaired assets was primarily determined through the market's interest in riverboats and barges, and on the comparable sales prices on parcels of land in the St. Charles area. 42 The total amount of the impairment loss in the Transition Period 1998 related to this category of assets was approximately $23.4 million. In addition to the assets described above, the most significant portion of the remaining impairment loss in the Transition Period 1998 relates to several parcels of land in Nevada and Texas that the Company had acquired in the past for either defensive or expansion purposes. The value of these parcels was determined based on sales prices for comparable parcels of land on the market. The following two circumstances led to the Company's decision to write-down these assets to their fair market value: (1) the passage, in Nevada, of legislation which places significantly higher requirements on land to be zoned for gaming purposes, and (2) the termination of the Plan of Merger with Crescent Real Estate Equities Company (see Note 11). Included in other assets, net on the accompanying consolidated balance sheet as of December 31, 1999, is $26.1 million related primarily to parcels of land. The Company is actively attempting to dispose of these non-strategic assets and expects to complete the sale of certain of these assets in the first half of calendar year 2000. PALACE STATION FIRE AND FLOOD On July 20, 1998, Palace Station suffered damage to its casino and hotel tower as a result of a thunderstorm in the Las Vegas Valley. In November 1998, repairs were completed to the casino and all of the rooms in the 21-story hotel tower became fully functional. Losses associated with the property damage and business interruption were covered under the Company's insurance policies. As of December 31, 1998, the Company had recorded $6.8 million in other revenues in the Consolidated Statements of Operations for the Transition Period 1998 related to the business interruption claim. During the quarter ended March 31, 1999, the Company received its final payment from its insurance company on these claims. 4. LAND HELD FOR DEVELOPMENT The Company has acquired several parcels of land in various jurisdictions as part of the Company's development activities. The Company's decision on whether to proceed with any new gaming opportunity is dependent upon future economic and regulatory factors, the availability of financing and competitive and strategic considerations. As many of these considerations are beyond the Company's control, no assurances can be made that the Company will be able to obtain appropriate licensing or be able to secure additional, acceptable financing in order to proceed with any particular project. Included in land held for development at December 31, 1999 and 1998 is approximately $18.8 million and $17.0 million, respectively, related to land which had been acquired for potential gaming projects in jurisdictions where gaming has been approved. In June 1997, $5.0 million of certain expired option payments to lease or acquire land for future development, which had previously been capitalized, were expensed in other expense on the accompanying Consolidated Statements of Operations. 43 5. LONG-TERM DEBT Long-term debt consists of the following (amounts in thousands):
DECEMBER 31, ---------------------------------- 1999 1998 --------------- --------------- Amended and restated reducing revolving credit facility, $330.8 million limit at December 31, 1999, due September 30, 2003, interest at a margin above the bank's prime rate or the Eurodollar Rate (7.94% at December 31, 1999) ................... $ 177,300 $ 304,000 Secured term loan facility, $200.0 million limit at December 31, 1999, due December 31, 2005, interest at 2.50% above the Eurodollar Rate (8.69% at December 31, 1999) ..................................................................... 200,000 75,000 8 7/8% senior subordinated notes, interest payable semi-annually, principal due December 1, 2008 ....................................................................... 199,900 199,900 9 3/4% senior subordinated notes, interest payable semi-annually, principal due April 15, 2007, net of unamortized discount of $4.7 million at December 31, 1999 .................. 145,326 144,914 10 1/8% senior subordinated notes, interest payable semi-annually, principal due March 15, 2006, net of unamortized discount of $0.9 million at December 31, 1999 .................. 197,087 196,981 Other long-term debt, collateralized by various assets, including slot machines, furniture and equipment, and land, monthly installments including interest ranging from 7.83% to 9.00% at December 31, 1999 .............................................................. 22,867 38,836 ------------ ------------ Total long-term debt ............................................................... 942,480 959,631 Current portion of long-term debt .......................................................... (8,647) (13,323) ------------ ------------ Total long-term debt, less current portion ......................................... 933,833 946,308 9 5/8% senior subordinated notes, net of unamortized discount of $5.4 million at December 31, 1998, defeased January 4, 1999 ............................................. - 187,635 ------------ ------------ Total .............................................................................. $ 933,833 $ 1,133,943 ============ ============
In December 1998, the Company completed an offering of $199.9 million of senior subordinated notes due in December 2008, that have equal priority with the Company's other senior subordinated notes. The $199.9 million senior subordinated notes bear interest payable semi-annually, at a rate of 8 7/8% per year (the "8 7/8% Notes"). At December 31, 1998, the Company had deposited the net proceeds from the sale of the 8 7/8% Notes and a portion of the funds borrowed under the Amended Bank Facility in a separate trust account with the trustee under the indenture relating to the 9 5/8% senior subordinated notes (the "9 5/8% Notes") to redeem and to pay accrued interest and redemption premiums related to the 9 5/8% Notes on the redemption date. The redemption occurred on January 4, 1999. The Company recorded an extraordinary charge of $10.4 million (net of applicable tax benefit) to reflect the write-off of the unamortized debt discount, unamortized loan costs and the premium to redeem the 9 5/8% Notes. In April 1997, the Company completed an offering of $150 million of senior subordinated notes due in April 2007, that have equal priority with the other senior subordinated notes. The $150 million senior subordinated notes have a coupon rate of 9 3/4% and were priced to yield 10.37% to maturity. The discount on the $150 million senior subordinated notes has been recorded as a reduction to long-term debt in the accompanying consolidated balance sheets. In March 1996, the Company completed an offering of $198 million of senior subordinated notes due in March 2006, that have equal priority with the other senior subordinated notes. The $198 million senior subordinated notes have a coupon rate of 10 1/8% and were priced to yield 10.24% to maturity. The discount on the $198 million senior subordinated notes has been recorded as a reduction to long-term debt in the accompanying consolidated balance sheets. The indentures governing the Company's senior subordinated notes (the "Indentures") contain certain customary financial and other covenants which limit the Company and its subsidiaries' ability to incur additional debt and to pay dividends. At December 31, 1999, the Company's Consolidated Coverage Ratio (as defined in the Indentures) was 1.32 to 1.00. The 44 Indentures provide that the Company may not incur additional indebtedness, other than specified types of indebtedness, unless the Consolidated Coverage Ratio is at least 2.00 to 1.00. As a result, the covenant limits the Company's ability to incur additional indebtedness for borrowings under the Amended Bank Facility not to exceed the greater of $200 million or 1.5 times Operating Cash Flow (as defined) for the four most recent quarters, plus $15 million. The limitation on the incurrence of additional indebtedness and dividend restrictions in the Indentures significantly restrict the Company's ability to pay dividends on its capital stock. The Indentures also give the holders of the Notes the right to require the Company to purchase the Notes at 101% of the principal amount of the Notes plus accrued interest thereon upon a Change of Control and Rating Decline (each as defined in the Indentures) of the Company. In August 1999, the Company amended its existing bank credit facility (the "Revolving Facility") and entered into a new $200.0 million secured term loan facility (the "Term Loan") (collectively, "the Amended Bank Facility"). The Amended Bank Facility is secured by substantially all of the assets of Palace Station, Boulder Station, Texas Station, Sunset Station, Station Casino St. Charles and Station Casino Kansas City (the "Borrowers"). The proceeds from the Term Loan were used to repay the Company's existing $75.0 million secured term loan facility and to reduce outstanding borrowings under the Company's Revolving Facility. The Company recorded an extraordinary charge of $0.3 million (net of applicable tax benefit) to reflect the write-off of the unamortized loan costs on the refinanced $75.0 million secured term loan facility. The Term Loan matures on December 31, 2005 and amortizes in installments of $0.5 million on each fiscal quarter end from March 31, 2000 until and including December 31, 2004 and of $47.5 million on each fiscal quarter end thereafter. The interest rate on the Term Loan is 2.50% above the Eurodollar Rate. The Term Loan contains financial covenants substantially identical to the covenants in the indentures governing the Company's senior subordinated notes. The Revolving Facility provides for borrowings up to an aggregate principal amount of $330.8 million at December 31, 1999. The Revolving Facility matures on September 30, 2003. The availability under the Revolving Facility will reduce by $14.0 million on March 31, 2001 and June 30, 2001; by $17.5 million on September 30, 2001, December 31, 2001, March 31, 2002, June 30, 2002 and September 30, 2002; and by $30.6 million on each fiscal quarter end thereafter. Borrowings under the Revolving Facility bear interest at a margin above the Alternate Base Rate or the Eurodollar Rate (each, as defined in the Revolving Facility), as selected by the Company. The margin above such rates, and the fee on the unfunded portions of the Revolving Facility, will vary quarterly based on the Company's combined consolidated ratio of debt to EBITDA (each, as defined in the Revolving Facility). As of December 31, 1999, the Borrower's margin above the Eurodollar Rate on borrowings under the Revolving Facility was 1.63%. The maximum margin for Eurodollar Rate borrowings is 2.75%. The maximum margin for Alternate Base Rate borrowings is 1.50%. As of December 31, 1999, the fee for the unfunded portion of the Revolving Facility was 40 basis points. The Revolving Facility contains certain financial and other covenants. These include a maximum funded debt to Adjusted EBITDA ratio for the Borrowers combined of 2.50 to 1.00 for each fiscal quarter, a minimum fixed charge coverage ratio for the preceding four quarters for the Borrowers combined of 1.50 to 1.00 for each fiscal quarter, limitations on indebtedness, limitations on asset dispositions, limitations on investments, limitations on prepayments of indebtedness and rent and limitations on capital expenditures. As of December 31, 1999, the Borrowers combined funded debt to Adjusted EBITDA ratio was 1.52 to 1.00 and their combined fixed charge coverage ratio for the preceding four quarters ended December 31, 1999 was 2.55 to 1.00. A tranche of the Revolving Facility contains a minimum tangible net worth requirement for Palace Station and certain restrictions on distributions of cash from Palace Station to the Company. As of December 31, 1999, Palace Station's tangible net worth exceeded the requirement by approximately $9.3 million. These covenants limit Palace Station's ability to make payments to the Company, a significant source of anticipated cash for the Company. In addition, the Revolving Facility has financial and other covenants relating to the Company. These include a tangible net worth covenant and a covenant limiting the consolidated funded debt to Adjusted EBITDA ratio to no more than 5.00 to 1.00 on December 31, 1999 and reducing quarterly to 4.00 to 1.00 on September 30, 2001. Other covenants limit prepayments of indebtedness or rent (including, subordinated debt other than refinancings meeting certain criteria), limitations on asset dispositions, limitation on dividends, limitations on indebtedness, limitations on investments and limitations on capital expenditures. The Revolving Facility also prohibits the Company from holding excess cash and cash equivalents. As of December 31, 1999, the Company's consolidated funded debt to Adjusted EBITDA ratio was 3.93 to 1.00. The Company has pledged the stock of all of its subsidiaries except Kansas City Station Corporation and St. Charles Riverfront Station, Inc. and has agreed to pledge the stock of the latter two subsidiaries upon regulatory approval (which is 45 expected to be obtained). On September 25, 1996, Sunset Station, a wholly-owned subsidiary of the Company, entered into a Construction/Term Loan Agreement (the "Sunset Loan Agreement") with a group of lenders, pursuant to which Sunset Station received a commitment for $110 million to finance the remaining development and construction costs of Sunset Station. The Company also entered into an operating lease for certain furniture, fixtures and equipment with a cost of up to $40 million to be subleased to Sunset Station as part of the Sunset Station project (see Note 6). The Sunset Loan Agreement included a first mortgage term note in the amount of $110 million (the "Sunset Note") which was non-recourse to the Company, except as to certain construction matters pursuant to a completion guarantee dated as of September 25, 1996, executed by the Company on behalf of Sunset Station and except that the Company had pledged all of the stock of Sunset Station as security for the Sunset Loan Agreement. As of March 31, 1998, the Sunset Note had been repaid. The early retirement resulted in an extraordinary loss of $2.0 million, net of the applicable income tax benefit. In order to manage the interest rate risk associated with the Sunset Note, Sunset Station entered into an interest rate swap agreement. This agreement swapped the variable rate interest pursuant to the Sunset Note to a fixed rate of 9.58% (5.83% fixed plus the Sunset Note margin), on $35 million notional amount as of January 1997 increasing to $60 million at March 1997, $90 million at June 1997, $100 million at September 1997 and then decreasing to $95 million at June 1998. The agreement expired in December 1998. The difference paid or received pursuant to the swap agreement was accrued as interest rates changed and recognized as an adjustment to interest expense on the Sunset Note. At the time of the early retirement of the Sunset Note, the Borrowers under the Bank Facility accepted the interest rate swap on substantially identical terms to those of the Sunset Note. The estimated fair value of the Company's long-term debt at December 31, 1999, was approximately $946.7 million, compared to its book value of approximately $942.5 million. The estimated fair value amounts were based on quoted market prices on or about December 31, 1999, for the Company's debt securities that are publicly traded. For the Amended Bank Facility, the fair value approximates the carrying amount of the debt due to the short-term maturities of the individual components of the debt. Scheduled maturities of long-term debt are as follows (amounts in thousands):
YEAR ENDING DECEMBER 31, ------------------------ 2000 ....................................................... $ 8,647 2001 ....................................................... 9,920 2002 ....................................................... 1,052 2003 ....................................................... 188,210 2004 ....................................................... 2,130 Thereafter ................................................. 732,521 ---------- Total ...................................................... $ 942,480 ==========
6. COMMITMENTS AND CONTINGENCIES BOULDER STATION LEASE The Company entered into a ground lease for 27 acres of land on which Boulder Station is located. The Company leases this land from a trust pursuant to a long-term ground lease. The trustee of this trust is Bank of America NT&SA, the beneficiary of which is KB Enterprises, an affiliated company owned by Frank J. Fertitta, Jr. and Victoria K. Fertitta (the "Related Lessor"), the parents of Frank J. Fertitta III, Chairman of the Board and Chief Executive Officer of the Company. The lease has a maximum term of 65 years, ending in June 2058. The lease provides for monthly payments of $135,525 through June 2008. In July 2008, and every ten years thereafter, the rent will be adjusted by a cost of living factor. In July 2003, and every ten years thereafter, the rent will be adjusted to the product of the fair market value of the land and the greater of (i) the then prevailing 46 annual rate of return for comparably situated property or (ii) 8% per year. In no event will the rent for any period be less than the immediately preceding period. Pursuant to the ground lease, the Company has an option, exercisable at five-year intervals beginning in June 1998, to purchase the land at fair market value. The Company did not exercise its June 1998 option. The Company's leasehold interest in the property is subject to a lien to secure borrowings under the Amended Bank Facility. TEXAS STATION LEASE The Company entered into a ground lease for 47 acres of land on which Texas Station is located. The Company leases this land from a trust pursuant to a long-term ground lease. The trustee of this trust is Bank of America NT&SA, the beneficiary of which is Texas Gambling Hall & Hotel, Inc. an affiliate company of the Related Lessor. The lease has a maximum term of 65 years, ending in July 2060. The lease provides for monthly rental payments of $150,000 through June 2000. In July 2000, and every ten years thereafter, the rent will be adjusted to the product of the fair market value of the land and the greater of (i) the then prevailing annual rate of return being realized for owners of comparable land in Clark County or (ii) 8% per year. The rent will be further adjusted by a cost of living factor after the first ten years and every ten years thereafter. In no event will the rent for any period be less than the immediately preceding period. Pursuant to the ground lease, the Company has an option, exercisable at five-year intervals beginning in May 2000, to purchase the land at fair market value. The Company's leasehold interest in the property is subject to a lien to secure borrowings under the Amended Bank Facility. SUNSET STATION LEASE In June 1994, the Company entered into a lease agreement for approximately 48 acres of land on which Sunset Station is located. The lease has a term of 65 years with monthly rental payments of $120,000, adjusted on each subsequent five-year anniversary by a cost of living factor. In June 2001, the Company has an option to purchase this land for $23.8 million. Additionally, in June 2001, the lessor has an option to sell this land to the Company for $21.8 million. STATION CASINO KANSAS CITY LEASE The Company has entered into a joint venture which owns the land on which Station Casino Kansas City is located. At December 31, 1999, $3.0 million related to this investment is included in other assets, net in the accompanying consolidated balance sheets. In April 1994, Station Casino Kansas City entered into an agreement with the joint venture to lease this land. Currently, the agreement requires monthly payments of $93,636. Commencing April 1, 1998 and every anniversary thereafter, the rent shall be adjusted by a cost of living factor of not more than 5% or less than 2% per annum. The lease expires March 31, 2006, with an option to extend the lease for up to eight renewal periods of ten years each, plus one additional seven year period. In connection with the joint venture agreement, the Company received an option providing for the right to acquire the joint venture partner's interest in this joint venture. The Company has the option to acquire this interest at any time after April 1, 2002 through April 1, 2011, for $11.7 million, however, commencing April 1, 1998, the purchase price will be adjusted by a cost of living factor of not more than 5% or less than 2% per annum. At December 31, 1999, $2.6 million paid by the Company in consideration for this option is included in other assets, net in the accompanying consolidated balance sheets. The Company's leasehold interest in the property is subject to a lien to secure borrowings under the Amended Bank Facility. UNITED AUBURN INDIAN COMMUNITY On October 12, 1999, the Company announced that it has entered into a Development Services Agreement and a Management Agreement with the United Auburn Indian Community (the "UAIC"). Subject to the receipt of certain governmental approvals, as well as voter approval of a proposed amendment to the California constitution, the Company and the UAIC intends to develop a gaming and entertainment facility on 49 acres, approximately seven miles north of Interstate 80, in Placer County, California, near Sacramento. The scope and the timing of this project has yet to be determined. 47 EQUIPMENT LEASE In connection with the Sunset Loan Agreement, the Company entered into an operating lease for furniture, fixtures and equipment (the "Equipment") with a cost of up to $40 million, dated as of September 25, 1996, (the "Sunset Operating Lease") with First Security Trust Company of Nevada. A total of $35.7 million of this facility had been drawn. The Company incurred approximately $2.0 million of rent expense per quarter related to the Sunset Operating Lease. In October 1999, the Company exercised its option to purchase the equipment for approximately $27.0 million. The purchase price was funded with borrowings from the Company's Revolving Facility. OPERATING LEASES The Company leases several parcels of land and equipment used in its operations at Palace Station, Boulder Station, Texas Station, Sunset Station, Station Casino Kansas City and Wild Wild West. Leases on various parcels ranging from 13 acres to 171 acres have terms expiring between March 2006 and July 2063. Future minimum lease payments required under these operating leases and other noncancelable operating leases are as follows (amounts in thousands):
YEAR ENDING DECEMBER 31, ------------------------ 2000................................................................................................. $ 9,663 2001................................................................................................. 10,484 2002................................................................................................. 11,376 2003................................................................................................. 11,410 2004................................................................................................. 11,332 Thereafter........................................................................................... 437,023 ----------- Total........................................................................................... $ 491,288 ===========
Rent expense totaled approximately $14.6 million, $12.1 million and $12.6 million for the fiscal year ended December 31, 1999, the Transition Period 1998 and the fiscal year ended March 31,1998, respectively. Rent of $0.3 million was capitalized in connection with the construction of Sunset Station for the fiscal year ended March 31, 1998. 7. STOCKHOLDERS' EQUITY PREFERRED STOCK The Company is authorized to issue up to 5,000,000 shares of its preferred stock, $0.01 par value per share (the "Preferred Stock"). As of June 14, 1999, the Company redeemed all 2,070,000 shares of its $3.50 Convertible Preferred Stock in exchange for 6,741,632 shares of the Company's Common Stock. The Board of Directors, without further action by the holders of Common Stock, may issue shares of Preferred Stock in one or more series and may fix or alter the rights, preferences, privileges and restrictions, including the voting rights, redemption provisions (including sinking fund provisions), dividend rights, dividend rates, liquidation rates, liquidation preferences, conversion rights and the description and number of shares constituting any wholly unissued series of Preferred Stock. Except as described above, the Board of Directors, without further stockholder approval, may issue shares of Preferred Stock with rights that could adversely affect the rights of the holders of Common Stock. The issuance of shares of Preferred Stock under certain circumstances could have the effect of delaying or preventing a change of control of the Company or other corporate action. TREASURY STOCK The Company is authorized to repurchase up to approximately 6.3 million shares of its Common Stock. As of December 31, 1999, the Company had purchased 0.8 million shares at a cost of $11.9 million. 48 RIGHTS PLAN On October 6, 1997, the Company declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of Common Stock. The dividend was paid on October 21, 1997. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock, par value $0.01 per share ("Preferred Shares") of the Company at a price of $40.00 per one one-hundredth of a Preferred Share, subject to adjustment. The Rights are not exercisable until the earlier of 10 days following a public announcement that a person or group of affiliated or associated persons have acquired beneficial ownership of 15% or more of the outstanding Common Stock ("Acquiring Person") or 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding Common Stock. The Rights will expire on October 21, 2007. Acquiring Persons do not have the same rights to receive Common Stock as other holders upon exercise of the Rights. Because of the nature of the Preferred Shares' dividend, liquidation and voting rights, the value of one one-hundredth interest in a Preferred Share purchasable upon exercise of each Right should approximate the value of one Common Share. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, the proper provisions will be made so that each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter become void), will thereafter have the right to receive upon exercise that number of shares of Common Stock having a market value of two times the exercise price of the Right. In the event that the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold after a person or group has become an Acquiring Person, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon exercise thereof, that number of shares of Common Stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. Because of the characteristics of the Rights in connection with a person or group of affiliated or associated persons becoming an Acquiring Person, the Rights may have the effect of making an acquisition of the Company more difficult and may discourage such an acquisition. 8. BENEFIT PLANS STOCK COMPENSATION PROGRAM The Company has adopted a Stock Compensation Program (the "Program") which includes (i) an Incentive Stock Option Plan for the grant of incentive stock options, (ii) a Compensatory Stock Option Plan providing for the grant of nonqualified stock options, (iii) a Restricted Shares Plan providing for the grant of restricted shares of common stock and (iv) a Nonemployee Director Stock Option Plan, providing for the grant of nonqualified stock options. Officers, key employees, directors (whether employee directors or nonemployee directors) and independent contractors or agents of the Company and its subsidiaries are eligible to participate in the program. However, only employees of the Company and its subsidiaries are eligible to receive incentive stock options. A maximum of 10,807,000 shares of common stock have been reserved for issuance under the Program. Options are granted at the current market price at the date of grant. The plan provides for a variety of vesting schedules, ranging from immediate to twenty percent a year for five years, to be determined at the time of grant. All options have an exercise period of ten years from the date of grant. 49 The Program will terminate ten years from the date of adoption, unless terminated earlier by the Board of Directors, and no options or restricted shares may be granted under the Program after such date. Summarized information for the Program is as follows:
FOR THE YEAR FOR THE YEAR ENDED DECEMBER 31, TRANSITION PERIOD ENDED MARCH 31, 1999 1998 1998 --------------------------- ---------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ----------------------- ----------------------- --------------------------- Outstanding at beginning of the year 6,003,330 $ 12.43 5,067,452 $ 13.30 4,432,182 $ 15.22 Granted 750,766 $ 21.55 1,038,306 $ 7.69 1,799,742 $ 7.50 Exercised (71,483) $ 11.58 (1,123) $ 12.00 (4,012) $ 12.24 Canceled (76,951) $ 8.62 (101,305) $ 7.91 (1,160,460) $ 11.59 --------- --------- ---------- Outstanding at end of the year 6,605,662 $ 13.51 6,003,330 $ 12.43 5,067,452 $ 13.30 ========= ========= ========== Exercisable at end of year 3,768,443 $ 15.13 1,951,594 $ 16.60 1,485,971 $ 17.28 ========= ========= ========== Options available for grant 3,609,463 113,278 1,050,279 ========= ========= ==========
The following table summarizes information about the options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------ -------------------------------- WEIGHTED NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE PRICES DECEMBER 31, 1999 LIFE PRICE DECEMBER 31, 1999 PRICE ----------------------------------------------------------------- ------------------------------- $ 4.94 - $ 5.38 81,500 8.7 $ 5.36 13,500 $ 5.29 $ 7.50 - $ 11.00 2,390,702 8.2 $ 7.67 433,122 $ 7.70 $11.63 - $17.31 2,366,960 6.3 $14.20 2,140,321 $ 14.04 $18.00 - $24.75 1,766,500 5.7 $20.87 1,181,500 $ 19.95 --------- --------- 6,605,662 6.8 $13.51 3,768,443 $ 15.13 ========= =========
Restricted stock grants of 330,000 and 170,500 shares were issued during the fiscal years ended December 31, 1999 and March 31, 1995, respectively. The effect of these grants is to increase the issued and outstanding shares of the Company's common stock and decrease the number of shares available for grant in the plan. Deferred compensation is recorded for the restricted stock grants equal to the market value of the Company's common stock on the date of grant. The deferred compensation is amortized over the period the restricted stock vests and is recorded as compensation expense in the accompanying consolidated statements of operations. 50 The Company applies APB Opinion No. 25 and related interpretations in accounting for the Program. Accordingly, compensation expense recognized was different than what would have been otherwise recognized under the fair value based method defined in SFAS No. 123, "Accounting for Stock-Based Compensation". Had compensation expense for the plans been determined in accordance with SFAS No. 123, the effect on the Company's net loss applicable to common stock and basic loss per common share would have been as follows (amounts in thousands, except per share data):
FOR THE FOR THE YEAR ENDED TRANSITION YEAR ENDED DECEMBER 31, PERIOD MARCH 31, 1999 1998 1998 ---------------- --------------- -------------- Net loss applicable to common stock: As reported..................................................... $ (44,758) $ (17,531) $ (12,441) Proforma........................................................ $ (48,526) $ (19,201) $ (14,455) Basic and diluted loss per common share: As reported..................................................... $ (1.14) $ (0.50) $ (0.35) Proforma........................................................ $ (1.24) $ (0.54) $ (0.41)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing method with the following assumptions:
FOR THE FOR THE YEAR ENDED TRANSITION YEAR ENDED DECEMBER 31, PERIOD MARCH 31, 1999 1998 1998 ---------------- --------------- -------------- Expected dividend yield............................................ --- --- --- Expected stock price volatility.................................... 50.00% 51.90% 46.20% Risk-free interest rate............................................ 5.90% 4.51% 6.03% Expected average life of options (years)........................... 3.91 3.87 4.84 Expected fair value of options granted............................. $9.46 $3.34 $3.38
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to April 1, 1995, the resulting pro forma net income may not be representative of that to be expected in future years. 401(K) PLANS The Company has a defined contribution 401(k) plan, which covers all employees who meet certain age and length of service requirements and allows an employer contribution up to 50 percent of the first four percent of each participating employee's compensation. Effective October 1, 1998, the employer contribution was increased from 25 percent of the first four percent of each participating employee's compensation. Plan participants can elect to defer before tax compensation through payroll deductions. These deferrals are regulated under Section 401(k) of the Internal Revenue Code. The Company's matching contribution was approximately $2,103,000, $678,000 and $499,000 for the fiscal year ended December 31, 1999, the Transition Period 1998 and the fiscal year ended March 31, 1998, respectively. 9. EXECUTIVE COMPENSATION PLANS The Company has employment agreements with certain of its executive officers. These contracts provide for, among other things, an annual base salary, supplemental long-term disability and supplemental life insurance benefits in excess of the Company's normal coverage for employees. In addition, the Company has adopted a Supplemental Executive Retirement Plan for its Chief Executive Officer and a Supplemental Management Retirement Plan for certain key executives as selected by the Human Resources Committee of the Company's Board of Directors. Other executive plans include a Deferred Compensation Plan and a Long-Term Stay-On Performance Incentive Plan. 51 10. INCOME TAXES The Company files a consolidated federal income tax return. The benefit for income taxes for financial reporting purposes consists of the following (amounts in thousands):
FOR THE FOR THE YEAR ENDED TRANSITION YEAR ENDED DECEMBER 31, PERIOD MARCH 31, 1999 1998 1998 ---------------- ---------- ------------- Income tax benefit from continuing operations...................... $ 14,929 $ 871 $ 966 Tax benefit from extraordinary loss on early retirement of debt.... 5,736 1,671 626 ---------------- ------------ -------------- Total income taxes....................................... $ 20,665 $ 2,542 $ 1,592 ================ ============ ==============
The benefit (provision) for income taxes attributable to the net loss consists of the following (amounts in thousands):
FOR THE FOR THE YEAR ENDED TRANSITION YEAR ENDED DECEMBER 31, PERIOD MARCH 31, 1999 1998 1998 -------------- ------------- -------------- Current................................................................ $ (14,960) $ 3,953 $ 18,083 Deferred............................................................... 35,625 (1,411) (16,491) -------------- ------------- -------------- Total income taxes.............................................. $ 20,665 $ 2,542 $ 1,592 ============== ============= ==============
52 The income tax benefit differs from that computed at the federal statutory corporate tax rate as follows:
FOR THE FOR THE YEAR ENDED TRANSITION YEAR ENDED DECEMBER 31, PERIOD MARCH 31, 1999 1998 1998 ---------------- --------------- -------------- Federal statutory rate................................................. 35.0% 35.0% 35.0% Lobbying and political................................................. (1.2) (16.8) (7.0) Meals and entertainment................................................ (0.9) (1.2) (3.7) Credits earned, net.................................................... 0.8 2.5 3.6 Other, net............................................................. (1.2) (2.1) (4.5) ---------------- --------------- -------------- Effective tax rate..................................................... 32.5% 17.4% 23.4% ================ =============== =============
The tax effects of significant temporary differences representing net deferred tax assets and liabilities are as follows (amounts in thousands):
DECEMBER 31, -------------------------------------- 1999 1998 ---------------- ---------------- Deferred tax assets: Current: Accrued vacation, bonuses and group insurance.......................... $ 9,854 $ 5,691 Prepaid gaming taxes................................................... (2,880) (1,910) Other.................................................................. 3,545 1,200 ---------------- ---------------- Total current.............................................................. 10,519 4,981 ---------------- ---------------- Long-term: Preopening and other costs, net of amortization........................ 7,135 10,632 FICA credits........................................................... 2,947 2,127 State deferred taxes................................................... 2,023 2,023 Net operating loss..................................................... 2,690 14,208 Alternative minimum tax credits........................................ 27,725 18,891 ---------------- ---------------- Total long-term............................................................ 42,520 47,881 ---------------- ---------------- Total deferred tax assets.................................................. 53,039 52,862 ---------------- ---------------- Deferred tax liabilities: Long-term: Temporary differences related to property and equipment................ (19,963) (52,149) Other.................................................................. (734) (1,104) ---------------- ---------------- Total deferred tax liabilities............................................. (20,697) (53,253) ---------------- ---------------- Net ...................................................................... $ 32,342 $ (391) ================ ================
The Company currently has a net operating loss carryforward of $7.7 million which expires in 2018. The excess of the alternative minimum tax over the regular federal income tax is a tax credit which can be carried forward indefinitely to reduce future regular federal income tax liabilities. The Company did not record a valuation allowance at December 31, 1999 or 1998 relating to recorded tax benefits because all benefits are more likely than not to be realized. 11. LEGAL MATTERS On January 16, 1998, the Company entered into an Agreement and Plan of Merger, as amended (the "Merger") with Crescent Real Estate Equities Company, a Texas real estate investment trust ("Crescent"). The Company wrote off $2.9 million of costs incurred related to the Merger (which are included in other expense in the accompanying consolidated statements of operations for the Transition Period 1998). The Merger became subject to litigation between the two companies. On April 14, 53 1999, the Company announced that it had settled its lawsuits with Crescent arising out of the failed Merger. Under the terms of the settlement agreement, Crescent paid the Company $15 million, and the parties have released each other from all claims. In addition, the Company is a litigant in legal matters arising in the normal course of business. In the opinion of management, all pending legal matters are either adequately covered by insurance or, if not insured, will not have a material adverse effect on the financial position or the results of operations of the Company. 12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
INCOME (LOSS) NET BEFORE INCOME BASIC INCOME (LOSS) EARNINGS TAXES APPLICABLE (LOSS) OPERATING AND TO PER NET INCOME EXTRAORDINARY COMMON COMMON REVENUES (LOSS) ITEM STOCK SHARE ----------- ------------ --------------- --------- --------- (amounts in thousands, except per share amounts) YEAR ENDED DECEMBER 31, 1999 First quarter.................................... $ 229,931 $ 35,776 $ 12,997 $ (4,045) $ (0.11) Second quarter................................... 235,371 41,552 34,525 21,592 0.58 Third quarter.................................... 237,531 42,235 20,976 13,143 0.31 Fourth quarter................................... 239,636 (90,692) (115,721) (75,448) (1.80) TRANSITION PERIOD 1998 First quarter.................................... $ 206,250 $ 29,179 $ 5,528 $ 1,488 $ 0.04 Second quarter................................... 213,448 31,622 5,090 1,033 0.03 Third quarter.................................... 222,516 3,895 (20,482) (20,052) (0.57) YEAR ENDED MARCH 31, 1998 First quarter.................................... $ 173,516 $ 8,178 $ (12,846) $ (10,101) $ (0.29) Second quarter................................... 194,097 23,340 3,655 546 0.02 Third quarter.................................... 197,196 24,984 5,299 1,613 0.05 Fourth quarter................................... 204,801 27,684 (228) (4,499) (0.13)
54 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT There is incorporated by reference the information appearing in the section entitled "Directors and Executive Officers" in the Registrant's definitive Proxy Statement to be made publicly available with the Securities and Exchange Commission. ITEM 11. EXECUTIVE COMPENSATION There is incorporated by reference the information appearing in the section entitled "Executive Compensation" in the Registrant's definitive Proxy Statement to be made publicly available with the Securities and Exchange Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT There is incorporated by reference the information appearing in the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Registrant's definitive Proxy Statement to be made publicly available with the Securities and Exchange Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is incorporated by reference the information appearing in the sections entitled "Certain Relationships and Related Transactions" in the Registrant's definitive Proxy Statement to be made publicly available with the Securities and Exchange Commission. 55 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements (including related notes to Consolidated Financial Statements) filed in Part II of this report are listed below: Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1999 and 1998 Year Ended December 31, 1999, Nine Months Ended December 31, 1998 and Year Ended March 31, 1998 Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (a) 2. None (a) 3. Exhibits
Exhibit Number Description - ------ ----------- 2.1 Agreement and Plan of Reorganization dated as of February 1, 1993 among Frank J. Fertitta, Jr., as Trustee of the Frank J. Fertitta and Victoria K. Fertitta Revocable Family Trust dated June 17, 1989, Frank J. Fertitta III, Blake L. Sartini, Delise F. Sartini and Lorenzo J. Fertitta. (Incorporated herein by reference to Registration Statement No. 33-59302) 2.2 Agreement and Plan of Merger, dated as of January 16, 1998 among Crescent Real Estate Equities Company and Station Casinos, Inc. (Incorporated herein by reference to the Company's Form 8-K dated January 27, 1998) 2.3 Amendment No. 1 dated as of February 17, 1998 to Agreement and Plan of Merger. (Incorporated herein by reference to the Company's Form 10-K for the fiscal year ended March 31, 1998) 2.4 Amendment No. 2 dated as of June 14, 1998, to Agreement and Plan of Merger. (Incorporated herein by reference to the Company's Form 8-K dated June 17, 1998) 3.1 Amended and Restated Articles of Incorporation of the Registrant. (Incorporated herein by reference to Registration Statement No. 33-76156) 3.2 Restated Bylaws of the Registrant. (Incorporated herein by reference to Registration Statement No. 33-76156) 4.1 Form of Subordinated Note of the Registrant (1998 Issue). (included in Exhibit 4.5) 4.2 Form of Subordinated Note of the Registrant (1997 Issue). (Incorporated herein by reference to the Company's Form 8-K dated April 3, 1997) 56 4.3 Form of Subordinated Note of the Registrant (1996 Issue). (Incorporated herein by reference to the Company's Form 8-K dated March 25, 1996) 4.4 Form of Subordinated Note of the Registrant (1994 Issue). (Incorporated herein by reference to Registration Statement No. 33-76156) 4.5 Indenture dated as of December 3, 1998 between the Registrant and First Union National Bank as Trustee. (Incorporated herein by reference to the Company's Registration Statement on Form S-4 dated January 27, 1999) 4.6 Indenture dated as of April 3, 1997 between Registrant and First Union National Bank as Trustee. (Incorporated by reference to the Company's Form 8-K dated April 3, 1997) 4.7 Indenture dated as of March 29, 1996 between the Registrant and First Union National Bank, as Trustee. (Incorporated herein by reference to the Company's Form 8-K dated March 25, 1996) 4.8 Indenture dated as of May 11, 1994 between the Registrant and First Union National Bank (f.k.a. First Fidelity Bank, National Association) as Trustee. (Incorporated herein by reference to the Company's Annual Report on Form 10-K for the period ended March 31, 1994) 4.9 First Supplemental Indenture dated as of March 25, 1996 between Registrant and First Union National Bank, (f.k.a. First Fidelity Bank, National Association), as Trustee with respect to the Indenture dated as of May 11, 1994. (Incorporated herein by reference to the Company's Form 8-K dated March 25, 1996) 4.10 Certificate of Resolutions of Convertible Preferred Stock of the Registrant. (Incorporated herein by reference to the Company's Form 8-K dated March 25, 1996) 4.11 Form of Convertible Preferred Stock of the Registrant. (Incorporated herein by reference to the Company's Form 8-K dated March 25, 1996) 4.12 Rights Agreement dated October 6, 1997 between the Company and Continental Stock Transfer and Trust Company, as Rights Agent. (Incorporated herein by reference to the Company's Form 8-K dated October 9, 1997) 4.13 Amendment to Rights Agreement, dated as of January 16, 1998, between Station Casinos, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent. (Incorporated herein by reference to the Company's Form 8-K dated January 27, 1998) 4.14 Amendment No. 2 to Rights Agreement, dated as of December 1, 1998, between Station Casinos, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent. (Incorporated herein by reference to the Company's Form 8-K dated November 6, 1998) 4.15 Certificate of Resolutions of $100 Redeemable Preferred Stock. (Incorporated herein by reference to the Company's Form 10-K for the fiscal year ended March 31, 1998) 4.16 Third Amended and Restated Reducing Revolving Loan Agreement dated as of August 25, 1999. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999) 4.17 Amendment No. 1 to Third Amended and Restated Reducing Revolving Loan Agreement dated as of September 24, 1999. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999) 57 4.18 Amendment No. 2 to Third Amended and Restated Reducing Revolving Loan Agreement dated as of January 25, 2000 4.19 Term Loan Agreement dated as of August 25, 1999. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999) 4.20 Amendment No. 1 to Term Loan Agreement dated September 24, 1999. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999) 10.1 Lease dated as of December 17, 1974 between Teddy Rich Enterprises and Townefood, Inc. (Incorporated herein by reference to Registration Statement No. 33-59302) 10.2 Lease dated as of May 8, 1973 between Teddy Rich Enterprises and Mini-Price Motor Inn., including Addendum dated May 8, 1973; Lease Addendum dated June 10, 1974 amending lease dated May 8, 1973 between Teddy Rich Enterprises and Mini-Price Motor Inn, Inc. (Incorporated herein by reference to Registration Statement No. 33-59302) 10.3 First Amendment to Lease (With Option) dated as of April 1, 1999 between Palace Station Hotel & Casino, Inc. and Flamingo Associates, Inc. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999) 10.4 Second Amendment to Lease (With Option) dated as of April 1, 1999 between Palace Station Hotel Casino, Inc. and Flamingo Associates, Inc. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999) 10.5 Lease dated as of February 16, 1976 between Richfield Development Co. and Mini-Price Motor Inn. (Incorporated herein by reference to Registration Statement No. 33-59302) 10.6 First Amendment to Lease (With Option) dated as of April 1, 1999 between Palace Station Hotel & Casino, Inc. and Richfield Development Co. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999) 10.7 Second Amendment to Lease (With Option) dated as of April 1, 1999 between Palace Station Hotel & Casino, Inc. and Richfield Development Co. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999) 10.8 Lease dated as of September 6, 1977 between Richard Tam and Mini-Price Motor Inn Joint Venture (Parcel B1). (Incorporated herein by reference to Registration Statement No. 33-59302) 10.9 Lease dated as of September 6, 1977 between Richard Tam and Mini-Price Motor Inn Joint Venture (Parcel B2). (Incorporated herein by reference to Registration Statement No. 33-59302) 10.10 First Amendment to Lease (With Option) dated as of April 1, 1999 between Palace Station Hotel & Casino, Inc. and Richard Tam. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999) 10.11 Second Amendment to Lease (With Option) dated as of April 1, 1999 between Palace Station Hotel & Casino, Inc. and Richard Tam. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999) 10.12 Executive Employment Agreement between Frank J. Fertitta III and the Registrant dated as of December 1, 1999 58 10.13 Executive Employment Agreement between Glenn C. Christenson and the Registrant dated as of December 1, 1999 10.14 Executive Employment Agreement between Scott M Nielson and the Registrant dated as of December 1, 1999 10.15 Executive Employment Agreement between Blake L. Sartini and the Registrant dated as of December 1, 1999 10.16 Executive Employment Agreement between William W. Warner and the Registrant dated as of December 1, 1999 10.17 Executive Employment Agreement between Mark E. Brown and the Registrant dated as of August 2, 1999 10.18 Stock Compensation Program of the Registrant. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1993) 10.19 Amendment dated as of August 22, 1995 to the Stock Compensation Program. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1995) 10.20 Supplemental Executive Retirement Plan of the Registrant dated as of November 30, 1994. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1994) 10.21 Supplemental Management Retirement Plan of the Registrant dated as of November 30, 1994. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1994) 10.22 Long-Term Stay-On Performance Incentive Plan between the Registrant and Glenn C. Christenson, Scott M Nielson and Blake L. Sartini. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1994) 10.23 Long-Term Stay-On Performance Incentive Plan between the Registrant and William W. Warner 10.24 Long-Term Stay-On Performance Incentive Plan between the Registrant and Mark E. Brown 10.25 Amended and Restated Deferred Compensation Plan of the Registrant effective as of September 30, 1999 10.26 Special Long-Term Disability Plan of the Registrant dated as of November 30, 1994. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1994) 10.27 Ground Lease between Boulder Station, Inc. and KB Enterprises dated as of June 1, 1993. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1993) 10.28 Option to Lease or Purchase dated as of June 1, 1993 between Boulder Station, Inc. and KB Enterprises. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1993) 10.29 Option to Acquire Interest Under Purchase Contract dated as of June 1, 1993 between Boulder Station, Inc. and KB Enterprises. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1993) 59 10.30 First Amendment to Ground Lease and Sublease, dated as of June 30, 1995, by and between KB Enterprises, as landlord and Boulder Station, Inc. (Incorporated herein by reference to the Company's Form 8-K dated July 5, 1995) 10.31 Ground Lease between Registrant and Texas Gambling Hall & Hotel, Inc. dated as of June 1, 1995. (Incorporated herein by reference to the Company's Form 8-K dated July 5, 1995) 10.32 First Amendment to Ground Lease dated as of June 30, 1995 between Registrant and Texas Gambling Hall & Hotel, Inc. (Incorporated herein by reference to the Company's Form 8-K dated July 5, 1995) 10.33 Assignment, Assumption and Consent Agreement (Ground Lease) dated as of July 6, 1995 between Registrant and Texas Station, Inc. (Incorporated herein by reference to the Company's Form 8-K dated July 5, 1995) 10.34 Sublease Agreement dated as of November 30, 1992 between the City of St. Charles and St. Charles Riverfront Station, Inc. (Incorporated herein by reference to Registrant Statement No. 33-59302) 10.35 Lease between Navillus Investment Co.; Jerome D. Mack as trustee of the Center Trust; Peter Trust Limited Partnership; and Third Generation Limited Partnership and Registrant. (Incorporated herein by reference to the Company's Annual Report on Form 10-K for the period ended March 31, 1994) 10.36 Joint Venture Agreement dated as of September 25, 1993, between First Holdings Company and the Registrant. (Incorporated herein by reference to the Company's Form 8-K dated July 5, 1995) 10.37 Assignment and Assumption Agreement (Joint Venture Agreement) dated as of March 25, 1996 between the Registrant and Kansas City Station Corporation. (Incorporated herein by reference to the Company's Annual Report on Form 10-K for the period ended March 31, 1996) 10.38 Amendment to Joint Venture Agreement dated as of November 15, 1993, between First Holdings Company and the Registrant. (Incorporated herein by reference to the Company's Annual Report on Form 10-K for the period ended March 31, 1996) 10.39 Second Amendment to Joint Venture Agreement, dated as of April 22, 1996, between First Holdings Company and Kansas City Station Corporation. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996) 10.40 Development Agreement dated as of April 24, 1995, between Kansas City Station Corporation and the Port Authority of Kansas City. (Incorporated herein by reference to the Company's Form 8-K dated July 5, 1995) 10.41 Lease Agreement, dated as of April 1, 1994 between Station/First Joint Venture and Kansas City Station Corporation. (Incorporated herein by reference to the Company's Form 8-K dated July 5, 1995) 10.42 First Amendment to Lease Agreement dated as of March 19, 1996 between Station/First Joint Venture and Kansas City Station Corporation. (Incorporated herein by reference to the Company's Annual Report on Form 10-K for the period ended March 31, 1996) 10.43 Second Amendment to Lease Agreement, dated as of April 22, 1996, between Station/First Joint Venture and Kansas City Station Corporation. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996) 10.44 Form of Indemnification Agreement for Directors and Executive Officers. (Incorporated herein by reference to Registration Statement No. 33-59302) 60 10.45 Form of Indemnification Agreement between the Registrant and Frank Fertitta, Jr. (Incorporated herein by reference to Registration Statement No. 33-59302) 10.46 Participation Agreement dated as of September 25, 1996 among the Registrant, as Lessee, and First Security Trust Company of Nevada, as Lessor and Trustee, and the other Persons that are parties to such agreement. (Incorporated herein by reference to the Company's Form 8-K dated October 29, 1996) 10.47 Lease Agreement dated as of September 25, 1996 between First Security Trust Company of Nevada as Trustee and Lessor and the Registrant, as Lessee. (Incorporated herein by reference to the Company's Form 8-K dated October 29, 1996) 10.48 Sublease Agreement dated as of September 25, 1996 between the Registrant, as Sublessor and Sunset Station as Sublessee. (Incorporated herein by reference to the Company's Form 8-K dated October 29, 1996) 10.49 Sunset Station 1996 Trust Agreement dated as of September 25, 1996 between the Registrant, as Grantor, and First Security Trust Company of Nevada, as Trustee. (Incorporated herein by reference to the Company's Form 8-K dated October 29, 1996) 10.50 Master Certificate Purchase Agreement dated October 22, 1999 among Sunset Station Leasing Company, LLC as Purchaser, First Security Trust Company of Nevada as Trustee, each of the parties to the Participation Agreement, as Sellers, Sunset Station, Inc. as Sublessee and the Registrant as Lessee. (Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999) 10.51 Consulting Agreement between Lorenzo Fertitta and the Registrant dated February 1, 1999. (Incorporated herein by reference to the Company's Annual Report on Form 10-K for the Transition Period from April 1, 1998 to December 31, 1998) 10.52 Operating Agreement dated March 10, 2000, among Green Valley Ranch Gaming, LLC, GCR Gaming, LLC and GV Ranch Station, Inc., a wholly owned subsidiary of the Registrant 21.1 Subsidiaries of the Registrant 23.1 Consent of Arthur Andersen LLP 27 Financial Data Schedule
(b) Reports on Form 8K - None (c) None (d) None 61 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STATION CASINOS, INC. Dated: March 28, 2000 By: /s/ Frank J. Fertitta III ----------------------------------------------- Frank J. Fertitta III Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Frank J. Fertitta III Chairman of the Board, President and Chief March 28, 2000 - ------------------------------- Executive Officer (Principal Executive Frank J. Fertitta III Officer) /s/ Glenn C. Christenson Executive Vice President, Chief Financial March 28, 2000 - ------------------------------- Officer, Chief Administrative Officer, Glenn C. Christenson Treasurer and Director (Principal Financial and Accounting Officer) /s/ Blake L. Sartini Executive Vice President, Chief Operating March 28, 2000 - ------------------------------- Officer and Director Blake L. Sartini /s/ R. Hal Dean Director March 28, 2000 - ------------------------------- R. Hal Dean /s/ Lorenzo J. Fertitta Director March 28, 2000 - ------------------------------- Lorenzo J. Fertitta /s/ Lowell H. Lebermann, Jr. Director March 28, 2000 - ------------------------------- Lowell H. Lebermann, Jr. /s/ Delise F. Sartini Director March 28, 2000 - ------------------------------- Delise F. Sartini /s/ Richard J. Heckmann Director March 28, 2000 - ------------------------------- Richard J. Heckmann
62 EX-4.18 2 EXHIBIT 4.18 EXHIBIT 4.18 AMENDMENT NO. 2 TO THIRD AMENDED AND RESTATED REDUCING REVOLVING LOAN AGREEMENT Reference is hereby made to that certain Third Amended and Restated Reducing Revolving Loan Agreement dated as of August 25, 1999 among Palace Station Hotel & Casino, Inc., Boulder Station, Inc., Texas Station, Inc., St. Charles Riverfront Station, Inc., Kansas City Station Corporation and Sunset Station, Inc. (collectively, the "Borrowers"), Station Casinos, Inc. ("Parent") (but only for the purpose of making the covenants set forth in Articles 8 and 9 of such Loan Agreement), the Lenders party thereto, Societe Generale, as Documentation Agent, Bank of Scotland, as Co-Agent, and Bank of America, N.A., as Administrative Agent (the "Administrative Agent") (as heretofore amended, the "Loan Agreement"). Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Loan Agreement. Borrowers, Parent and the Administrative Agent, acting with the consent of all of the Lenders pursuant to Section 14.2 of the Loan Agreement, agree as follows: 1. AMENDMENT TO SECTION 1.1. Section 1.1 of the Loan Agreement is amended by (a) striking the words "Parent Leverage Ratio" where they appear in the second line and in the tabular caption within the definition of "Applicable Pricing Level," (b) substituting in place of such words in both such places in the definition of "Applicable Pricing Level" the words "Parent Funded Debt Ratio" and (c) deleting the definition of "Parent Leverage Ratio" in its entirety. 2. AMENDMENT TO SECTION 1.1. Section 1.1 of the Loan Agreement is further amended by revising the definitions of "Annualized Adjusted EBITDA", "Reduction Amount" and "Reduction Date" to read, respectively, as follows: "ANNUALIZED ADJUSTED EBITDA" means (a) with respect to Parent or Borrowers and with respect to any fiscal period ending during the period from December 31, 1999 through and including June 30, 2000, the SUM OF (i) the Adjusted EBITDA of Parent or Borrowers (as applicable) for that fiscal period EXCLUDING Adjusted EBITDA of Sunset for that fiscal period PLUS (ii) the Sunset Annualization Amount for that fiscal period and (b) with respect to Parent or Borrower and with respect to any fiscal period ending after June 30, 2000, the Adjusted EBITDA of Parent and Borrowers (as applicable) for that fiscal period. "REDUCTION AMOUNT" means, with respect to each Reduction Date, the amount set forth below opposite such Reduction Date: -1- Reduction Date Amount -------------- ------ September 30, 1999 $ 7,000,000 December 31, 1999 $12,250,000 March 31, 2001 and June 30, 2001 $14,000,000 September 30, 2001 through September 30, 2002 $17,500,000 December 31, 2002 through September 30, 2003 $30,625,000 "REDUCTION DATE" means (a) September 30, 1999, (b) December 31, 1999 and (c) March 1, 2001 and each Quarterly Payment Date thereafter. 3. AMENDMENT TO SECTION 1.1. Section 1.1 of the Loan Agreement is further amended by (a) deleting the definition of "Annualization Amount" therein contained and (b) adding the following new definition at the appropriate alphabetical place: "SUNSET ANNUALIZATION AMOUNT" means (a) for the fiscal period consisting of the four (4) Fiscal Quarters ending December 31, 1999, the Adjusted EBITDA of Sunset for the Fiscal Quarter then ended MULTIPLIED BY four (4), (b) for the fiscal period consisting of the four (4) Fiscal Quarters ending March 31, 2000, the Adjusted EBITDA of Sunset for the two (2) Fiscal Quarters then ended MULTIPLIED BY two (2) and (c) for the fiscal period consisting of the four (4) Fiscal Quarters ending June 30, 2000, the Adjusted EBITDA of Sunset for the three (3) Fiscal Quarters then ended MULTIPLIED BY four thirds (4/3). 4. WAIVER OF SECTION 6.1. Section 6.1 of the Loan Agreement is hereby waived as respects its application to the Disposition of the vessel now located at St. Charles, Missouri known as "Station Casino Belle"; PROVIDED that such Disposition is to a Person that is not an Affiliate of Parent. -2- 5. AMENDMENT OF SECTION 6.7. Section 6.7 of the Loan Agreement is amended by revising clause (c) thereof to read as follows: (c) Indebtedness under the Term Loan Agreement or Indebtedness that refinances in its entirety such Indebtedness; PROVIDED that (i) the principal amount of such refinancing Indebtedness does not exceed the principal amount then outstanding under the Term Loan Agreement, (ii) all Indebtedness under the Term Loan Agreement is retired concurrently with the incurrence of such refinancing Indebtedness, (iii) the average scheduled life of such refinancing Indebtedness is at least one (1) year beyond the average remaining scheduled life of the Indebtedness under the Term Loan Agreement and (iv) such refinancing Indebtedness is not secured by a Lien on any assets of any Borrower or of Parent or any of the Restricted Subsidiaries. 6. AMENDMENT OF SECTION 9.5. Section 9.5 of the Loan Agreement is amended by (a) striking the amount "$50,000,000" in the fourth line of clause (e) thereof and (b) such Indebtedness; PROVIDED that (i) the principal amount of such refinancing Indebtedness does not exceed the principal amount then outstanding under the Term Loan Agreement, (ii) the Indebtedness under the Term Loan Agreement is retired concurrently with the incurrence of such refinancing Indebtedness, (iii) the average scheduled life of such refinancing Indebtedness is at least one (1) year beyond the average remaining scheduled life of the Indebtedness under the Term Loan Agreement and (iv) such refinancing Indebtedness is not secured by a Lien on any assets of any Borrower or of Parent or any of the Restricted Subsidiaries. 7. AMENDMENT TO SECTION 9.14. Section 9.14 of the Loan Agreement is amended by (a striking the amount "$15,000,000" in clause (d) (iii) thereof and (b) substituting in place of such amount the amount "$25,000,000." 8. AMENDMENT TO SECTION 10.1. Section 10.1 of the Loan Agreement is amended by (a) striking the words "Parent Leverage Ratio" where they appear in lines 3 and 8 of clause (c) thereof and (b) substituting in place of such words the words "Parent Funded Debt Ratio." 9. AMENDMENT OF EXHIBITS. EXHIBIT B (Compliance Certificate) and EXHIBIT J (Pricing Certificate) are hereby amended to conform to the foregoing amendments, in such forms as are mutually acceptable to the Administrative Agent and Borrowers. -3- 10. CONDITIONS PRECEDENT. The effectiveness of this Amendment shall be conditioned upon receipt by the Administrative Agent of all of the following: (a) Counterparts of this Amendment executed by all parties hereto; (b) Written consents of each of the Sibling Guarantors to the execution, delivery and performance hereof in the form of EXHIBIT A to this Amendment; (c) Written consent of all of the Lenders as required under Section 14.2 of the Loan Agreement in the form of EXHIBIT B to this Amendment; and (d) Such other assurances, certificates, documents, consents or opinions as the Administrative Agent or the Lenders reasonably may require. 11. REPRESENTATIONS AND WARRANTIES. Borrowers hereby represent and warrant that no Default or Event of Default has occurred and remains continuing. 12. CONSENT OF PARENT. The execution of this Amendment by Parent shall constitute its consent, in its capacity as guarantor under the Parent Guaranty, to this Amendment. 13. CONFIRMATION. In all other respects, the terms of the Loan Agreement and the other Loan Documents are hereby confirmed. 14. IN WITNESS WHEREOF, Borrowers and the Administrative Agent have executed this Amendment as of January 25, 2000 by their duly authorized representatives. PALACE STATION HOTEL & CASINOS, INC. BOULDER STATION, INC. TEXAS STATION, INC. ST. CHARLES RIVERFRONT STATION, INC. KANSAS CITY STATION CORPORATION SUNSET STATION, INC. By: /s/ GLENN C. CHRISTENSON --------------------------- Glenn C. Christenson Senior Vice President -4- STATION CASINOS, INC. By: /s/ GLENN C. CHRISTENSON --------------------------- Glenn C. Christenson Executive Vice President and Chief Financial Officer BANK OF AMERICA, N.A., as Administrative Agent By: /s/ JANICE HAMMOND --------------------------- Janice Hammond Vice President -5- Exhibit A to Amendment CONSENT OF SIBLING GUARANTORS Reference is hereby made to that certain Third Amended and Restated Reducing Revolving Loan Agreement dated as of August 25, 1999 among Palace Station Hotel & Casino, Inc., Boulder Station, Inc., Texas Station, Inc., St. Charles Riverfront, Inc., Kansas City Station Corporation and Sunset Station (collectively, the "Borrowers"), Station Casinos, Inc. ("Parent") (but only for the purpose of making the covenants set forth in Articles 8 and 9 of the Loan Agreement (as defined below)), the Lenders party thereto, Societe Generale, as Documentation Agent, Bank of Scotland, as Co-Agent, and Bank of America, N.A., as Administrative Agent, (as heretofore amended, the "Loan Agreement"). Capitalized terms not otherwise defined herein shall have the meanings set forth in the Loan Agreement. Each of the undersigned hereby consents to the execution, delivery and performance by Borrowers of Amendment No. 2 to the Loan Agreement. Each of the undersigned represents and warrants to the Administrative Agent and the Lenders that the Sibling Guaranty remains in full force and effect in accordance with its terms. Dated: January 25, 2000 GREEN VALLEY STATION, INC. SOUTHWEST GAMING SERVICES, INC. By: /s/ GLENN C. CHRISTENSON By: /s/ BLAKE L. SARTINI ------------------------ -------------------- Glenn C. Christenson Blake L. Sartini Vice President and Secretary Chief Financial Officer -6- TROPICANA STATION, INC. SOUTHWEST SERVICES, INC. By: /s/ GLENN C. CHRISTENSON By: /s/ BLAKE L. SARTINI ------------------------ -------------------- Glenn C. Christenson Blake L. Sartini Senior Vice President Secretary SUNSET STATION LEASING COMPANY, LLC By: /s/ GLENN C. CHRISTENSON ------------------------ Glenn C. Christenson Senior Vice President -7- Exhibit B to Amendment CONSENT OF LENDER Reference is hereby made to that certain Third Amended and Restated Reducing Revolving Loan Agreement dated as of August 25, 1999 among Palace Station Hotel & Casino, Inc., Boulder Station, Inc., Texas Station, Inc., St. Charles Riverfront, Inc., Kansas City Station Corporation and Sunset Station (collectively, the "Borrowers"), Station Casinos, Inc. ("Parent") (but only for the purpose of making the covenants set forth in Articles 8 and 9 of the Loan Agreement (as defined below)), the Lenders party thereto, Societe Generale, as Documentation Agent, Bank of Scotland, as Co-Agent, and Bank of America, N.A., as Administrative Agent, (as heretofore amended, the "Loan Agreement"). Capitalized terms not otherwise defined herein shall have the meanings set forth in the Loan Agreement. The undersigned Lender hereby consents to the execution and delivery of Amendment No. 2 to Third Amended and Restated Reducing Revolving Loan Agreement, by the Administrative Agent on its behalf, substantially in the form of the most recent draft presented to the undersigned Lender. Dated: ----------------- ------------------------------- [Printed Name of Lender] By: --------------------------- --------------------------- [Printed Name and Title] -8- EX-10.12 3 EXHIBIT 10.12 EXHIBIT 10.12 EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into as of the 1st day of December, 1999, by and between Station Casinos, Inc., a Nevada corporation, with its principal offices located at 2411 West Sahara Avenue, Las Vegas, Nevada 89102 (the "COMPANY"), and MR. FRANK J. FERTITTA III (the "Executive"). WHEREAS, the Company and the Executive are parties to an Amended and Restated Employment Agreement dated as of December 22, 1997 (the "FORMER AGREEMENT"); and WHEREAS, the Executive has agreed to continue his employment with the Company on the terms and conditions set forth herein; and WHEREAS, the parties to this Agreement desire to replace the Former Agreement in its entirety with this Agreement, and the Former Agreement shall no longer be of any force or effect; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the Company and the Executive (each individually a "PARTY" and together the "PARTIES") agree as follows. 1. DEFINITIONS. In addition to certain terms defined elsewhere in this Agreement, the following terms shall have the following respective meanings: 1.1 "AFFILIATE" shall mean any Person controlling, controlled by or under common control with the Company, 1.2 "BASE AMOUNT" shall have the meaning ascribed to such term in Section 280G of the Code. 1.3 "BASE SALARY" shall mean the salary provided for in SUBSECTION 3.1 or any increased salary granted to the Executive (a) by the Board or (b) pursuant to the provisions of SUBSECTION 3 or SUBSECTION 7.1(b). 1.4 "BOARD" shall mean the Board of Directors of the Company, including any successor of the Company in the event of a Change in Control. 1.5 "CAUSE" shall mean that the Executive: (a) has been convicted of a felony or any crime involving fraud, theft, embezzlement, dishonesty or moral turpitude; (b) has been found unsuitable to hold a gaming license by final, non-appealable decision of the Nevada Gaming Commission; or (c) in carrying out his duties under this Agreement, has engaged in acts or omissions constituting gross negligence or willful misconduct resulting, in either case, in material economic harm to the Company, unless such act, or failure to act, was believed by the Executive in good faith to be in the best interests of the Company or any Affiliate. 1.6 A "CHANGE IN CONTROL" (a) shall be deemed to have occurred if: (1) any Person, corporation, entity or group (other than the Existing Equity Holders) is or becomes the beneficial owner, directly or indirectly, of securities representing 50% or more of the combined voting power of the Company's Voting Stock (an "Acquisition Event"), or (2) the Company consolidates with or merges into another corporation or entity, or any corporation or entity consolidates with or merges into the Company, with the effect that the beneficial owners of the Company's Voting Stock held immediately prior to the consummation of such consolidation or merger cease to beneficially own, directly or indirectly, securities representing 50% or more of the combined voting power of the Company's Voting Stock (or if the Company is not the surviving entity, the surviving company's voting securities) upon the consummation of such consolidation or merger (a "Merger Event"), or (3) the Company sells, conveys, transfers or leases to any person, corporation, entity or group, directly or indirectly, in one transaction or series of related transactions, properties and/or assets that accounted for 75% or more of the earnings (before interest, taxes, depreciation and amortization) of the Company, on a consolidated basis for the four-fiscal quarter period immediately preceding the date of consummation of such transaction (a "Sale Event"). (b) Notwithstanding the foregoing, a reincorporation, spin-off, split-off or other reorganization transaction (a "Reorganization Event"), or series of related transactions, in which either the "beneficial owners" of the Company's Voting Stock or the Existing Equity Holders beneficially own securities representing 50% or more of the combined voting power of the Company's Voting Stock upon the consummation of such transaction shall not constitute an Acquisition Event, Merger Event or Sale Event for purposes of this definition. For purposes of this definition, "beneficial ownership" shall have the same meaning as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. 2 (c) For the purposes of this definition, upon consummation of an Acquisition Event, Merger Event, Sale Event or Reorganization Event, the "Company's Board" and the "Company's Shareholders" shall refer to (i) in the case of an Acquisition Event, the Company, (ii) in the case of a Merger Event, the company surviving the merger or consolidation, (iii) in the case of a Sale Event, the transferee of the properties, and/or assets, and (iv) in the case of a Reorganization Event, the entity or entities surviving such Reorganization Event on a consolidated basis. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended. 1.8 "COMPANY PROPERTY" shall mean all items and materials provided by the Company to the Executive, or to which the Executive has access, in the course of his employment, including, without limitation, all files, records, documents, drawings, specifications, memoranda, notes, reports, manuals, equipment, computer disks, videotapes, drawings, blueprints and other documents and similar items relating to the Company, its Affiliates or their respective customers, whether prepared by the Executive or others, and any and all copies, abstracts and summaries thereof. 1.9 "CONFIDENTIAL INFORMATION" shall mean all nonpublic and/or proprietary information respecting the business of the Company or any Affiliate, including, without limitation, its products, programs, projects, promotions, marketing plans and strategies, business plans or practices, business operations, employees, research and development, intellectual property, software, databases, trademarks, pricing information and accounting and financing data. Confidential Information also includes information concerning the Company's or any Affiliate's customers, such as their identity, address, preferences, playing patterns and ratings or any other information kept by the Company or any Affiliate concerning its customers whether or not such information has been reduced to documentary form. Confidential Information does not include information that is, or becomes, available to the public unless such availability occurs through an unauthorized act on the part of the Executive. 1.10 "DEFERRED COMPENSATION PLAN FOR EXECUTIVES" shall mean the Company's Deferred Compensation Plan for Executives, effective as of November 30, 1994, as the same may be amended from time to time. 1.11 "DISABILITY" shall mean a physical or mental incapacity that prevents the Executive from performing the essential functions of his position with the Company for a minimum period of ninety (90) days as determined (a) in accordance with any long-term disability plan provided by the Company of which the Executive is a participant, or (b) by the following procedure: The Executive agrees to submit to medical examinations by a licensed healthcare professional selected by the Company, in its sole discretion, to determine whether a Disability exists. In addition, the Executive may submit to the Company documentation of a Disability, or lack thereof, from a licensed healthcare professional of his choice. Following a determination of a Disability or lack of Disability by the Company's or the Executive's licensed healthcare professional, the other Party may submit subsequent documentation relating to the existence of a Disability from a licensed healthcare professional selected by such other party. In the event that the medical opinions of such licensed healthcare professionals conflict, such 3 licensed healthcare professionals shall appoint a third licensed healthcare professional to examine the Executive, and the opinion of such third licensed healthcare professional shall be dispositive. 1.12 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.13 "EXISTING EQUITY HOLDERS" shall mean, in addition to the Executive, Blake L. Sartini, Delise F. Sartini, Lorenzo J. Fertitta, Glenn C. Christenson and Scott M Nielson and their executors, administrators or the legal representatives of their estates, their heirs, distributees and beneficiaries, and any trust as to which any of the foregoing is a settlor or co-settlor and any corporation, partnership or other entity which is an Affiliate of any of the foregoing, and any lineal descendants of such persons (but only to the extent that the beneficial ownership of the Voting Stock held by such lineal descendants was directly received by gift, trust or sale from any such person). 1.14 "GOOD REASON" shall mean and exist if, without the Executive's prior written consent, one or more of the following events occurs: (a) the Executive is not appointed to or is otherwise removed from the office(s) provided for in SUBSECTION 2.3, for any reason other than the termination of his employment; (b) the Executive is assigned any duties or responsibilities that are inconsistent with the scope of duties and responsibilities associated with the Executive's position as described in SUBSECTION 2.3; (c) the Company gives the Executive notice pursuant to SUBSECTION 2.2 that it does not intend to extend the Term of Employment for an additional five year period; (d) the Executive is not appointed to or is removed from membership on the Board; (e) the Executive is required to relocate from, or maintain his principal office outside of, Las Vegas; (f) the Executive suffers a reduction in the authorities, duties or responsibilities associated with his position as described in SUBSECTION 2.3, on the basis of which he makes a determination in good faith that he can no longer carry out such position in the manner contemplated at the time this Agreement was entered into; (g) the Executive's Base Salary is decreased by the Company or is not increased as provided for in SUBSECTION 3.1 and/or SUBSECTION 7.1(b), 4 (h) the Executive is excluded from participation in any employee benefit or incentive plan or program offered to other executives of the Company or his benefits or opportunities under any employee benefit or incentive plan or program of the Company is or are materially reduced; (i) the Executive is not permitted to participate in the Deferred Compensation Plan for Executives or any other incentive compensation plans or programs offered by the Company to senior executives; (j) the Company fails to pay the Executive any deferred payments that have become payable under the Deferred Compensation Plan for Executives or any other bonus or incentive plans; (k) the Company fails to reimburse the Executive for business expenses in accordance with the Company's policies, procedures or practices; (l) the Company fails to agree to or to actually indemnify the Executive for his actions and/or inactions, as either a director or officer of the Company, to the fullest extent permitted by Nevada law and the Company's by-laws, and/or the Company fails to maintain reasonably sufficient levels of directors' and officers' liability insurance coverage for the Executive when such insurance is available; (m) the Company fails to make any of the payments or to provide any of the benefits required under SUBSECTION 7.1. (n) the Company fails to obtain a written agreement satisfactory to the Executive from any successor or assign of the Company to assume and perform this Agreement; or (o) the Company purports to terminate the Executive's employment for Cause but such purported termination is not effected in accordance with SECTION 6.2 of this Agreement. 1.15 "PERSON" shall mean any individual, firm, partnership, association, trust, company, corporation or other entity. 1.16 "PRO RATA BONUS" shall mean an amount equal to seventy-five percent (75%) of the Executive's current Base Salary, multiplied by a fraction, the numerator of which is the number of days in such year during which the Executive was actually employed by the Company and the denominator of which is 365. 1.17 "SPECIAL LONG-TERM DISABILITY PLAN" shall mean the Company's Special Long-Term Disability Plan, effective as of November 30, 1994, as the same may be amended from time to time. 5 1.18 "SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN" shall mean the Company's Supplemental Executive Retirement Plan, effective as of November 30, 1994, as the same may be amended from time to time. 1.19 "TERM OF EMPLOYMENT" shall mean the period specified in SUBSECTION 2.2. 1.20 "VOTING STOCK" shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation. 2. TERM OF EMPLOYMENT, POSITIONS AND RESPONSIBILITIES. 2.1 EMPLOYMENT ACCEPTED. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, for the Term of Employment, in the positions and with the duties and responsibilities set forth in SUBSECTION 2.3, and upon such other terms and conditions as are stated in this Agreement. 2.2 TERM OF EMPLOYMENT. The initial Term of Employment shall commence upon the date of this Agreement and, unless earlier terminated pursuant to the provisions of this Agreement, shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the date of this Agreement; PROVIDED, HOWEVER, that the initial Term of Employment shall automatically be extended for successive five-year periods if neither Party has advised the other in writing in accordance with SECTION 13 at least twelve (12) months prior to the end of the then current Term of Employment that such Term of Employment will not be extended for an additional five (5) year period. In the event that such notice is given, the Executive's employment shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the date that such notice is given. 2.3 TITLE AND RESPONSIBILITIES. During the Term of Employment, the Executive shall be employed as the President, Chief Executive Officer and Chairman of the Board of the Company and shall serve as a member of the Board. In carrying out his duties under this Agreement, the Executive shall only report to the Board. During the Term of Employment, the Executive shall devote reasonable time and attention to the business and affairs of the Company and shall use his best efforts, skills and abilities to promote the Company's interests. Anything herein to the contrary notwithstanding, the Executive shall not be precluded from engaging in charitable and community affairs and managing his personal investments. The Executive may serve as a member of the board of directors of other corporations, subject to the approval of a majority of the Board, which approval shall not be unreasonably withheld or delayed. 6 3. COMPENSATION. 3.1 BASE SALARY. During the Term of Employment, the Executive shall be entitled to receive a base salary (the "BASE SALARY") payable no less frequently than in equal bi-weekly installments at an annualized rate of no less than $1,250,000. Such Base Salary shall be reviewed annually for increase (but not decrease) in the discretion of the Human Resources Committee of the Board. In conducting any such annual review, the Human Resources Committee shall take into account any change in the Executive's responsibilities, increases in the compensation of other executives of the Company or any Affiliate (or any competitor(s) of either or both), the performance of the Executive and/or other pertinent factors. Such increased Base Salary shall then constitute the Executive's "Base Salary" for purposes of this Agreement. 3.2 ANNUAL BONUS. The Company may pay the Executive an annual discretionary bonus for each calendar year ending during the Term of Employment in an amount that will be determined by the Human Resources Committee based on the Executive's performance. Any annual bonus that may be awarded to the Executive shall be paid at the same time as annual bonuses are paid to other senior officers of the Company, unless the Executive has elected to defer receipt of all or part of the bonus amounts to which he is entitled in respect of any such calendar year, in accordance with the terms and provisions of any deferred compensation program maintained by the Company. 3.3 DEFERRED COMPENSATION. The Executive shall be eligible to participate in the Company's Deferred Compensation Plan for Executives, and any other deferred compensation plans that the Company may adopt for executives, pursuant to the terms of the plans. 4. EMPLOYEE BENEFIT PROGRAMS. 4.1 PENSION AND WELFARE BENEFIT PLANS. During the Term of Employment, the Executive shall be entitled to participate in all employee benefit programs made available to the Company's executives or salaried employees generally, as such programs may be in effect from time to time, including, without limitation, pension and other retirement plans, profit sharing plans, group life insurance, group health insurance, accidental death and dismemberment insurance, long-term disability, sick leave (including salary continuation arrangements), vacations, holidays and other employee benefit programs sponsored by the Company. 4.2 ADDITIONAL PENSION AND WELFARE BENEFITS. In addition to the foregoing, the Company shall provide the Executive with the following benefits: (a) Executive Group Health Insurance coverage pursuant to such plan or plans as the Company may select and which shall be fully paid for by the Company; (b) full salary continuation during the first ninety (90) days of any physical or mental incapacity that prevents the Executive from performing his duties and, for any Disability that continues thereafter, benefits pursuant to the Company's Special Long-Term Disability Plan and any other long-term 7 disability benefits pursuant to any other disability plan of which the Executive is a participant; (c) an annual supplemental retirement benefit as set forth in the Supplemental Executive Retirement Plan, in addition to any other benefit pursuant to any other retirement plan under which the Executive is covered; (d) life insurance coverage in an aggregate amount of not less than $30,000,000 through individual and/or group policies, including a split dollar policy and a term life policy; and (e) the Executive shall be eligible to participate in any long-term compensation programs maintained by the Company to the extent provided in the applicable plan documents. 5. BUSINESS EXPENSE REIMBURSEMENT AND PERQUISITES. 5.1 EXPENSE REIMBURSEMENT. During the Term of Employment, the Executive shall be entitled to receive reimbursement by the Company for all reasonable out-of-pocket expenses incurred by him in performing services under this Agreement, subject to providing the proper documentation of said expenses. 5.2 PERQUISITES. During the Term of Employment, the Executive shall also be entitled to any of the Company's executive perquisites in accordance with the terms and provisions of the applicable policies, including, without limitation: (a) use of an automobile; (b) payment or reimbursement of the cost of an annual physical examination; (c) vacation of at least four weeks per year; (d) payment or reimbursement of initiation fees and annual membership fees and assessments for a country club, a luncheon club and a physical fitness program of the Executive's choice; and (e) payment or reimbursement of fees and expenses, up to a maximum amount of $10,000.00, incurred in connection with having this Agreement reviewed by legal counsel prior to execution. 8 6. TERMINATION OF EMPLOYMENT. 6.1 TERMINATION DUE TO DEATH OR DISABILITY. The Executive's employment shall be terminated immediately in the event of his death or Disability. In the event of a termination due to the Executive's death or Disability, the Executive or his estate, as the case may be, shall be entitled, in lieu of any other compensation whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination, in the case of death, for a period of twenty-four (24) months following the termination of employment; (b) any annual bonus awarded but not yet paid; (c) a Pro Rata Bonus for the fiscal year in which death or Disability occurs; (d) any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; (e) immediate vesting of all restricted stock and unvested stock options and to exercise all stock options for the remaining option term, as if his employment had not terminated; (f) reimbursement for expenses incurred but not paid prior to such termination of employment; (g) in the case of Disability, continuation of the Executive's health and welfare benefits at the level in effect on the date of termination through the end of the 60th month following the termination of the Executive's employment, or the economic equivalent thereof, as if the Executive's employment had continued during such period; and (h) such rights to other compensation and benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and provisions of such plans and programs. 6.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate the Executive's employment for Cause at any time during the Term of Employment by giving written notice to the Executive, authorized by a vote of at least a majority of the members of the Board, that the Company intends to terminate his employment for Cause. Such written notice shall specify the particular act or acts, or failure to act, providing the basis for termination. The Executive shall be given the opportunity within thirty (30) days of the receipt of such notice to meet with the Board to defend such act or acts, or failure to act. If at the conclusion of the Executive's presentation of his defense, a majority of the Board, nonetheless, determines that the Executive's employment is terminable for Cause, the Executive shall be given thirty (30) days after such meeting to correct such acts or failure to act, unless the Board also determines that the Executive's acts or failure to act are incapable of correction. Upon failure of the Executive, 9 within thirty (30) days, to correct such acts or failure to act, or upon the Board's determination that correction is not possible, the Executive's employment by the Company shall automatically be terminated under this SUBSECTION 6.2 for Cause. During the pendency of the foregoing process, the Executive shall continue to be paid his Base Salary but shall be placed on leave of absence status. In the event of a termination for Cause, the Executive shall be entitled, in lieu of any other compensation whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination through the date of termination of employment; (b) any bonus awarded but not yet paid; (c) any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; (d) reimbursement for expenses incurred but not paid prior to such termination of employment; and (e) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and conditions of such plans and programs. Notwithstanding anything to the contrary in this SUBSECTION 6.2, if the Executive's employment is terminated for Cause due to his having been convicted pursuant to SUBSECTION 1.5(A) but said conviction is subsequently overturned on appeal and he is not required to submit to re-trial within six (6) months thereafter, the Executive shall be entitled to the payments and the economic equivalent of the benefits he would have received if his employment had been terminated without Cause under SUBSECTION 6.4. 6.3 TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON. The Executive may terminate his employment on his own initiative for any reason upon thirty (30) days prior written notice to the Company. Such termination shall have the same consequences as a termination for Cause under SUBSECTION 6.2. 6.4 TERMINATION BY THE COMPANY WITHOUT CAUSE. Notwithstanding any other provision of this Agreement, the Company may terminate the Executive's employment without Cause, other than due to death or Disability, at any time during the Term of Employment by giving written notice to the Executive. In the event that the Company terminates the Executive's employment without Cause, the Executive shall be entitled, in lieu of any other compensation whatsoever, to: (a) an amount equal to five times 175 percent of the Executive's Base Salary at the rate in effect at the time of his termination; 10 (b) any bonus awarded but not yet paid; (c) any deferred bonus, including interest or other credits on the deferred amounts, to the extent provided in the Deferred Compensation Plan for Executives; (d) immediate vesting of all restricted stock and unvested stock options and to exercise all stock options for the remaining option term, as if his employment had not terminated; (e) reimbursement for expenses incurred but not paid prior to such termination of employment; (f) continuation of all benefits provided to the Executive pursuant to SUBSECTION 4.2, including, without limitation, the Executive's group health insurance and participation in the Company's Special Long-Term Disability Plan and any other long-term disability insurance generally provided to senior executives of the Company, at the level in effect at the time of his termination of employment, through the end of the 60th month following such termination, or the economic equivalent thereof, as if such Executive were employed during such period; and (g) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and conditions of such plans and programs. 6.5 TERMINATION BY THE EXECUTIVE WITH GOOD REASON. The Executive may terminate his employment on his own initiative for Good Reason upon thirty (30) days prior written notice to the Company. Such termination shall have the same consequences as a termination without Cause under SUBSECTION 6.4. 7. CHANGE IN CONTROL. 7.1 CHANGE IN CONTROL. Immediately upon a Change in Control, in addition to any other compensation or benefits payable pursuant to this Agreement or otherwise, the Executive shall be entitled to: (a) a payment in cash equal to three times 175 percent of his Base Salary; (b) minimum annual increases in the Executive's Base Salary equal to the greater of (i) five percent, or (ii) the percentage of increase in the Consumer Price Index for the [Nevada area] as reported by the United States Department of Labor for the immediately preceding calendar year; (c) annual bonuses of at least 75 percent of his Base Salary; 11 (d) immediate vesting of all benefits, without penalty or reduction in rights or benefits, including, without limitation: (i) vesting of all stock options and stock appreciation rights, which shall be and remain exercisable for the remaining option term; (ii) vesting of all rights to all restricted stock of the Company held in the Executive's name or for his benefit; (iii) vesting and cash-out of any phantom stock units; and (iv) vesting and payout of any incentive shares; (e) immediate eligibility for retirement under the Supplemental Executive Retirement Plan without penalty for early retirement; (f) continued funding of the Executive's split dollar life insurance policy and any other life insurance policies maintained by the Company on behalf of the Executive, as if the Executive were employed by the Company through the maturity date of such policies or payment in full of all premium obligations under such policies; and (g) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and conditions of such plans and programs. 7.2 TERMINATION OF THE EXECUTIVE'S EMPLOYMENT AFTER A CHANGE IN CONTROL. If subsequent to a Change in Control, the Executive's employment is terminated by the Company without Cause or by Executive for Good Reason, the Executive shall be entitled, in addition to any compensation and benefits provided pursuant to SUBSECTION 6.4 and SUBSECTION 7.1, above, to: (a) an amount equal to the greater of (i) five times 175 percent of his Base Salary at the time of the Change in Control or (ii) five times 175 percent of his Base Salary at the time of the termination of his employment; (b) continuation of all employee benefits provided to the Executive pursuant to SUBSECTION 4.2 for a period of sixty (60) months following such termination of employment, or the economic equivalent thereof, as if the Executive were an employee of the Company during such period; and (c) an additional amount which, after the payment of all federal, state and local income taxes attributable to such additional amount, equals the positive difference, if any, of: (i) $20,000,000, MINUS 12 (ii) the product of: (A) the amount that would have been payable to the Executive under SUBSECTION 6.4(a) if his employment had been terminated without Cause prior to a Change in Control, the amount paid pursuant to SUBSECTION 7.1(a) and the amount payable pursuant to SUBSECTION 7.2(a), MULTIPLIED by: (B) the difference of: (i) one, MINUS (ii) the Executive's combined marginal income tax rate. 7.3 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON AFTER A CHANGE IN CONTROL. If the Executive terminates his employment without Good Reason following a Change in Control, in addition to any payments paid or payable pursuant to SUBSECTION 7.1, but in lieu of any other compensation and benefits whatsoever, he shall be entitled to the following: (a) if such termination occurs in the first twelve (12) months following a Change in Control, the Executive shall be entitled to an amount equal to eighty percent (80%) of the amounts payable to the Executive pursuant to: (i) SUBSECTION 6.4(a), (ii) SUBSECTION 7.2(a), (iii) an amount, if any, calculated in accordance with SUBSECTION 7.2(c), and (iv) the benefits provided in SUBSECTION 6.4 (b), (c), (e), (f) AND (g). (b) if such termination occurs after the first twelve (12) months following a Change in Control, the Executive shall be entitled to an amount equal to one hundred percent (100%) of the amounts provided for in paragraphs (a)(i) and (a)(ii) of SUBSECTION 7.3(a), an amount, if any, calculated in accordance with SUBSECTION 7.2(c), using the sum of $20,000,000, and the benefits provided in SUBSECTION 6.4(b), (c), (e), (f) AND (g), and (c) in either instance, the Executive shall be entitled to such rights to benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and conditions of such plans and programs. 13 7.4 TERMINATION FOR OTHER REASONS AFTER A CHANGE IN CONTROL. If the Executive's employment is terminated by the Company for any reason not provided by SUBSECTION 7.2 or SUBSECTION 7.3, his rights shall be determined in accordance with the applicable Subsection of SECTION 6. 7.5 FUNDING OF PAYMENTS. All payments payable to the Executive pursuant to this SECTION 7, except for payments payable as a lump sum, shall be made to a trust which shall be established for such purpose and shall provide for Towers Perrin to serve as the trustee thereof. 8. CONDITIONS TO PAYMENTS. 8.1 TIMING OF PAYMENTS. Unless otherwise provided herein, any payments to which the Executive shall be entitled under SECTIONS 6 AND 7 following the termination of his employment shall be made as promptly as possible and in no event later than five business days following such termination of employment. 8.2 NO MITIGATION; NO OFFSET. In the event of any termination of employment under SECTIONS 6 OR 7, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due to the Executive on account of any remuneration attributable to any subsequent employment that the Executive may obtain. Any amounts payable to the Executive are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. 9. SPECIAL REIMBURSEMENT. 9.1 If any payment or benefit paid or payable, or received or to be received, by or on behalf of the Executive in connection with a Change in Control pursuant to SUBSECTION 7.1 or the termination of the Executive's employment pursuant to SUBSECTIONS 7.2, 7.3 OR 7.4 , whether any such payments or benefits are pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Affiliate, any Person, or otherwise (the "TOTAL PAYMENTS"), will or would be subject to the excise tax imposed under Section 4999 of the Code (the "EXCISE TAX"), the Company shall pay to the Executive an additional amount (the "GROSS-UP PAYMENT") such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) imposed upon or in respect of the Total Payments and the Gross-Up Payments, including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and any Excise Tax imposed thereon, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. 9.2 For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (a) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive 14 (which opinion shall be provided to the Executive) such Total Payments (in whole or in part) (i) do not constitute parachute payments, including (without limitation) by reason of Section 280G(b)(4)(A) of the Code, (ii) such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, or (iii) are not, in the opinion of legal counsel, otherwise subject to the Excise Tax, and (b) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. 9.3 In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the initial Gross-Up Payment), the Company shall make an additional Gross-Up Payment in accordance with SUBSECTION 9.1 in respect of such excess Excise Tax (plus any interest, penalties or additions payable by the Executive with respect to such excess Excise Tax) at the time that the amount of such excess Excise Tax is finally determined. The Executive and the Company shall each reasonably cooperate with each other in connection with any administrative or judicial proceedings concerning the existence or amount of any such subsequent liability for Excise Tax with respect to the Total Payments. 10. INDEMNIFICATION. 10.1 GENERAL. The Company agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (an "INDEMNIFIABLE ACTION"), by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Indemnifiable Action is alleged action in an official capacity as a director, officer, member, employee or agent while service as a director, officer, member, employee or agent, he shall be indemnified and held harmless by the Company to the fullest extent authorized by Nevada law and the Company's by-laws, as the same exist or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith. 15 10.2 PROCEDURE. The indemnification provided pursuant to this SECTION 10 shall be subject to the following conditions: (a) The Executive must promptly give the Company written notice of any actual or threatened Indemnifiable Action; (b) The Company will be permitted, at its option, to participate in, or to assume, the defense of any Indemnifiable Action; (c) The Executive must provide reasonable cooperation to the Company in the defense of any Indemnifiable Action; and (d) The Executive must refrain from settling any Indemnifiable Action without obtaining the Company's prior written consent, which consent shall not be unreasonably withheld. 10.3 ADVANCEMENT OF COSTS AND EXPENSES. The Company agrees to advance all costs and expenses referred to in SUBSECTION 10.1; PROVIDED, HOWEVER, that the Executive agrees to repay to the Company any amounts so advanced to the extent that a court of competent jurisdiction finds that any acts or omissions by the Executive were: (a) in knowing violation of any agreement between the Executive and the Company; (b) in bad faith or involving intentional misconduct or a knowing violation of law or that the Executive personally gained a financial profit or other advantage to which he was not legally entitled; or (c) for which a court, having jurisdiction in the matter, determines that indemnification is not lawful. 10.4 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending an Indemnifiable Action in advance of its final disposition conferred in this SECTION 10 shall not be exclusive of any other right which the Executive may have or hereafter may acquire under any statute, provision of the certificate of incorporation or by-laws of the Company, agreement, vote of stockholders or disinterested directors or otherwise. 10.5 D&O INSURANCE. The Company will maintain a directors' and officers' liability insurance policy covering the Executive that provides coverage that is reasonable in relation to the Executive's position during the Term of Employment. 11. CONFIDENTIAL INFORMATION AND COMPANY PROPERTY. 11.1 CONFIDENTIAL INFORMATION. The Executive understands and acknowledges that Confidential Information constitutes a valuable asset of the Company and its Affiliates and may not be converted to the Executive's own or any third party's use. Accordingly, the Executive hereby agrees that he shall not, directly or indirectly, during the Term of Employment or for a period of twelve (12) months after the termination of his employment, disclose any 16 Confidential Information to any Person not expressly authorized by the Company to receive such Confidential Information. The Executive further agrees that he shall not directly or indirectly, during the Term of Employment or for a period of twelve (12) months after the termination of his employment, use or make use of any Confidential Information in connection with any business activity other than that of the Company. The Parties acknowledge and agree that this Agreement is not intended to, and does not, alter either the Company's rights or the Executive's obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. 11.2 COMPANY PROPERTY. All Company Property is and shall remain exclusively the property of the Company. Unless authorized in writing to the contrary, the Executive shall promptly, and without charge, deliver to the Company on the termination of employment hereunder, or at any other time the Company may so request, all Company Property that the Executive may then possess or have under his control. 11.3 REQUIRED DISCLOSURE. In the event the Executive is required by law or court order to disclose any Confidential Information or to produce any Company Property, the Executive shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which requires such disclosure and, if the Company so elects, to the extent permitted by applicable law, give the Company an adequate opportunity, at its own expense, to contest such law or court order prior to any such required disclosure or production by the Executive. 11.4 SURVIVAL. The Executive agrees that the provisions of this SECTION 11 shall survive the termination of this Agreement and the termination of the Executive's employment. 12. DISPUTE RESOLUTION. The Company agrees that in the event the Executive finds it necessary to initiate any legal action to obtain any payments, benefits or rights provided by this Agreement to him, the Company shall reimburse the Executive for all attorney's fees and other related expenses incurred by him to the extent the Executive is successful in such action. 13. NOTICES. All notices, demands and requests required or permitted to be given to either Party under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give notice of: If to the Company: Station Casinos, Inc. 2411 West Sahara Avenue Las Vegas, NV 89102 Attn: Scott M Nielson 17 With a copy to: Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street, 30th Floor Los Angeles, CA 90017 Attn: Kenneth J. Baronsky If to the Executive: Frank J. Fertitta III 2411 West Sahara Avenue Las Vegas, NV 89102 14. EMPLOYEE BENEFIT PLAN DOCUMENTS. In the event that any provision of this Agreement conflicts with the terms and provisions of any employee benefit plan document, the provisions of this Agreement shall govern; and the Company shall take any and all actions that may be necessary, including amendment of any plan document, to the extent necessary to effect the provision of benefits expressly provided upon termination of the Executive's employment pursuant to SECTIONS 6 AND 7. 15. BENEFICIARIES/REFERENCES. The Executive shall be entitled to select a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, by giving the Company written notice thereof. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. 16. SURVIVORSHIP. The respective rights and obligations of the Parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. The provisions of this SECTION 16 are in addition to the survivorship provisions of any other Section of this Agreement. 17. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants that he or it is fully authorized and empowered to enter into this Agreement and that the performance of his or its obligations under this Agreement will not violate any agreement between that Party and any other Person. 18. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Parties with respect thereto. No representations, inducements, promises or agreements not embodied herein shall be of any force or effect. 18 19. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs and assigns; PROVIDED, HOWEVER, that no rights or obligations of the executive under this Agreement may be assigned or transferred by the Executive, other than rights to compensation and benefits hereunder, which may be transferred only by will or operation of law and subject to the limitations of this Agreement; and PROVIDED, FURTHER, that no rights or obligations of the Company under this Agreement may be assigned or transferred by the Company, except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company under this Agreement, either contractually or as a matter of law. 20. AMENDMENT OR WAIVER. No provision in this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing, signed by both Parties. No waiver by one Party of any breach by the other Party of any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by the Executive with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. 21. SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 22. GOVERNING LAW. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Nevada without reference to the principles of conflict of laws thereof. In the event of any dispute or controversy arising out of or relating to this Agreement, the Parties mutually and irrevocably consent to, and waive any objection to, the exclusive jurisdiction of any court of competent jurisdiction in Clark County, Nevada, to resolve such dispute or controversy. 23. HEADINGS. The headings of the Sections and Subsections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 19 24. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement with the same effect as if all Parties had signed the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement and reattached to any other counterpart of this Agreement identical in form hereto but having attached to it one or more additional signature pages. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. STATION CASINOS, INC. By: /s/ GLENN C. CHRISTENSON ---------------------------------- Name: Glenn C. Christenson Title: Executive Vice President Chief Financial Officer Chief Administrative Officer /s/ FRANK J. FERTITTA III ---------------------------- FRANK J. FERTITTA III 20 EX-10.13 4 EXHIBIT 10.13 EXHIBIT 10.13 EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into as of the 1st day of December, 1999, by and between STATION CASINOS, INC., a Nevada corporation, with its principal offices located at 2411 West Sahara Avenue, Las Vegas, Nevada 89102 (the "COMPANY"), and GLENN C. CHRISTENSON (the "EXECUTIVE"). WHEREAS, the Company and the Executive are parties to an Amended and Restated Employment Agreement dated as of December 22, 1997 (the "FORMER AGREEMENT"); and WHEREAS, the Executive has agreed to continue his employment with the Company on the terms and conditions set forth herein; and WHEREAS, the parties to this Agreement desire to replace the Former Agreement in its entirety with this Agreement, and the Former Agreement shall no longer be of any force or effect; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the Company and the Executive (each individually a "PARTY" and together the "PARTIES") agree as follows. 1. DEFINITIONS. In addition to certain terms defined elsewhere in this Agreement, the following terms shall have the following respective meanings: 1.1 "AFFILIATE" shall mean any Person controlling, controlled by or under common control with, the Company. 1.2 "BASE AMOUNT" shall have the meaning ascribed to such term in Section 280G of the Code. 1.3 "BASE SALARY" shall mean the salary provided for in SUBSECTION 3.1 of this Agreement. 1.4 "BOARD" shall mean the Board of Directors of the Company. 1.5 "CAUSE" shall mean that the Executive: (a) has been formally charged with or convicted of any felony or any crime involving fraud, theft, embezzlement, dishonesty or moral turpitude; (b) has been found unsuitable to hold a gaming license; or Executive's Initials ----- Company's Initials ----- 2 (c) in carrying out his duties under this Agreement, has engaged in acts or omissions constituting gross negligence or willful misconduct resulting, in either case, in material economic harm to the Company. 1.6 "CHANGE IN CONTROL" shall be deemed to have occurred if: (a) (1) any Person, corporation, entity or group (other than the Existing Equity Holders) is or becomes the beneficial owner, directly or indirectly, of securities representing 50% or more of the combined voting power of the Company's Voting Stock (an "Acquisition Event"), or (2) the Company consolidates with or merges into another corporation or entity, or any corporation or entity consolidates with or merges into the Company, with the effect that the beneficial owners of the Company's Voting Stock held immediately prior to the consummation of such consolidation or merger cease to beneficially own, directly or indirectly, securities representing 50% or more of the combined voting power of the Company's Voting Stock (or if the Company is not the surviving entity, the surviving company's voting securities) upon the consummation of such consolidation or merger (a "Merger Event"), or (3) the Company sells, conveys, transfers or leases to any person, corporation, entity or group, directly or indirectly, in one transaction or series of related transactions, properties and/or assets that accounted for 75% or more of the earnings (before interest, taxes, depreciation and amortization) of the Company, on a consolidated basis for the four-fiscal quarter period immediately preceding the date of consummation of such transaction (a "Sale Event"); AND (b) within thirty-six (36) months following an Acquisition Event, Merger Event or Sale Event, individuals who immediately prior to such Acquisition Event, Merger Event or Sale Event constituted the Company's Board, together with any new or replacement directors whose election by the Company's Board, or whose nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then in office who were either directors on the Company's Board immediately prior to such Acquisition Event, Merger Event or Sale Event (or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of the directors of the Company's Board then in office. Notwithstanding the foregoing, a reincorporation, spin-off, split-off or other reorganization transaction (a "Reorganization Event"), or series of related transactions, in which either the "beneficial owners" of the Company's Voting Stock or the Existing Equity Holders beneficially own securities representing 50% or more of the combined voting power of the Company's Voting Stock upon the consummation of such transaction shall not constitute an Acquisition Event, Merger Event or Sale Event for purposes of this definition. For purposes of this Executive's Initials ----- Company's Initials ----- 3 definition, "beneficial ownership" shall have the same meaning as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. For the purposes of this definition, upon consummation of an Acquisition Event, Merger Event, Sale Event or Reorganization Event, the "Company's Board" and the "Company's Shareholders" shall refer to (i) in the case of an Acquisition Event, the Company, (ii) in the case of a Merger Event, the company surviving the merger or consolidation, (iii) in the case of a Sale Event, the transferee of the properties, and/or assets, and (iv) in the case of a Reorganization Event, the entity or entities surviving such Reorganization Event on a consolidated basis. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended. 1.8 "COMPANY PROPERTY" shall mean all items and materials provided by the Company to the Executive, or to which the Executive has access, in the course of his employment, including, without limitation, all files, records, documents, drawings, specifications, memoranda, notes, reports, manuals, equipment, computer disks, videotapes, drawings, blueprints and other documents and similar items relating to the Company, its Affiliates or their respective customers, whether prepared by the Executive or others, and any and all copies, abstracts and summaries thereof. 1.9 "COMPETING BUSINESS" shall mean any Person engaged in the gaming industry that directly or through an affiliate or subsidiary conducts its business within the Restricted Area. 1.10 "CONFIDENTIAL INFORMATION" shall mean all nonpublic and/or proprietary information respecting the business of the Company or any Affiliate, including, without limitation, its products, programs, projects, promotions, marketing plans and strategies, business plans or practices, business operations, employees, research and development, intellectual property, software, databases, trademarks, pricing information and accounting and financing data. Confidential Information also includes information concerning the Company's or any Affiliate's customers, such as their identity, address, preferences, playing patterns and ratings or any other information kept by the Company or any Affiliate concerning its customers whether or not such information has been reduced to documentary form. Confidential Information does not include information that is, or becomes, available to the public unless such availability occurs through an unauthorized act on the part of the Executive. 1.11 "DEFERRED COMPENSATION PLAN FOR EXECUTIVES" shall mean the Company's Deferred Compensation Plan for Executives, effective as of November 30, 1994, as the same may be amended from time to time. Executive's Initials ----- Company's Initials ----- 4 1.12 "DISABILITY" shall mean a physical or mental incapacity that prevents the Executive from performing the essential functions of his position with the Company for a period of ninety (90) days as determined (a) in accordance with any long-term disability plan provided by the Company of which the Executive is a participant, or (b) by the following procedure: The Executive agrees to submit to medical examinations by a licensed healthcare professional selected by the Company, in its sole discretion, to determine whether a Disability exists. In addition, the Executive may submit to the Company documentation of a Disability, or lack thereof, from a licensed healthcare professional of his choice. Following a determination of a Disability or lack of Disability by the Company's or the Executive's licensed healthcare professional, the other Party may submit subsequent documentation relating to the existence of a Disability from a licensed healthcare professional selected by such other Party. In the event that the medical opinions of such licensed healthcare professionals conflict, such licensed healthcare professionals shall appoint a third licensed healthcare professional to examine the Executive, and the opinion of such third licensed healthcare professional shall be dispositive. 1.13 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.14 "EXISTING EQUITY HOLDERS" shall mean Frank J. Fertitta III, Blake L. Sartini, Delise F. Sartini, Lorenzo J. Fertitta, Glenn C. Christenson and Scott M Nielson and their executors, administrators or the legal representatives of their estates, their heirs, distributees and beneficiaries, and any trust as to which any of the foregoing is a settlor or co-settlor and any corporation, partnership or other entity which is an affiliate of any of the foregoing, and any lineal descendants of such persons (but only to the extent that the beneficial ownership of the Voting Stock held by such lineal descendants was directly received by gift, trust or sale from any such person). 1.15 "GOOD REASON," as used in SUBSECTION 7.2, shall mean and exist if there has been a Change in Control and, thereafter, without the Executive's prior written consent, one or more of the following events occurs: (a) the Executive is assigned duties or responsibilities that are inconsistent, in any significant respect, with the position of a senior manager; (b) the Executive is required to relocate from, or maintain his principal office outside of, Clark County, Nevada; (c) the Executive's Base Salary is decreased by the Company; (d) the Executive is excluded from participation in any employee benefit or short-term incentive plan or program offered to other similarly executives of the Company or his benefits under such plans or programs are materially reduced; (e) the Company fails to pay the Executive any deferred payments that have become payable under the Deferred Compensation Plan for Executives; Executive's Initials ----- Company's Initials ----- 5 (f) the Company fails to reimburse the Executive for business expenses in accordance with the Company's policies, procedures or practices; (g) the Company fails to agree to or to actually indemnify the Executive for his actions and/or inactions, as either a director or an officer of the Company, in accordance with SECTION 10, and/or the Company fails to maintain reasonably sufficient levels of directors' and officers' liability insurance coverage for the Executive when such insurance is available; or (h) the Company fails to obtain a written agreement from any successor or assign of the Company to assume the obligations under this Agreement upon a Change in Control. 1.16 "LONG-TERM STAY-ON PERFORMANCE INCENTIVE PLAN" shall mean the Company's Long-Term Stay-On Performance Incentive Plan, effective as of September 27, 1994, as the same may be amended from time to time. 1.17 "PERSON" shall mean any individual, firm, partnership, association, trust, company, corporation or other entity. 1.18 "PRO RATA BONUS" shall mean an amount equal to sixty percent (60%) of the Executive's current Base Salary, multiplied by a fraction, the numerator of which is the number of days in such year during which the Executive was actually employed by the Company and the denominator of which is 365. 1.19 "RESTRICTED AREA" shall mean: (a) the City of Las Vegas, Nevada, and the area within a twenty-five (25) mile radius of that city; and (b) the Cities of Kansas City, Missouri and St. Louis, Missouri, and the areas within a fifty (50) mile radius of each of those cities; PROVIDED, HOWEVER, that in the event the Executive voluntarily terminates this Agreement pursuant to SUBSECTION 6.3, the Restricted Area shall exclude the Las Vegas Strip (which is defined as that area bounded by Paradise Road and straight extensions thereof on the East, Charleston Boulevard on the North, I-15 on the West, and Sunset Road on the South, as outlined in red on Exhibit A attached hereto) and Downtown Las Vegas (which is defined as that area bounded by Eastern Avenue and straight extensions thereof on the East, I-515 (U.S. Highway 93/95) on the North, I-15 on the West, and Charleston Boulevard on the South, as outlined in red on Exhibit A attached hereto). 1.20 "RESTRICTION PERIOD" shall mean the period ending twenty-four (24) months after the termination or expiration of the Term of Employment, regardless of the reason for such termination or expiration. Executive's Initials ----- Company's Initials ----- 6 1.21 "SPECIAL LONG-TERM DISABILITY PLAN" shall mean the Company's Special Long-Term Disability Plan, effective as of November 30, 1994, as the same may be amended from time to time. 1.22 "SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN" shall mean the Company's Supplemental Management Retirement Plan, effective as of November 30, 1994, as the same may be amended from time to time. 1.23 "TERM OF EMPLOYMENT" shall mean the period specified in SUBSECTION 2.2. 1.24 "VOTING STOCK" shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation. 2. TERM OF EMPLOYMENT, POSITION AND RESPONSIBILITIES. 2.1 EMPLOYMENT ACCEPTED. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, for the Term of Employment, in the position and with the responsibilities set forth in SUBSECTION 2.3 and upon such other terms and conditions as are stated in this Agreement. 2.2 TERM OF EMPLOYMENT. The initial Term of Employment shall commence upon the date of this Agreement and, unless earlier terminated pursuant to the provisions of this Agreement, shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the date of this Agreement; PROVIDED, HOWEVER, that the initial Term of Employment shall automatically be extended for successive five-year periods if neither Party has advised the other in writing in accordance with SECTION 14 at least twelve (12) months prior to the end of the then current Term of Employment that such Term of Employment will not be extended for an additional five year period. In the event that such notice is given, the Executive's employment shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the then current Term of Employment. 2.3 RESPONSIBILITIES. During the Term of Employment, the Executive shall be employed as Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer of the Company, or in such other capacity as the Company may direct, and shall have such responsibilities as the Company may direct from time to time. During the Term of Employment, the Executive shall devote his full time and attention to the business and affairs of the Company and shall use his best efforts, skills and abilities to promote the Company's interests. Anything herein to the contrary notwithstanding, the Executive shall not be precluded from engaging in charitable and community affairs and managing his personal investments. The Executive also may serve as a member of the board of directors of other corporations, subject to the approval of a majority of the Board, which approval shall not be unreasonably withheld or delayed. Executive's Initials ----- Company's Initials ----- 7 3. COMPENSATION. 3.1 BASE SALARY. During the Term of Employment, the Executive shall be entitled to receive a base salary (the "Base Salary") payable no less frequently than in equal bi-weekly installments at an annualized rate of no less than $600,000. The Base Salary shall be reviewed annually for increase (but not decrease) in the discretion of the Human Resources Committee of the Board. In conducting any such annual review, the Human Resources Committee shall take into account any change in the Executive's responsibilities, increases in the compensation of other executives of the Company or any Affiliate (or any competitor(s) of either or both), the performance of the Executive and/or other pertinent factors. Such increased Base Salary shall then constitute the Executive's "Base Salary" for purposes of this Agreement. 3.2 ANNUAL BONUS. The Company may pay the Executive an annual discretionary bonus for each fiscal year ending during the Term of Employment in an amount that will be determined by the Human Resources Committee based on the Executive's performance. Any annual bonus that may be awarded to the Executive shall be paid at the same time as annual bonuses are paid to other senior officers of the Company, unless the Executive has elected to defer receipt of all or part of the bonus amounts to which he is entitled in respect of any such calendar year in accordance with the terms and provisions of any deferred compensation program maintained by the Company. 3.3 STAY-ON INCENTIVES. The Executive shall be eligible to participate in the Company's Long-Term Stay-On Performance Incentive Plan pursuant to the terms of the Plan. 3.4 DEFERRED COMPENSATION. The Executive shall be eligible to participate in the Company's Deferred Compensation Plan for Executives, and any other deferred compensation plans that the Company may adopt for executives, pursuant to the terms of the plans. 4. EMPLOYEE BENEFIT PLANS AND PROGRAMS. 4.1 PENSION AND WELFARE BENEFIT PLANS. During the Term of Employment, the Executive shall be entitled to participate in all employee benefit programs made available to the Company's executives or salaried employees generally, as such programs may be in effect from time to time, including, without limitation, pension and other retirement plans, profit sharing plans, group life insurance, group health insurance, accidental death and dismemberment insurance, long-term disability, sick leave (including salary continuation arrangements), vacations, holidays and other employee benefit programs sponsored by the Company. Executive's Initials ----- Company's Initials ----- 8 4.2 ADDITIONAL PENSION AND WELFARE BENEFITS. In addition to the foregoing, the Company shall provide the Executive with the following benefits: (a) group health insurance coverage through the Company's Exec-U-Care Medical Plan, effective as of July 1, 1994, or pursuant to such other plan or plans as the Company may select from time to time, and which shall be fully paid for by the Company; in addition, if the Executive's employment is terminated pursuant to SECTION 6 or SECTION 7 for any reason that permits him to continue his participation under any group health - plan sponsored by the Company after termination, the Executive shall be permitted to continue his participation beyond the period provided for in the applicable subsection, at his own expense, until the earlier of the date he becomes eligible to participate in any other employer's group health plan and his reaching age 62, provided that the Company's group health insurance carrier at the time permits such continued participation; (b) full salary continuation during the first 90 days of any physical or mental incapacity that prevents the Executive from performing his duties and, for any Disability that continues thereafter, benefits pursuant to the Company's Special Long-Term Disability Plan and any other long-term disability benefits pursuant to any other disability plan of which the Executive is a participant; (c) an annual supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan, in addition to any other benefit pursuant to any other retirement plan under which the Executive is covered; and (d) supplemental life insurance coverage, through an individual policy, a group policy or a combination thereof, in an aggregate amount of not less than $7.5 million. 5. BUSINESS EXPENSE REIMBURSEMENT AND PERQUISITES. 5.1 EXPENSE REIMBURSEMENT. During the Term of Employment, the Executive shall be entitled to receive reimbursement by the Company for all reasonable out-of-pocket expenses incurred by him in performing services under this Agreement, subject to providing the proper documentation of said expenses. 5.2 PERQUISITES. During the Term of Employment, the Executive shall also be entitled to any of the Company's executive perquisites in accordance with the terms and provisions of the applicable policies, including, without limitation: (a) vacation of four weeks per year; (b) payment or reimbursement of the cost of an annual physical examination; Executive's Initials ----- Company's Initials ----- 9 (c) payment or reimbursement of initiation fees and annual membership fees and assessments for a country club, a luncheon club and a physical fitness program of the Executive's choice; and (d) payment or reimbursement of fees and expenses, up to a maximum amount of $2500.00, incurred in connection with having this Agreement reviewed by legal counsel of his own choosing prior to execution. 6. TERMINATION OF EMPLOYMENT. 6.1 TERMINATION DUE TO DEATH OR DISABILITY. The Executive's employment shall be terminated immediately in the event of his death or Disability. In the event of a termination due to the Executive's death or Disability, the Executive or his estate, as the case may be, shall be entitled, in lieu of any other compensation whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination until the date of death or Disability; (b) any annual bonus awarded but not yet paid; (c) a Pro Rata Bonus for the fiscal year in which death or Disability occurs; (d) in the case of death, any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral, and in the case of Disability, immediate vesting of any deferred compensation or bonuses, including interest or other credits on the deferred amounts; (e) reimbursement of expenses incurred but not paid prior to such termination of employment; and (f) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and provisions of such plans and programs. 6.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate the Executive's employment for Cause at any time during the Term of Employment by giving written notice to the Executive. In the event of a termination for Cause, the Executive shall be entitled, in lieu of any other compensation and benefits whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination through the date of termination of employment; (b) any annual bonus awarded but not yet paid; Executive's Initials ----- Company's Initials ----- 10 (c) any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; (d) reimbursement for expenses incurred but not paid prior to such termination of employment; and (e) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and conditions of such plans and programs. Notwithstanding anything to the contrary in this SUBSECTION 6.2, if the Executive's employment is terminated for Cause (i) due to his having been formally charged pursuant to SUBSECTION 1.5(a) but thereafter said charges are dismissed or the Executive is acquitted, or (ii) due to his having been convicted pursuant to SUBSECTION 1.5(a) but said conviction is subsequently overturned on appeal and he is not required to submit to re-trial within six (6) months thereafter, the Company shall have the option of reinstating the Executive with payment of all base salary payments that would have been paid to him had his employment not been terminated and restoration of all benefits provided for pursuant to SECTION 4, or making a payment to him of an amount equal to three times 160 percent of the Executive's Base Salary at the rate in effect at the time of his termination. 6.3 TERMINATION BY THE EXECUTIVE. The Executive may terminate his employment on his own initiative for any reason prior to a Change in Control upon thirty (30) days prior written notice to the Company. Such termination shall have the same consequences as a termination for Cause under SUBSECTION 6.2. 6.4 TERMINATION BY THE COMPANY WITHOUT CAUSE. Notwithstanding any other provision of this Agreement, the Company may terminate the Executive's employment without Cause, other than due to death or Disability, at any time during the Term of Employment by giving written notice to the Executive. In the event that the Company terminates the Executive's employment without Cause, the Executive shall be entitled, in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to three times 160 percent of the Executive's Base Salary at the rate in effect at the time of his termination, one-third of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3, and the other two-thirds of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period; (b) any annual bonus awarded but not yet paid; (c) any deferred bonus, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; Executive's Initials ----- Company's Initials ----- 11 (d) exercise, within 180 days, all stock options that have vested prior to termination, and shall forfeit all stock options that have not vested; (e) reimbursement for expenses incurred but not paid prior to such termination of employment; and (f) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 6.5 TERMINATION DUE TO EXPIRATION OF THE TERM OF EMPLOYMENT. If either Party elects not to extend the initial Term of Employment or any successive Term of Employment, the Executive shall not be entitled to any additional compensation after the expiration thereof, but such termination of employment shall not otherwise affect accrued but unpaid compensation or benefits provided under this Agreement or pursuant to any Company plan or program. 7. CHANGE IN CONTROL. 7.1 CHANGE IN CONTROL PAYMENT. Immediately upon a Change in Control, in addition to any other compensation or benefits payable pursuant to this Agreement or otherwise, the Executive shall be entitled to a payment in cash equal to three times 160 percent of his Base Salary. Unless otherwise provided for in this Agreement, the Executive's rights upon a Change in Control to benefits under programs, plans and policies of the Company shall be determined according to the terms and provisions of such programs, plans and policies. 7.2 TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD REASON AFTER A CHANGE IN CONTROL. If within five years following a Change in Control, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, the Executive shall be entitled, in addition to any payment paid or payable pursuant to SUBSECTION 7.1, but in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to the greater of (i) five times 160 percent of the Executive's Base Salary at the time of the Change in Control or (ii) five times 160 percent of the Executive's Base Salary at the time of the termination of his employment, three-fifths of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3 and two-fifths of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period, (b) immediate vesting of any restricted stock of the Company held in the Executive's name or for his benefit; (c) immediate vesting of any stock options and stock appreciation rights granted by the Company, which stock options and stock appreciation rights shall continue to be and shall remain exercisable until the earlier of Executive's Initials ----- Company's Initials ----- 12 (i) five years and (ii) the remaining term of such stock options and stock appreciation rights as set forth in the agreement granting, or otherwise awarding, such stock option or stock appreciation right as if no termination had taken place; (d) immediate vesting and cash-out of any phantom stock units granted to the Executive; (e) immediate vesting and pay out of any shares awarded to the Executive pursuant to the Company's Long-Term Stay-On Performance Incentive Plan; (f) immediate vesting of the Executive's supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan; (g) continued funding of the Executive's split dollar life insurance policy as if the Executive were employed by the Company through the maturity date of such policy or, at the Company's option, payment in full of all premium obligations under such policy; and (h) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 7.3 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON AFTER A CHANGE IN CONTROL. If the Executive terminates his employment without Good Reason within ninety (90) days following the first anniversary of a Change in Control, the Executive shall be entitled, in addition to any payment paid or payable pursuant to SUBSECTION 7.1, but in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to the greater of (i) three times 160 percent of the Executive's Base Salary at the time of the Change in Control or (ii) three times 160 percent of the Executive's Base Salary at the time of the termination of his employment, one-third of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3 and two-thirds of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period; (b) immediate vesting of any stock options and stock appreciation rights granted by the Company, which stock options and stock appreciation rights shall continue to be and shall remain exercisable until the earlier of (i) three years and (ii) the remaining term of such stock options and stock appreciation rights as set forth in the agreement granting, or otherwise awarding, such stock option or stock appreciation right as if no termination had taken place; Executive's Initials ----- Company's Initials ----- 13 (c) immediate vesting and cash-out of any phantom stock units granted to the Executive; (d) immediate vesting of the Executive's supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan; (e) continued funding of the Executive's split dollar life insurance policy as if the Executive were employed by the Company through the maturity date of such policy or, at the Company's option, payment in full of all premium obligations under such policy; and (f) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 7.4 TERMINATION FOR OTHER REASONS AFTER A CHANGE IN CONTROL. If the Executive's employment is terminated after a Change in Control for any reason not otherwise provided for in this SECTION 7, his rights shall be determined in accordance with the applicable subsection of SECTION 6. 8. CONDITIONS TO PAYMENTS UPON TERMINATION. 8.1 TIMING OF PAYMENTS. Unless otherwise provided herein, any payments to which the Executive shall be entitled pursuant to SECTIONS 6 AND 7 shall be payable upon the satisfaction of the conditions set forth in SUBSECTION 8.3. 8.2 NO MITIGATION; NO OFFSET. In the event of any termination of the Executive's employment under SECTIONS 6 OR 7, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due to the Executive on account of any remuneration attributable to any subsequent employment that the Executive may obtain. Notwithstanding any contrary provision contained herein, in the event of any termination of employment of the Executive, the exclusive remedies available to the Executive shall be the amounts due under SECTIONS 6 OR 7, which are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. In the event of a termination of this Agreement, neither Party shall publish in any way or make any negative comment or statement about the other Party or concerning the reasons for such termination. The provisions of this SUBSECTION 8.2 shall survive the expiration or earlier termination of this Agreement. 8.3 GENERAL RELEASE. No payments or benefits payable to the Executive upon the termination of his employment pursuant to SECTIONS 6 OR 7 shall be made to the Executive unless and until he executes a general release substantially in the form annexed to this Agreement as Exhibit B and such general release becomes effective pursuant to its terms. Executive's Initials ----- Company's Initials ----- 14 8.4 COMPLIANCE WITH THE AGREEMENT. No payments or benefits payable to the Executive upon the termination of his employment pursuant to SECTIONS 6 OR 7 shall be made to the Executive if he fails to comply with all of the terms and conditions of this Agreement, including, without limitation, SECTIONS 11 AND 12. 8.5 CONTINUING OBLIGATIONS OF EXECUTIVE. No act or omission by the Executive in breach of this Agreement, including, without limitation his failure to execute the general release and the resulting forfeiture of termination payments, shall be deemed to permit the Executive to forego or waive such payments in order to avoid his obligations under SECTION 11. 9. SPECIAL REIMBURSEMENT. 9.1 If any payment or benefit paid or payable, or received or to be received, by or on behalf of the Executive in connection with a Change in Control pursuant to SUBSECTION 7.1 or the termination of the Executive's employment pursuant to SUBSECTION 7.2 , whether any such payments or benefits are pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Affiliate, any Person, or otherwise (the "TOTAL PAYMENTS"), will or would be subject to the excise tax imposed under Section 4999 of the Code (the "EXCISE TAX"), the Company shall pay to the Executive an additional amount (the "GROSS-UP PAYMENT") such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) imposed upon or in respect of the Total Payments and the Gross-Up Payments, including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and any Excise Tax imposed thereon, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. 9.2 For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (a) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive (which opinion shall be provided to the Executive) such Total Payments (in whole or in part) (i) do not constitute parachute payments, including (without limitation) by reason of Section 280G(b)(4)(A) of the Code, (ii) such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, or (iii) are not, in the opinion of legal counsel, otherwise subject to the Excise Tax, and (b) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. Executive's Initials ----- Company's Initials ----- 15 9.3 In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the initial Gross-Up Payment), the Company shall make an additional Gross-Up Payment in accordance with SUBSECTION 9.1 in respect of such excess Excise Tax (plus any interest, penalties or additions payable by the Executive with respect to such excess Excise Tax) at the time that the amount of such excess Excise Tax is finally determined. The Executive and the Company shall each reasonably cooperate with each other in connection with any administrative or judicial proceedings concerning the existence or amount of any such subsequent liability for Excise Tax with respect to the Total Payments. 10. INDEMNIFICATION. 10.1 GENERAL. The Company agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (an "INDEMNIFIABLE ACTION"), by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Indemnifiable Action is alleged action in an official capacity as a director, officer, member, employee or agent, while serving as a director, officer, member, employee or agent, he shall be indemnified and held harmless by the Company to the fullest extent permitted by Nevada law and the Company's by-laws, as the same exist or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith. 10.2 PROCEDURE. The indemnification provided pursuant to this SECTION 10 shall be subject to the following conditions: (a) The Executive must promptly give the Company written notice of any actual or threatened Indemnifiable Action; (b) The Company will be permitted, at its option, to participate in, or to assume, the defense of any Indemnifiable Action; (c) The Executive must provide reasonable cooperation to the Company in the defense of any Indemnifiable Action; and (d) The Executive must refrain from settling any Indemnifiable Action without obtaining the Company's prior written consent, which consent shall not be unreasonably withheld. Executive's Initials ----- Company's Initials ----- 16 10.3 ADVANCEMENT OF COSTS AND EXPENSES. The Company agrees to advance all costs and expenses referred to in SUBSECTION 10.1; PROVIDED, HOWEVER, that the Executive agrees to repay to the Company all amounts so advanced in the event that the Company reasonably determines in good faith that any acts or omissions by the Executive were: (a) in knowing violation of any agreement between the Executive and the Company; (b) in bad faith or involving intentional misconduct or a knowing violation of law or that the Executive personally gained a financial profit or other advantage to which he was not legally entitled; or (c) for which a court, having jurisdiction in the matter, determines that indemnification is not lawful. 10.4 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending an Indemnifiable Action in advance of its final disposition conferred in this SECTION 10 shall not be exclusive of any other right which the Executive may have or hereafter may acquire under any statute, provision of the certificate of incorporation or by-laws of the Company, agreement, vote of stockholders or disinterested directors or otherwise. 10.5 D&O INSURANCE. The Company will maintain a directors' and officers' liability insurance policy covering the Executive that provides coverage that is reasonable in relation to the Executive's position during the Term of Employment. 11. COVENANT NOT ENGAGE IN CERTAIN ACTS. 11.1 GENERAL. The Parties understand and agree that the purpose of the restrictions contained in this SECTION 11 is to protect the goodwill and other legitimate business interests of the Company, and that the Company would not have entered into this Agreement in the absence of such restrictions. The Executive acknowledges and agrees that the restrictions are reasonable and do not, and will not, unduly impair his ability to make a living after the termination of his employment with the Company. The provisions of this SECTION 11 shall survive the expiration or sooner termination of this Agreement. 11.2 NON-ASSISTANCE; NON-DIVERSION. In consideration for this Agreement to employ the Executive and the other valuable consideration provided hereunder, the Executive agrees and covenants that during the Term of Employment and during the Restriction Period, and except when acting on behalf of the Company or on behalf of any Affiliate, the Executive shall not, directly or indirectly, for himself or any third party, or alone or as a member of a partnership, or as an officer, director, shareholder or otherwise, engage in the following acts: (a) divert or attempt to divert any existing business of the Company or any Affiliate; (b) accept any position or affiliation with, or render any services on behalf of, any Competing Business; or Executive's Initials ----- Company's Initials ----- 17 (c) hire or retain any employee of the Company or any Affiliate to provide services for any other Person or induce, solicit, attempt to solicit, encourage, divert, cause or attempt to cause any employee or prospective employee of the Company or any Affiliate to (i) terminate and/or leave such employment, or (ii) accept employment with anyone other than the Company or an Affiliate. 11.3 CESSATION/REIMBURSEMENT OF PAYMENTS. If the Executive violates any provision of this SECTION 11, the Company may, upon giving written notice to the Executive, immediately cease all payments and benefits that it may be providing to the Executive pursuant to SECTION 3, SECTION 6 or SUBSECTION 7.2, and the Executive may be required to reimburse the Company for any payments received from, and the cash value of any benefits provided by, the Company between the first day of the violation and the date such notice is given; PROVIDED, HOWEVER, that the foregoing shall be in addition to such other remedies as may be available to the Company and shall not be deemed to permit the Executive to forego or waive such payments in order to avoid his obligations under this SECTION 11. 11.4 SURVIVAL. The Executive agrees that the provisions of this SECTION 11 shall survive the termination of this Agreement and the termination of the Executive's employment. 12. CONFIDENTIAL INFORMATION AND COMPANY PROPERTY. 12.1 CONFIDENTIAL INFORMATION. The Executive understands and acknowledges that Confidential Information constitutes a valuable asset of the Company and its Affiliates and may not be converted to the Executive's own or any third party's use. Accordingly, the Executive hereby agrees that he shall not directly or indirectly, during the Term of Employment or any time thereafter, disclose any Confidential Information to any Person not expressly authorized by the Company to receive such Confidential Information. The Executive further agrees that he shall not directly or indirectly, during the Term of Employment or any time thereafter, use or make use of any Confidential Information in connection with any business activity other than that of the Company. The Parties acknowledge and agree that this Agreement is not intended to, and does not, alter either the Company's rights or the Executive's obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. 12.2 COMPANY PROPERTY. All Company Property is and shall remain exclusively the property of the Company. Unless authorized in writing to the contrary, the Executive shall promptly, and without charge, deliver to the Company on the termination of employment hereunder, or at any other time the Company may so request, all Company Property that the Executive may then possess or have under his control. 12.3 REQUIRED DISCLOSURE. In the event the Executive is required by law or court order to disclose any Confidential Information or to produce any Company Property, the Executive shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which requires such disclosure and, if the Company Executive's Initials ----- Company's Initials ----- 18 so elects, to the extent permitted by applicable law, give the Company an adequate opportunity, at its own expense, to contest such law or court order prior to any such required disclosure or production by the Executive. 12.4 SURVIVAL. The Executive agrees that the provisions of this SECTION 12 shall survive the termination of this Agreement and the termination of the Executive's employment. 13. MUTUAL ARBITRATION AGREEMENT. 13.1 ARBITRABLE CLAIMS. All disputes between the Executive (and his attorneys, successors, and assigns) and the Company (and its trustees, beneficiaries, officers, directors, managers, affiliates, employees, agents, successors, attorneys, and assigns) relating in any manner whatsoever to the employment or termination of the Executive, including, without limitation, all disputes arising under this Agreement ("ARBITRABLE CLAIMS"), shall be resolved by binding arbitration as set forth in this SECTION 13 (the "MUTUAL ARBITRATION AGREEMENT"). Arbitrable Claims shall include, but are not limited to, claims for compensation, claims for breach of any contract or covenant (express or implied), and tort claims of all kinds, as well as all claims based on any federal, state, or local law, statute or regulation, but shall not include the claims based on the statutes enumerated in SUBSECTION 13.4 or the Company's right to seek injunctive relief as provided in SECTION 15. Arbitration shall be final and binding upon the Parties and shall be the exclusive remedy for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JUDGE OR JURY IN REGARD TO ARBITRABLE CLAIMS, EXCEPT AS PROVIDED BY SECTION 13.4. 13.2 PROCEDURE. Arbitration of Arbitrable Claims shall be in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association, as amended, and as augmented in this Agreement. Either Party may bring an action in court to compel arbitration under this Agreement and to enforce an arbitration award. Otherwise, neither Party shall initiate or prosecute any lawsuit, appeal or administrative action in any way related to an Arbitrable Claim. The initiating Party must file and serve an arbitration claim within sixty (60) days of learning the facts giving rise to the alleged claim. All arbitration hearings under this Agreement shall be conducted in Las Vegas, Nevada. The Federal Arbitration Act shall govern the interpretation and enforcement of this Agreement. The fees of the arbitrator shall be divided equally between both Parties. 13.3 CONFIDENTIALITY. All proceedings and all documents prepared in connection with any Arbitrable Claim shall be confidential and, unless otherwise required by law, the subject matter and content thereof shall not be disclosed to any Person other than the parties to the proceedings, their counsel, witnesses and experts, the arbitrator and, if involved, the court and court staff. 13.4 APPLICABILITY. This SECTION 13 shall apply to all disputes under this Agreement other than: Executive's Initials ----- Company's Initials ----- 19 (a) disputes relating to the enforcement of the Company's rights under SECTIONS 11 AND 12 of this Agreement; and (b) claims brought under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Age Discrimination in Employment Act of 1967 (including the Older Workers Benefit Protection Act), and the Americans with Disabilities Act, the Fair Labor Standards Act, the Equal Pay Act, the Family and Medical Leave Act and the Employee Retirement Income Security Act of 1974, the Nevada Fair Employment Practices Act, the Missouri Human Rights Act or any other applicable state or local fair employment law. 13.5 ACKNOWLEDGEMENTS. The Executive acknowledges that he: (a) has carefully read this SECTION 13; (b) understands its terms and conditions; and (c) has entered into this Mutual Arbitration Agreement voluntarily and not in reliance on any promises or representations made by the Company other than those contained in this Mutual Arbitration Agreement. 14. NOTICES. All notices, demands and requests required or permitted to be given to either Party under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give notice of: If to the Company: Station Casinos, Inc. 2411 West Sahara Avenue Las Vegas, NV 89102 Attn: Scott M. Nielson With a copy to: Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street, 30th Floor Los Angeles, CA 90017 Attn: Kenneth J. Baronsky If to the Executive: Glenn C. Christenson 2346 Villandry Court Henderson, NV 89014 15. RIGHT TO SEEK INJUNCTIVE RELIEF. The Executive acknowledges that a violation on his part of any of the covenants contained in SECTIONS 11 AND 12 would cause immeasurable and irreparable damage to the Company. The Executive accordingly agrees and hereby grants his consent that, without limiting the remedies available to the Company, any Executive's Initials ----- Company's Initials ----- 20 actual or threatened violation of such covenants may be enforced by injunctive relief or by other equitable remedies issued or ordered by any court of competent jurisdiction. 16. EMPLOYEE BENEFIT PLAN DOCUMENTS. In the event that any terms and provisions of this Agreement conflict with the terms and provisions of any employee benefit plan document, the terms and provisions of this Agreement shall govern, and the Company shall take any and all actions that may be necessary, including amendment of any plan document, to effect the provision of benefits expressly provided upon termination of the Executive's employment pursuant to SECTIONS 6 AND 7. 17. BENEFICIARIES/REFERENCES. The Executive shall be entitled to select a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, by giving the Company written notice thereof. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiaries, estate or other legal representative. 18. SURVIVORSHIP. The respective rights and obligations of the Parties hereunder shall survive the expiration or earlier termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. The provisions of this SECTION 18 are in addition to the survivorship provisions of any other section of this Agreement. 19. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants that he or it is fully authorized and empowered to enter into this Agreement and that the performance of his or its obligations under this Agreement will not violate any Agreement between that Party and any other Person. 20. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, express or implied, between the Parties with respect hereto. No representations, inducements, promises or agreements not embodied herein shall be of any force or effect. 21. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs and assigns; PROVIDED, HOWEVER, that no rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive, other than rights to compensation and benefits hereunder, which may be transferred only by will or operation of law and subject to the limitations of this Agreement; and PROVIDED, FURTHER, that no rights or obligations of the Company under this Agreement may be assigned or transferred by the Company, except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company under this Agreement, either contractually or as a matter of law. Executive's Initials ----- Company's Initials ----- 21 22. AMENDMENT OR WAIVER. No provision in this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing, signed by both Parties. No waiver by one Party of any breach by the other Party of any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by the Executive with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. 23. SEVERABILITY. In the event that any provision or portion of this Agreement, except SECTION 6, SECTION 7 and SECTION 11, shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. If either SECTION 6, SECTION 7 or SECTION 11 is determined to be invalid or unenforceable for any reason, in whole or in part, either Party may terminate this Agreement without further obligations or duties hereunder. 24. GOVERNING LAW. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Nevada without reference to the principles of conflict of laws thereof. In the event of any dispute or controversy arising out of or relating to this Agreement that is not an arbitrable claim, the Parties mutually and irrevocably consent to, and waive any objection to, the exclusive jurisdiction of any court of competent jurisdiction in Clark County, Nevada, to resolve such dispute or controversy. 25. HEADINGS. The headings of the sections and subsections contained in this agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 26. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement with the same effect as if all Parties had signed the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement and reattached to any other counterpart of this Agreement identical in form hereto but having attached to it one or more additional signature pages. 27. ACKNOWLEDGEMENT. The Executive represents and acknowledges the following: (a) he has carefully read this Agreement in its entirety; (b) he understands the terms and conditions contained herein; Executive's Initials ----- Company's Initials ----- 22 (c) he has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by the Company or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and (d) he is entering into this Agreement knowingly and voluntarily. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. STATION CASINOS, INC. By: /s/ SCOTT M NIELSON ------------------------- Name: Scott M Nielson Title: Executive Vice President, General Counsel and Secretary /s/ GLENN C. CHRISTENSON --------------------------- Glenn C. Christenson Executive's Initials ----- Company's Initials ----- EXHIBIT "B" GENERAL RELEASE AND COVENANT NOT TO SUE This GENERAL RELEASE AND COVENANT NOT TO SUE (this "Release") is executed and delivered by GLENN C. CHRISTENSON (the "Executive") to STATION CASINOS, INC., a Nevada corporation (the "Company"). In consideration of the agreement by the Company to provide the separation payments and benefits in SECTION 6 and SECTION 7 of the Employment Agreement between the Executive and the Company, dated as of December 1, 1999 (the "Employment Agreement"), and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Executive hereby agrees as follows: 1. RELEASE AND COVENANT. THE EXECUTIVE, OF HIS OWN FREE WILL, VOLUNTARILY RELEASES AND FOREVER DISCHARGES THE COMPANY AND ITS SUBSIDIARIES AND AFFILIATES, AND EACH OF THEIR RESPECTIVE PAST AND PRESENT AGENTS, EMPLOYEES, MANAGERS, REPRESENTATIVES, OFFICERS, DIRECTORS, ATTORNEYS, ACCOUNTANTS, TRUSTEES, SHAREHOLDERS, PARTNERS, INSURERS, HEIRS, PREDECESSORS-IN-INTEREST, ADVISORS, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE "RELEASED PARTIES") FROM, AND COVENANTS NOT TO SUE OR PROCEED AGAINST ANY OF THE FOREGOING ON THE BASIS OF, ANY AND ALL PAST OR PRESENT CAUSES OF ACTION, SUITS, AGREEMENTS OR OTHER RIGHTS OR CLAIMS WHICH THE EXECUTIVE, HIS DEPENDENTS, RELATIVES, HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS HAS OR HAVE AGAINST ANY OF THE RELEASED PARTIES UPON OR BY REASON OF ANY MATTER ARISING OUT OF HIS EMPLOYMENT BY THE COMPANY AND THE CESSATION OF SAID EMPLOYMENT, AND INCLUDING, BUT NOT LIMITED TO, ANY ALLEGED VIOLATION OF THE CIVIL RIGHTS ACTS OF 1964 AND 1991, THE EQUAL PAY ACT OF 1963, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967 (INCLUDING THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990), THE REHABILITATION ACT OF 1973, THE FAMILY AND MEDICAL LEAVE ACT OF 1993, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, THE NEVADA FAIR EMPLOYMENT PRACTICES ACT, THE MISSOURI HUMAN RIGHTS ACT, THE LABOR LAWS OF THE UNITED STATES, NEVADA AND MISSOURI, AND ANY OTHER FEDERAL, STATE OR LOCAL LAW, REGULATION OR ORDINANCE, OR PUBLIC POLICY, CONTRACT OR TORT LAW, HAVING ANY BEARING WHATSOEVER ON THE TERMS AND CONDITIONS OR CESSATION OF HIS EMPLOYMENT WITH THE COMPANY. 2. DUE CARE. THE EXECUTIVE ACKNOWLEDGES THAT HE HAS RECEIVED A COPY OF THIS RELEASE PRIOR TO ITS EXECUTION AND HAS BEEN ADVISED HEREBY OF HIS OPPORTUNITY TO REVIEW AND CONSIDER THIS RELEASE FOR TWENTY-ONE (21) DAYS PRIOR TO ITS EXECUTION. THE EXECUTIVE FURTHER ACKNOWLEDGES THAT HE HAS BEEN ADVISED HEREBY TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. THE EXECUTIVE ENTERS INTO THIS RELEASE HAVING FREELY AND KNOWINGLY ELECTED, AFTER DUE CONSIDERATION, TO EXECUTE THIS RELEASE AND TO FULFILL THE PROMISES SET FORTH HEREIN. THIS RELEASE SHALL BE REVOCABLE BY THE EXECUTIVE DURING THE SEVEN (7) DAY PERIOD FOLLOWING ITS EXECUTION, AND SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD. IN THE EVENT OF SUCH A REVOCATION, THE EXECUTIVE SHALL NOT BE ENTITLED TO THE CONSIDERATION FOR THIS RELEASE SET FORTH ABOVE. 3. RELIANCE BY THE EXECUTIVE. THE EXECUTIVE ACKNOWLEDGES THAT, IN HIS DECISION TO ENTER INTO THIS RELEASE, HE HAS NOT RELIED ON ANY REPRESENTATIONS, PROMISES OR ARRANGEMENT OF ANY KIND, INCLUDING ORAL STATEMENTS BY REPRESENTATIVES OF THE COMPANY, EXCEPT AS SET FORTH IN THIS RELEASE. 4. MISCELLANEOUS. THE EXECUTIVE SHALL NOT DISCLOSE THE EXISTENCE OR CONTENTS OF THIS RELEASE TO ANYONE OTHER THAN HIS IMMEDIATE FAMILY, ACCOUNTANTS OR ATTORNEYS, AND THE EXECUTIVE SHALL INSTRUCT SUCH THIRD PARTIES NOT TO DISCLOSE THE SAME. THIS RELEASE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. IF ANY PROVISION OF THIS RELEASE IS HELD INVALID OR UNENFORCEABLE FOR ANY REASON, THE REMAINING PROVISIONS SHALL BE CONSTRUED AS IF THE INVALID OR UNENFORCEABLE PROVISION HAD NOT BEEN INCLUDED. ii This GENERAL RELEASE AND COVENANT NOT TO SUE is executed by the Executive and delivered to the Company on _______________________. Executive - ------------------------------ Name: Glenn C. Christenson STATE OF ___________ ) ) ss: COUNTY OF ____________ ) On this _____ day of ________________, ____, before me, a Notary Public of the State of _______________, personally appeared ____________, to me known and known to me to be the person described and who executed the foregoing release and did then and there acknowledge to me that he voluntarily executed the same. - ----------------------------- NOTARY PUBLIC [NOT TO BE SIGNED OR NOTARIZED UPON EXECUTION OF EMPLOYMENT AGREEMENT] iii EX-10.14 5 EXHIBIT 10.14 EXHIBIT 10.14 EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into as of the 1st day of December, 1999, by and between STATION CASINOS, INC., a Nevada corporation, with its principal offices located at 2411 West Sahara Avenue, Las Vegas, Nevada 89102 (the "COMPANY"), and SCOTT M NIELSON (the "EXECUTIVE"). WHEREAS, the Company and the Executive are parties to an Amended and Restated Employment Agreement dated as of December 22, 1997 (the "FORMER AGREEMENT"); and WHEREAS, the Executive has agreed to continue his employment with the Company on the terms and conditions set forth herein; and WHEREAS, the parties to this Agreement desire to replace the Former Agreement in its entirety with this Agreement, and the Former Agreement shall no longer be of any force or effect; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the Company and the Executive (each individually a "PARTY" and together the "PARTIES") agree as follows. 1. DEFINITIONS. In addition to certain terms defined elsewhere in this Agreement, the following terms shall have the following respective meanings: 1.1 "AFFILIATE" shall mean any Person controlling, controlled by or under common control with, the Company. 1.2 "BASE AMOUNT" shall have the meaning ascribed to such term in Section 280G of the Code. 1.3 "BASE SALARY" shall mean the salary provided for in SUBSECTION 3.1 of this Agreement. 1.4 "BOARD" shall mean the Board of Directors of the Company. 1.5 "CAUSE" shall mean that the Executive: (a) has been formally charged with or convicted of any felony or any crime involving fraud, theft, embezzlement, dishonesty or moral turpitude; (b) has been found unsuitable to hold a gaming license; or Executive's Initials --- Company's Initials --- 2 (c) in carrying out his duties under this Agreement, has engaged in acts or omissions constituting gross negligence or willful misconduct resulting, in either case, in material economic harm to the Company. 1.6 "CHANGE IN CONTROL" shall be deemed to have occurred if: (a) (1) any Person, corporation, entity or group (other than the Existing Equity Holders) is or becomes the beneficial owner, directly or indirectly, of securities representing 50% or more of the combined voting power of the Company's Voting Stock (an "Acquisition Event"), or (2) the Company consolidates with or merges into another corporation or entity, or any corporation or entity consolidates with or merges into the Company, with the effect that the beneficial owners of the Company's Voting Stock held immediately prior to the consummation of such consolidation or merger cease to beneficially own, directly or indirectly, securities representing 50% or more of the combined voting power of the Company's Voting Stock (or if the Company is not the surviving entity, the surviving company's voting securities) upon the consummation of such consolidation or merger (a "Merger Event"), or (3) the Company sells, conveys, transfers or leases to any person, corporation, entity or group, directly or indirectly, in one transaction or series of related transactions, properties and/or assets that accounted for 75% or more of the earnings (before interest, taxes, depreciation and amortization) of the Company, on a consolidated basis for the four-fiscal quarter period immediately preceding the date of consummation of such transaction (a "Sale Event"); AND (b) within thirty-six (36) months following an Acquisition Event, Merger Event or Sale Event, individuals who immediately prior to such Acquisition Event, Merger Event or Sale Event constituted the Company's Board, together with any new or replacement directors whose election by the Company's Board, or whose nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then in office who were either directors on the Company's Board immediately prior to such Acquisition Event, Merger Event or Sale Event (or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of the directors of the Company's Board then in office. Notwithstanding the foregoing, a reincorporation, spin-off, split-off or other reorganization transaction (a "Reorganization Event"), or series of related transactions, in which either the "beneficial owners" of the Company's Voting Stock or the Existing Equity Holders beneficially own securities representing 50% or more of the combined voting power of the Company's Voting Stock upon the consummation of such transaction shall not constitute an Acquisition Event, Merger Event or Sale Event for purposes of this definition. For purposes of this Executive's Initials --- Company's Initials --- 3 definition, "beneficial ownership" shall have the same meaning as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. For the purposes of this definition, upon consummation of an Acquisition Event, Merger Event, Sale Event or Reorganization Event, the "Company's Board" and the "Company's Shareholders" shall refer to (i) in the case of an Acquisition Event, the Company, (ii) in the case of a Merger Event, the company surviving the merger or consolidation, (iii) in the case of a Sale Event, the transferee of the properties, and/or assets, and (iv) in the case of a Reorganization Event, the entity or entities surviving such Reorganization Event on a consolidated basis. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended. 1.8 "COMPANY PROPERTY" shall mean all items and materials provided by the Company to the Executive, or to which the Executive has access, in the course of his employment, including, without limitation, all files, records, documents, drawings, specifications, memoranda, notes, reports, manuals, equipment, computer disks, videotapes, drawings, blueprints and other documents and similar items relating to the Company, its Affiliates or their respective customers, whether prepared by the Executive or others, and any and all copies, abstracts and summaries thereof. 1.9 "COMPETING BUSINESS" shall mean any Person engaged in the gaming industry that directly or through an affiliate or subsidiary conducts its business within the Restricted Area. 1.10 "CONFIDENTIAL INFORMATION" shall mean all nonpublic and/or proprietary information respecting the business of the Company or any Affiliate, including, without limitation, its products, programs, projects, promotions, marketing plans and strategies, business plans or practices, business operations, employees, research and development, intellectual property, software, databases, trademarks, pricing information and accounting and financing data. Confidential Information also includes information concerning the Company's or any Affiliate's customers, such as their identity, address, preferences, playing patterns and ratings or any other information kept by the Company or any Affiliate concerning its customers whether or not such information has been reduced to documentary form. Confidential Information does not include information that is, or becomes, available to the public unless such availability occurs through an unauthorized act on the part of the Executive. 1.11 "DEFERRED COMPENSATION PLAN FOR EXECUTIVES" shall mean the Company's Deferred Compensation Plan for Executives, effective as of November 30, 1994, as the same may be amended from time to time. 1.12 "DISABILITY" shall mean a physical or mental incapacity that prevents the Executive from performing the essential functions of his position with the Company for a period of ninety (90) days as determined (a) in accordance with any long-term disability plan provided by the Company of which the Executive is a participant, or (b) by the following procedure: The Executive agrees to submit to medical examinations by a licensed healthcare professional Executive's Initials --- Company's Initials --- 4 selected by the Company, in its sole discretion, to determine whether a Disability exists. In addition, the Executive may submit to the Company documentation of a Disability, or lack thereof, from a licensed healthcare professional of his choice. Following a determination of a Disability or lack of Disability by the Company's or the Executive's licensed healthcare professional, the other Party may submit subsequent documentation relating to the existence of a Disability from a licensed healthcare professional selected by such other Party. In the event that the medical opinions of such licensed healthcare professionals conflict, such licensed healthcare professionals shall appoint a third licensed healthcare professional to examine the Executive, and the opinion of such third licensed healthcare professional shall be dispositive. 1.13 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.14 "EXISTING EQUITY HOLDERS" shall mean Frank J. Fertitta III, Blake L. Sartini, Delise F. Sartini, Lorenzo J. Fertitta, Glenn C. Christenson and Scott M Nielson and their executors, administrators or the legal representatives of their estates, their heirs, distributees and beneficiaries, and any trust as to which any of the foregoing is a settlor or co-settlor and any corporation, partnership or other entity which is an affiliate of any of the foregoing, and any lineal descendants of such persons (but only to the extent that the beneficial ownership of the Voting Stock held by such lineal descendants was directly received by gift, trust or sale from any such person). 1.15 "GOOD REASON," as used in SUBSECTION 7.2, shall mean and exist if there has been a Change in Control and, thereafter, without the Executive's prior written consent, one or more of the following events occurs: (a) the Executive is assigned duties or responsibilities that are inconsistent, in any significant respect, with the position of a senior manager; (b) the Executive is required to relocate from, or maintain his principal office outside of, Clark County, Nevada; (c) the Executive's Base Salary is decreased by the Company; (d) the Executive is excluded from participation in any employee benefit or short-term incentive plan or program offered to other senior executives of the Company or his benefits under such plans or programs are materially reduced; (e) the Company fails to pay the Executive any deferred payments that have become payable under the Deferred Compensation Plan for Executives; (f) the Company fails to reimburse the Executive for business expenses in accordance with the Company's policies, procedures or practices; Executive's Initials --- Company's Initials --- 5 (g) the Company fails to agree to or to actually indemnify the Executive for his actions and/or inactions, as either a director or an officer of the Company, in accordance with SECTION 10, and/or the Company fails to maintain reasonably sufficient levels of directors' and officers' liability insurance coverage for the Executive when such insurance is available; or (h) the Company fails to obtain a written agreement from any successor or assign of the Company to assume the obligations under this Agreement upon a Change in Control. 1.16 "LONG-TERM STAY-ON PERFORMANCE INCENTIVE PLAN" shall mean the Company's Long-Term Stay-On Performance Incentive Plan, effective as of September 27, 1994, as the same may be amended from time to time. 1.17 "PERSON" shall mean any individual, firm, partnership, association, trust, company, corporation or other entity. 1.18 "PRO RATA BONUS" shall mean an amount equal to sixty percent (60%) of the Executive's current Base Salary, multiplied by a fraction, the numerator of which is the number of days in such year during which the Executive was actually employed by the Company and the denominator of which is 365. 1.19 "RESTRICTED AREA" shall mean: (a) the City of Las Vegas, Nevada, and the area within a twenty-five (25) mile radius of that city; and (b) the Cities of Kansas City, Missouri and St. Louis, Missouri, and the areas within a fifty (50) mile radius of each of those cities; PROVIDED, HOWEVER, that in the event the Executive voluntarily terminates this Agreement pursuant to SUBSECTION 6.3, the Restricted Area shall exclude the Las Vegas Strip (which is defined as that area bounded by Paradise Road and straight extensions thereof on the East, Charleston Boulevard on the North, I-15 on the West, and Sunset Road on the South, as outlined in red on Exhibit A attached hereto) and Downtown Las Vegas (which is defined as that area bounded by Eastern Avenue and straight extensions thereof on the East, I-515 (U.S. Highway 93/95) on the North, I-15 on the West, and Charleston Boulevard on the South, as outlined in red on Exhibit A attached hereto). 1.20"RESTRICTION PERIOD" shall mean the period ending twenty-four (24) months after the termination or expiration of the Term of Employment, regardless of the reason for such termination or expiration. 1.21"SPECIAL LONG-TERM DISABILITY PLAN" shall mean the Company's Special Long-Term Disability Plan, effective as of November 30, 1994, as the same may be amended from time to time. Executive's Initials --- Company's Initials --- 6 1.22"SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN" shall mean the Company's Supplemental Management Retirement Plan, effective as of November 30, 1994, as the same may be amended from time to time. 1.23"TERM OF EMPLOYMENT" shall mean the period specified in SUBSECTION 2.2. 1.24"VOTING STOCK" shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation. 2. TERM OF EMPLOYMENT, POSITION AND RESPONSIBILITIES. 2.1 EMPLOYMENT ACCEPTED. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, for the Term of Employment, in the position and with the responsibilities set forth in SUBSECTION 2.3 and upon such other terms and conditions as are stated in this Agreement. 2.2 TERM OF EMPLOYMENT. The initial Term of Employment shall commence upon the date of this Agreement and, unless earlier terminated pursuant to the provisions of this Agreement, shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the date of this Agreement; PROVIDED, HOWEVER, that the initial Term of Employment shall automatically be extended for successive five-year periods if neither Party has advised the other in writing in accordance with SECTION 14 at least twelve (12) months prior to the end of the then current Term of Employment that such Term of Employment will not be extended for an additional five year period. In the event that such notice is given, the Executive's employment shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the then current Term of Employment. 2.3 RESPONSIBILITIES. During the Term of Employment, the Executive shall be employed as Executive Vice President, General Counsel and Secretary, or in such other capacity as the Company may direct, and shall have such responsibilities as the Company may direct from time to time. During the Term of Employment, the Executive shall devote his full time and attention to the business and affairs of the Company and shall use his best efforts, skills and abilities to promote the Company's interests. Anything herein to the contrary notwithstanding, the Executive shall not be precluded from engaging in charitable and community affairs and managing his personal investments, including the following outside interests: (a) Pacific Gaming Decatur, Inc., d/b/a Decatur Express, 2650 S. Decatur Boulevard, Las Vegas, Nevada 89102; (b) B & B B, Inc., d/b/a Virgin River Hotel & Casino, 100 W. Pioneer Boulevard, Mesquite, Nevada 89024; and (c) Bauchman Gaming Ventures, LLC, d/b/a Ernie's Casino, 1901 N. Rancho Drive, Las Vegas, Nevada 89106. The Executive also may serve as a member of the board of directors of other corporations, subject to the approval of a majority of the Board, which approval shall not be unreasonably withheld or delayed. Executive's Initials --- Company's Initials --- 7 3. COMPENSATION. 3.1 BASE SALARY. During the Term of Employment, the Executive shall be entitled to receive a base salary (the "Base Salary") payable no less frequently than in equal biweekly installments at an annualized rate of no less than $475,000. The Base Salary shall be reviewed annually for increase (but not decrease) in the discretion of the Human Resources Committee of the Board. In conducting any such annual review, the Human Resources Committee shall take into account any change in the Executive's responsibilities, increases in the compensation of other executives of the Company or any Affiliate (or any competitor(s) of either or both), the performance of the Executive and/or other pertinent factors. Such increased Base Salary shall then constitute the Executive's "Base Salary" for purposes of this Agreement. 3.2 ANNUAL BONUS. The Company may pay the Executive an annual discretionary bonus for each fiscal year ending during the Term of Employment in an amount that will be determined by the Human Resources Committee based on the Executive's performance. Any annual bonus that may be awarded to the Executive shall be paid at the same time as annual bonuses are paid to other senior officers of the Company, unless the Executive has elected to defer receipt of all or part of the bonus amounts to which he is entitled in respect of any such calendar year in accordance with the terms and provisions of any deferred compensation program maintained by the Company. 3.3 STAY-ON INCENTIVES. The Executive shall be eligible to participate in the Company's Long-Term Stay-On Performance Incentive Plan pursuant to the terms of the Plan. 3.4 DEFERRED COMPENSATION. The Executive shall be eligible to participate in the Company's Deferred Compensation Plan for Executives, and any other deferred compensation plans that the Company may adopt for executives, pursuant to the terms of the plans. 4. EMPLOYEE BENEFIT PLANS AND PROGRAMS. 4.1 PENSION AND WELFARE BENEFIT PLANS. During the Term of Employment, the Executive shall be entitled to participate in all employee benefit programs made available to the Company's executives or salaried employees generally, as such programs may be in effect from time to time, including, without limitation, pension and other retirement plans, profit sharing plans, group life insurance, group health insurance, accidental death and dismemberment insurance, long-term disability, sick leave (including salary continuation arrangements), vacations, holidays and other employee benefit programs sponsored by the Company. Executive's Initials --- Company's Initials --- 8 4.2 ADDITIONAL PENSION AND WELFARE BENEFITS. In addition to the foregoing, the Company shall provide the Executive with the following benefits: (a) group health insurance coverage through the Company's Exec-U-Care Medical Plan, effective as of July 1, 1994, or pursuant to such other plan or plans as the Company may select from time to time, and which shall be fully paid for by the Company; (b) full salary continuation during the first 90 days of any physical or mental incapacity that prevents the Executive from performing his duties and, for any Disability that continues thereafter, benefits pursuant to the Company's Special Long-Term Disability Plan and any other long-term disability benefits pursuant to any other disability plan of which the Executive is a participant; (c) an annual supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan, in addition to any other benefit pursuant to any other retirement plan under which the Executive is covered; and (d) supplemental life insurance coverage, through an individual policy, a group policy or a combination thereof, in an aggregate amount of not less than $7.5 million. 5. BUSINESS EXPENSE REIMBURSEMENT AND PERQUISITES. 5.1 EXPENSE REIMBURSEMENT. During the Term of Employment, the Executive shall be entitled to receive reimbursement by the Company for all reasonable out-of-pocket expenses incurred by him in performing services under this Agreement, subject to providing the proper documentation of said expenses. 5.2 PERQUISITES. During the Term of Employment, the Executive shall also be entitled to any of the Company's executive perquisites in accordance with the terms and provisions of the applicable policies, including, without limitation: (a) vacation of four weeks per year; (b) payment or reimbursement of the cost of an annual physical examination; (c) payment or reimbursement of initiation fees and annual membership fees and assessments for a country club, a luncheon club and a physical fitness program of the Executive's choice; and (d) payment or reimbursement of fees and expenses, up to a maximum amount of $2500.00, incurred in connection with having this Agreement reviewed by legal counsel of his own choosing prior to execution. Executive's Initials --- Company's Initials --- 9 6. TERMINATION OF EMPLOYMENT. 6.1 TERMINATION DUE TO DEATH OR DISABILITY. The Executive's employment shall be terminated immediately in the event of his death or Disability. In the event of a termination due to the Executive's death or Disability, the Executive or his estate, as the case may be, shall be entitled, in lieu of any other compensation whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination until the date of death or Disability; (b) any annual bonus awarded but not yet paid; (c) a Pro Rata Bonus for the fiscal year in which death or Disability occurs; (d) in the case of death, any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral, and in the case of Disability, immediate vesting of any deferred compensation or bonuses, including interest or other credits on the deferred amounts; (e) reimbursement of expenses incurred but not paid prior to such termination of employment; and (f) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and provisions of such plans and programs. 6.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate the Executive's employment for Cause at any time during the Term of Employment by giving written notice to the Executive. In the event of a termination for Cause, the Executive shall be entitled, in lieu of any other compensation and benefits whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination through the date of termination of employment; (b) any annual bonus awarded but not yet paid; (c) any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; (d) reimbursement for expenses incurred but not paid prior to such termination of employment; and Executive's Initials --- Company's Initials --- 10 (e) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and conditions of such plans and programs. Notwithstanding anything to the contrary in this SUBSECTION 6.2, if the Executive's employment is terminated for Cause (i) due to his having been formally charged pursuant to SUBSECTION 1.5(A) but thereafter said charges are dismissed or the Executive is acquitted, or (ii) due to his having been convicted pursuant to SUBSECTION 1.5(A) but said conviction is subsequently overturned on appeal and he is not required to submit to re-trial within six (6) months thereafter, the Company shall have the option of reinstating the Executive with payment of all base salary payments that would have been paid to him had his employment not been terminated and restoration of all benefits provided for pursuant to SECTION 4, or making a payment to him of an amount equal to three times 160 percent of the Executive's Base Salary at the rate in effect at the time of his termination. 6.3 TERMINATION BY THE EXECUTIVE. The Executive may terminate his employment on his own initiative for any reason prior to a Change in Control upon thirty (30) days prior written notice to the Company. Such termination shall have the same consequences as a termination for Cause under SUBSECTION 6.2. 6.4 TERMINATION BY THE COMPANY WITHOUT CAUSE. Notwithstanding any other provision of this Agreement, the Company may terminate the Executive's employment without Cause, other than due to death or Disability, at any time during the Term of Employment by giving written notice to the Executive. In the event that the Company terminates the Executive's employment without Cause, the Executive shall be entitled, in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to three times 160 percent of the Executive's Base Salary at the rate in effect at the time of his termination, one-third of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3, and the other two-thirds of which shall be paid out in equal biweekly installments for the duration of the Restriction Period; (b) any annual bonus awarded but not yet paid; (c) any deferred bonus, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; (d) exercise, within 180 days, all stock options that have vested prior to termination, and shall forfeit all stock options that have not vested; (e) reimbursement for expenses incurred but not paid prior to such termination of employment; and Executive's Initials --- Company's Initials --- 11 (f) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 6.5 TERMINATION DUE TO EXPIRATION OF THE TERM OF EMPLOYMENT. If either Party elects not to extend the initial Term of Employment or any successive Term of Employment, the Executive shall not be entitled to any additional compensation after the expiration thereof, but such termination of employment shall not otherwise affect accrued but unpaid compensation or benefits provided under this Agreement or pursuant to any Company plan or program. 7. CHANGE IN CONTROL. 7.1 CHANGE IN CONTROL PAYMENT. Immediately upon a Change in Control, in addition to any other compensation or benefits payable pursuant to this Agreement or otherwise, the Executive shall be entitled to a payment in cash equal to three times 160 percent of his Base Salary. Unless otherwise provided for in this Agreement, the Executive's rights upon a Change in Control to benefits under programs, plans and policies of the Company shall be determined according to the terms and provisions of such programs, plans and policies. 7.2 TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD REASON AFTER A CHANGE IN CONTROL. If within five years following a Change in Control, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, the Executive shall be entitled, in addition to any payment paid or payable pursuant to SUBSECTION 7.1, but in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to the greater of (i) five times 160 percent of the Executive's Base Salary at the time of the Change in Control or (ii) five times 160 percent of the Executive's Base Salary at the time of the termination of his employment, three-fifths of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3 and two-fifths of which shall be paid out in equal biweekly installments for the duration of the Restriction Period, (b) immediate vesting of any restricted stock of the Company held in the Executive's name or for his benefit; (c) immediate vesting of any stock options and stock appreciation rights granted by the Company, which stock options and stock appreciation rights shall continue to be and shall remain exercisable until the earlier of (i) five years and (ii) the remaining term of such stock options and stock appreciation rights as set forth in the agreement granting, or otherwise awarding, such stock option or stock appreciation right as if no termination had taken place; Executive's Initials --- Company's Initials --- 12 (d) immediate vesting and cash-out of any phantom stock units granted to the Executive; (e) immediate vesting and pay out of any shares awarded to the Executive pursuant to the Company's Long-Term Stay-On Performance Incentive Plan; (f) immediate vesting of the Executive's supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan; (g) continued funding of the Executive's split dollar life insurance policy as if the Executive were employed by the Company through the maturity date of such policy or, at the Company's option, payment in full of all premium obligations under such policy; and (h) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 7.3 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON AFTER A CHANGE IN CONTROL. If the Executive terminates his employment without Good Reason within ninety (90) days following the first anniversary of a Change in Control, the Executive shall be entitled, in addition to any payment paid or payable pursuant to SUBSECTION 7.1, but in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to the greater of (i) three times 160 percent of the Executive's Base Salary at the time of the Change in Control or (ii) three times 160 percent of the Executive's Base Salary at the time of the termination of his employment, one-third of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3 and two-thirds of which shall be paid out in equal biweekly installments for the duration of the Restriction Period; (b) immediate vesting of any stock options and stock appreciation rights granted by the Company, which stock options and stock appreciation rights shall continue to be and shall remain exercisable until the earlier of (i) three years and (ii) the remaining term of such stock options and stock appreciation rights as set forth in the agreement granting, or otherwise awarding, such stock option or stock appreciation right as if no termination had taken place; (c) immediate vesting and cash-out of any phantom stock units granted to the Executive; (d) immediate vesting of the Executive's supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan; Executive's Initials --- Company's Initials --- 13 (e) continued funding of the Executive's split dollar life insurance policy as if the Executive were employed by the Company through the maturity date of such policy or, at the Company's option, payment in full of all premium obligations under such policy; and (f) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 7.4 TERMINATION FOR OTHER REASONS AFTER A CHANGE IN CONTROL. If the Executive's employment is terminated after a Change in Control for any reason not otherwise provided for in this SECTION 7, his rights shall be determined in accordance with the applicable subsection of SECTION 6. 8. CONDITIONS TO PAYMENTS UPON TERMINATION. 8.1 TIMING OF PAYMENTS. Unless otherwise provided herein, any payments to which the Executive shall be entitled pursuant to SECTIONS 6 AND 7 shall be payable upon the satisfaction of the conditions set forth in SUBSECTION 8.3. 8.2 NO MITIGATION; NO OFFSET. In the event of any termination of the Executive's employment under SECTIONS 6 OR 7, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due to the Executive on account of any remuneration attributable to any subsequent employment that the Executive may obtain. Notwithstanding any contrary provision contained herein, in the event of any termination of employment of the Executive, the exclusive remedies available to the Executive shall be the amounts due under SECTIONS 6 OR 7, which are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. In the event of a termination of this Agreement, neither Party shall publish in any way or make any negative comment or statement about the other Party or concerning the reasons for such termination. The provisions of this SUBSECTION 8.2 shall survive the expiration or earlier termination of this Agreement. 8.3 GENERAL RELEASE. No payments or benefits payable to the Executive upon the termination of his employment pursuant to SECTIONS 6 OR 7 shall be made to the Executive unless and until he executes a general release substantially in the form annexed to this Agreement as Exhibit B and such general release becomes effective pursuant to its terms. 8.4 COMPLIANCE WITH THE AGREEMENT. No payments or benefits payable to the Executive upon the termination of his employment pursuant to SECTIONS 6 OR 7 shall be made to the Executive if he fails to comply with all of the terms and conditions of this Agreement, including, without limitation, SECTIONS 11 AND 12. Executive's Initials --- Company's Initials --- 14 8.5 CONTINUING OBLIGATIONS OF EXECUTIVE. No act or omission by the Executive in breach of this Agreement, including, without limitation his failure to execute the general release and the resulting forfeiture of termination payments, shall be deemed to permit the Executive to forego or waive such payments in order to avoid his obligations under SECTION 11. 9. SPECIAL REIMBURSEMENT. 9.1 If any payment or benefit paid or payable, or received or to be received, by or on behalf of the Executive in connection with a Change in Control pursuant to SUBSECTION 7.1 or the termination of the Executive's employment pursuant to SUBSECTION 7.2 , whether any such payments or benefits are pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Affiliate, any Person, or otherwise (the "TOTAL PAYMENTS"), will or would be subject to the excise tax imposed under Section 4999 of the Code (the "EXCISE TAX"), the Company shall pay to the Executive an additional amount (the "GROSS-UP PAYMENT") such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) imposed upon or in respect of the Total Payments and the Gross-Up Payments, including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and any Excise Tax imposed thereon, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. 9.2 For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (a) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive (which opinion shall be provided to the Executive) such Total Payments (in whole or in part) (i) do not constitute parachute payments, including (without limitation) by reason of Section 280G(b)(4)(A) of the Code, (ii) such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, or (iii) are not, in the opinion of legal counsel, otherwise subject to the Excise Tax, and (b) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. Executive's Initials --- Company's Initials --- 15 9.3 In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the initial Gross-Up Payment), the Company shall make an additional Gross-Up Payment in accordance with SUBSECTION 9.1 in respect of such excess Excise Tax (plus any interest, penalties or additions payable by the Executive with respect to such excess Excise Tax) at the time that the amount of such excess Excise Tax is finally determined. The Executive and the Company shall each reasonably cooperate with each other in connection with any administrative or judicial proceedings concerning the existence or amount of any such subsequent liability for Excise Tax with respect to the Total Payments. 10. INDEMNIFICATION. 10.1 GENERAL. The Company agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (an "INDEMNIFIABLE ACTION"), by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Indemnifiable Action is alleged action in an official capacity as a director, officer, member, employee or agent, while serving as a director, officer, member, employee or agent, he shall be indemnified and held harmless by the Company to the fullest extent permitted by Nevada law and the Company's by-laws, as the same exist or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith. 10.2 PROCEDURE. The indemnification provided pursuant to this SECTION 10 shall be subject to the following conditions: (a) The Executive must promptly give the Company written notice of any actual or threatened Indemnifiable Action; (b) The Company will be permitted, at its option, to participate in, or to assume, the defense of any Indemnifiable Action; (c) The Executive must provide reasonable cooperation to the Company in the defense of any Indemnifiable Action; and (d) The Executive must refrain from settling any Indemnifiable Action without obtaining the Company's prior written consent, which consent shall not be unreasonably withheld. Executive's Initials --- Company's Initials --- 16 10.3 ADVANCEMENT OF COSTS AND EXPENSES. The Company agrees to advance all costs and expenses referred to in SUBSECTION 10.1; PROVIDED, HOWEVER, that the Executive agrees to repay to the Company all amounts so advanced in the event that the Company reasonably determines in good faith that any acts or omissions by the Executive were: (a) in knowing violation of any agreement between the Executive and the Company; (b) in bad faith or that the Executive personally gained a financial profit or other advantage to which he was not legally entitled; or (c) for which a court, having jurisdiction in the matter, determines that indemnification is not lawful. 10.4 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending an Indemnifiable Action in advance of its final disposition conferred in this SECTION 10 shall not be exclusive of any other right which the Executive may have or hereafter may acquire under any statute, provision of the certificate of incorporation or by-laws of the Company, agreement, vote of stockholders or disinterested directors or otherwise. 10.5 D&O INSURANCE. The Company will maintain a directors' and officers' liability insurance policy covering the Executive that provides coverage that is reasonable in relation to the Executive's position during the Term of Employment. 11. COVENANT NOT ENGAGE IN CERTAIN ACTS. 11.1 GENERAL. The Parties understand and agree that the purpose of the restrictions contained in this SECTION 11 is to protect the goodwill and other legitimate business interests of the Company, and that the Company would not have entered into this Agreement in the absence of such restrictions. The Executive acknowledges and agrees that the restrictions are reasonable and do not, and will not, unduly impair his ability to make a living after the termination of his employment with the Company. The provisions of this SECTION 11 shall survive the expiration or sooner termination of this Agreement. 11.2 NON-ASSISTANCE; NON-DIVERSION. In consideration for this Agreement to employ the Executive and the other valuable consideration provided hereunder, the Executive agrees and covenants that during the Term of Employment and during the Restriction Period, and except when acting on behalf of the Company or on behalf of any Affiliate, the Executive shall not, directly or indirectly, for himself or any third party, or alone or as a member of a partnership, or as an officer, director, shareholder or otherwise, engage in the following acts: (a) divert or attempt to divert any existing business of the Company or any Affiliate; (b) accept any position or affiliation with, or render any services on behalf of, any Competing Business; or Executive's Initials --- Company's Initials --- 17 (c) hire or retain any employee of the Company or any Affiliate to provide services for any other Person or induce, solicit, attempt to solicit, encourage, divert, cause or attempt to cause any employee or prospective employee of the Company or any Affiliate to (i) terminate and/or leave such employment, or (ii) accept employment with anyone other than the Company or an Affiliate. Notwithstanding the foregoing, the Executive's minority ownership of any of the outside interests described in SECTION 2.3 shall not be deemed to be a violation of SUBSECTION 11.2(a). 11.3 CESSATION/REIMBURSEMENT OF PAYMENTS. If the Executive violates any provision of this SECTION 11, the Company may, upon giving written notice to the Executive, immediately cease all payments and benefits that it may be providing to the Executive pursuant to SECTION 3, SECTION 6 or SUBSECTION 7.2, and the Executive may be required to reimburse the Company for any payments received from, and the cash value of any benefits provided by, the Company between the first day of the violation and the date such notice is given; PROVIDED, HOWEVER, that the foregoing shall be in addition to such other remedies as may be available to the Company and shall not be deemed to permit the Executive to forego or waive such payments in order to avoid his obligations under this SECTION 11. 11.4 SURVIVAL. The Executive agrees that the provisions of this SECTION 11 shall survive the termination of this Agreement and the termination of the Executive's employment. 12. CONFIDENTIAL INFORMATION AND COMPANY PROPERTY. 12.1 CONFIDENTIAL INFORMATION. The Executive understands and acknowledges that Confidential Information constitutes a valuable asset of the Company and its Affiliates and may not be converted to the Executive's own or any third party's use. Accordingly, the Executive hereby agrees that he shall not directly or indirectly, during the Term of Employment or any time thereafter, disclose any Confidential Information to any Person not expressly authorized by the Company to receive such Confidential Information. The Executive further agrees that he shall not directly or indirectly, during the Term of Employment or any time thereafter, use or make use of any Confidential Information in connection with any business activity other than that of the Company. The Parties acknowledge and agree that this Agreement is not intended to, and does not, alter either the Company's rights or the Executive's obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. 12.2 COMPANY PROPERTY. All Company Property is and shall remain exclusively the property of the Company. Unless authorized in writing to the contrary, the Executive shall promptly, and without charge, deliver to the Company on the termination of employment hereunder, or at any other time the Company may so request, all Company Property that the Executive may then possess or have under his control. Executive's Initials --- Company's Initials --- 18 12.3 REQUIRED DISCLOSURE. In the event the Executive is required by law or court order to disclose any Confidential Information or to produce any Company Property, the Executive shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which requires such disclosure and, if the Company so elects, to the extent permitted by applicable law, give the Company an adequate opportunity, at its own expense, to contest such law or court order prior to any such required disclosure or production by the Executive. 12.4 SURVIVAL. The Executive agrees that the provisions of this SECTION 12 shall survive the termination of this Agreement and the termination of the Executive's employment. 13. MUTUAL ARBITRATION AGREEMENT. 13.1 ARBITRABLE CLAIMS. All disputes between the Executive (and his attorneys, successors, and assigns) and the Company (and its trustees, beneficiaries, officers, directors, managers, affiliates, employees, agents, successors, attorneys, and assigns) relating in any manner whatsoever to the employment or termination of the Executive, including, without limitation, all disputes arising under this Agreement ("ARBITRABLE CLAIMS"), shall be resolved by binding arbitration as set forth in this SECTION 13 (the "MUTUAL ARBITRATION AGREEMENT"). Arbitrable Claims shall include, but are not limited to, claims for compensation, claims for breach of any contract or covenant (express or implied), and tort claims of all kinds, as well as all claims based on any federal, state, or local law, statute or regulation, but shall not include the claims based on the statutes enumerated in SUBSECTION 13.4 or the Company's right to seek injunctive relief as provided in SECTION 15. Arbitration shall be final and binding upon the Parties and shall be the exclusive remedy for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JUDGE OR JURY IN REGARD TO ARBITRABLE CLAIMS, EXCEPT AS PROVIDED BY SECTION 13.4. 13.2 PROCEDURE. Arbitration of Arbitrable Claims shall be in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association, as amended, and as augmented in this Agreement. Either Party may bring an action in court to compel arbitration under this Agreement and to enforce an arbitration award. Otherwise, neither Party shall initiate or prosecute any lawsuit, appeal or administrative action in any way related to an Arbitrable Claim. The initiating Party must file and serve an arbitration claim within sixty (60) days of learning the facts giving rise to the alleged claim. All arbitration hearings under this Agreement shall be conducted in Las Vegas, Nevada. The Federal Arbitration Act shall govern the interpretation and enforcement of this Agreement. The fees of the arbitrator shall be divided equally between both Parties. 13.3 CONFIDENTIALITY. All proceedings and all documents prepared in connection with any Arbitrable Claim shall be confidential and, unless otherwise required by law, the subject matter and content thereof shall not be disclosed to any Person other than the parties to the proceedings, their counsel, witnesses and experts, the arbitrator and, if involved, the court and court staff. Executive's Initials --- Company's Initials --- 19 13.4 APPLICABILITY. This SECTION 13 shall apply to all disputes under this Agreement other than: (a) disputes relating to the enforcement of the Company's rights under SECTIONS 11 AND 12 of this Agreement; and (b) claims brought under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Age Discrimination in Employment Act of 1967 (including the Older Workers Benefit Protection Act), and the Americans with Disabilities Act, the Fair Labor Standards Act, the Equal Pay Act, the Family and Medical Leave Act and the Employee Retirement Income Security Act of 1974, the Nevada Fair Employment Practices Act, the Missouri Human Rights Act or any other applicable state or local fair employment law. 13.5 ACKNOWLEDGEMENTS. The Executive acknowledges that he: (a) has carefully read this SECTION 13; (b) understands its terms and conditions; and (c) has entered into this Mutual Arbitration Agreement voluntarily and not in reliance on any promises or representations made by the Company other than those contained in this Mutual Arbitration Agreement. 14. NOTICES. All notices, demands and requests required or permitted to be given to either Party under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give notice of: If to the Company: Station Casinos, Inc. 2411 West Sahara Avenue Las Vegas, NV 89102 Attn: Glenn C. Christenson With a copy to: Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street, 30th Floor Los Angeles, CA 90017 Attn: Kenneth J. Baronsky If to the Executive: Scott M Nielson 9037 Waterfield Court Las Vegas, NV 89134 Executive's Initials --- Company's Initials --- 20 15. RIGHT TO SEEK INJUNCTIVE RELIEF. The Executive acknowledges that a violation on his part of any of the covenants contained in SECTIONS 11 AND 12 would cause immeasurable and irreparable damage to the Company. The Executive accordingly agrees and hereby grants his consent that, without limiting the remedies available to the Company, any actual or threatened violation of such covenants may be enforced by injunctive relief or by other equitable remedies issued or ordered by any court of competent jurisdiction. 16. EMPLOYEE BENEFIT PLAN DOCUMENTS. In the event that any terms and provisions of this Agreement conflict with the terms and provisions of any employee benefit plan document, the terms and provisions of this Agreement shall govern, and the Company shall take any and all actions that may be necessary, including amendment of any plan document, to effect the provision of benefits expressly provided upon termination of the Executive's employment pursuant to SECTIONS 6 AND 7. 17. BENEFICIARIES/REFERENCES. The Executive shall be entitled to select a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, by giving the Company written notice thereof. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiaries, estate or other legal representative. 18. SURVIVORSHIP. The respective rights and obligations of the Parties hereunder shall survive the expiration or earlier termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. The provisions of this SECTION 18 are in addition to the survivorship provisions of any other section of this Agreement. 19. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants that he or it is fully authorized and empowered to enter into this Agreement and that the performance of his or its obligations under this Agreement will not violate any Agreement between that Party and any other Person. 20. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, express or implied, between the Parties with respect hereto. No representations, inducements, promises or agreements not embodied herein shall be of any force or effect. 21. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs and assigns; PROVIDED, HOWEVER, that no rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive, other than rights to compensation and benefits hereunder, which may be transferred only by will or operation of law and subject to the limitations of this Agreement; and PROVIDED, FURTHER, that no rights or obligations of the Company under this Agreement may be assigned or transferred by the Company, except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or Executive's Initials --- Company's Initials --- 21 substantially all or the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company under this Agreement, either contractually or as a matter of law. 22. AMENDMENT OR WAIVER. No provision in this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing, signed by both Parties. No waiver by one Party of any breach by the other Party of any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by the Executive with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. 23. SEVERABILITY. In the event that any provision or portion of this Agreement, except SECTION 6, SECTION 7 and SECTION 11, shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. If either SECTION 6, SECTION 7 or SECTION 11 is determined to be invalid or unenforceable for any reason, in whole or in part, either Party may terminate this Agreement without further obligations or duties hereunder. 24. GOVERNING LAW. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Nevada without reference to the principles of conflict of laws thereof. In the event of any dispute or controversy arising out of or relating to this Agreement that is not an arbitrable claim, the Parties mutually and irrevocably consent to, and waive any objection to, the exclusive jurisdiction of any court of competent jurisdiction in Clark County, Nevada, to resolve such dispute or controversy. 25. HEADINGS. The headings of the sections and subsections contained in this agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 26. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement with the same effect as if all Parties had signed the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement and reattached to any other counterpart of this Agreement identical in form hereto but having attached to it one or more additional signature pages. 27. ACKNOWLEDGEMENT. The Executive represents and acknowledges the following: (a) he has carefully read this Agreement in its entirety; (b) he understands the terms and conditions contained herein; Executive's Initials --- Company's Initials --- 22 (c) he has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by the Company or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and (d) he is entering into this Agreement knowingly and voluntarily. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. STATION CASINOS, INC. By: /s/ GLENN C. CHRISTENSON ---------------------------------------- Name: Glenn C. Christenson Title: Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer /s/ SCOTT M NIELSON ---------------------------------------- Scott M Nielson Executive's Initials --- Company's Initials --- EXHIBIT "B" GENERAL RELEASE AND COVENANT NOT TO SUE This GENERAL RELEASE AND COVENANT NOT TO SUE (this "Release") is executed and delivered by SCOTT M NIELSON(the "Executive") to STATION CASINOS, INC., a Nevada corporation (the "Company"). In consideration of the agreement by the Company to provide the separation payments and benefits in SECTION 6 and SECTION 7 of the Employment Agreement between the Executive and the Company, dated as of December 1, 1999 (the "Employment Agreement"), and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Executive hereby agrees as follows: 1. RELEASE AND COVENANT. THE EXECUTIVE, OF HIS OWN FREE WILL, VOLUNTARILY RELEASES AND FOREVER DISCHARGES THE COMPANY AND ITS SUBSIDIARIES AND AFFILIATES, AND EACH OF THEIR RESPECTIVE PAST AND PRESENT AGENTS, EMPLOYEES, MANAGERS, REPRESENTATIVES, OFFICERS, DIRECTORS, ATTORNEYS, ACCOUNTANTS, TRUSTEES, SHAREHOLDERS, PARTNERS, INSURERS, HEIRS, PREDECESSORS-IN-INTEREST, ADVISORS, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE "RELEASED PARTIES") FROM, AND COVENANTS NOT TO SUE OR PROCEED AGAINST ANY OF THE FOREGOING ON THE BASIS OF, ANY AND ALL PAST OR PRESENT CAUSES OF ACTION, SUITS, AGREEMENTS OR OTHER RIGHTS OR CLAIMS WHICH THE EXECUTIVE, HIS DEPENDENTS, RELATIVES, HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS HAS OR HAVE AGAINST ANY OF THE RELEASED PARTIES UPON OR BY REASON OF ANY MATTER ARISING OUT OF HIS EMPLOYMENT BY THE COMPANY AND THE CESSATION OF SAID EMPLOYMENT, AND INCLUDING, BUT NOT LIMITED TO, ANY ALLEGED VIOLATION OF THE CIVIL RIGHTS ACTS OF 1964 AND 1991, THE EQUAL PAY ACT OF 1963, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967 (INCLUDING THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990), THE REHABILITATION ACT OF 1973, THE FAMILY AND MEDICAL LEAVE ACT OF 1993, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, THE NEVADA FAIR EMPLOYMENT PRACTICES ACT, THE MISSOURI HUMAN RIGHTS ACT, THE LABOR LAWS OF THE UNITED STATES, NEVADA AND MISSOURI, AND ANY OTHER FEDERAL, STATE OR LOCAL LAW, REGULATION OR ORDINANCE, OR PUBLIC POLICY, CONTRACT OR TORT LAW, HAVING ANY BEARING WHATSOEVER ON THE TERMS AND CONDITIONS OR CESSATION OF HIS EMPLOYMENT WITH THE COMPANY. i 2. DUE CARE. THE EXECUTIVE ACKNOWLEDGES THAT HE HAS RECEIVED A COPY OF THIS RELEASE PRIOR TO ITS EXECUTION AND HAS BEEN ADVISED HEREBY OF HIS OPPORTUNITY TO REVIEW AND CONSIDER THIS RELEASE FOR TWENTY-ONE (21) DAYS PRIOR TO ITS EXECUTION. THE EXECUTIVE FURTHER ACKNOWLEDGES THAT HE HAS BEEN ADVISED HEREBY TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. THE EXECUTIVE ENTERS INTO THIS RELEASE HAVING FREELY AND KNOWINGLY ELECTED, AFTER DUE CONSIDERATION, TO EXECUTE THIS RELEASE AND TO FULFILL THE PROMISES SET FORTH HEREIN. THIS RELEASE SHALL BE REVOCABLE BY THE EXECUTIVE DURING THE SEVEN (7) DAY PERIOD FOLLOWING ITS EXECUTION, AND SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD. IN THE EVENT OF SUCH A REVOCATION, THE EXECUTIVE SHALL NOT BE ENTITLED TO THE CONSIDERATION FOR THIS RELEASE SET FORTH ABOVE. 3. RELIANCE BY THE EXECUTIVE. THE EXECUTIVE ACKNOWLEDGES THAT, IN HIS DECISION TO ENTER INTO THIS RELEASE, HE HAS NOT RELIED ON ANY REPRESENTATIONS, PROMISES OR ARRANGEMENT OF ANY KIND, INCLUDING ORAL STATEMENTS BY REPRESENTATIVES OF THE COMPANY, EXCEPT AS SET FORTH IN THIS RELEASE. 4. MISCELLANEOUS. THE EXECUTIVE SHALL NOT DISCLOSE THE EXISTENCE OR CONTENTS OF THIS RELEASE TO ANYONE OTHER THAN HIS IMMEDIATE FAMILY, ACCOUNTANTS OR ATTORNEYS, AND THE EXECUTIVE SHALL INSTRUCT SUCH THIRD PARTIES NOT TO DISCLOSE THE SAME. THIS RELEASE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. IF ANY PROVISION OF THIS RELEASE IS HELD INVALID OR UNENFORCEABLE FOR ANY REASON, THE REMAINING PROVISIONS SHALL BE CONSTRUED AS IF THE INVALID OR UNENFORCEABLE PROVISION HAD NOT BEEN INCLUDED. ii This GENERAL RELEASE AND COVENANT NOT TO SUE is executed by the Executive and delivered to the Company on _______________________. Executive - ---------------------------------- Name: Scott M Nielson STATE OF ______________________________) ) ss: COUNTY OF______________________________) On this _____ day of ________________, ____, before me, a Notary Public of the State of _______________, personally appeared Scott M Nielson, to me known and known to me to be the person described and who executed the foregoing release and did then and there acknowledge to me that he voluntarily executed the same. _________________________ NOTARY PUBLIC [NOT TO BE SIGNED OR NOTARIZED UPON EXECUTION OF EMPLOYMENT AGREEMENT] iii EX-10.15 6 EXHIBIT 10.15 EXHIBIT 10.15 EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into as of the 1st day of December, 1999, by and between STATION CASINOS, INC., a Nevada corporation, with its principal offices located at 2411 West Sahara Avenue, Las Vegas, Nevada 89102 (the "COMPANY"), and BLAKE L. SARTINI (the "EXECUTIVE"). WHEREAS, the Company and the Executive are parties to an Amended and Restated Employment Agreement dated as of December 22, 1997 (the "FORMER AGREEMENT"); and WHEREAS, the Executive has agreed to continue his employment with the Company on the terms and conditions set forth herein; and WHEREAS, the parties to this Agreement desire to replace the Former Agreement in its entirety with this Agreement, and the Former Agreement shall no longer be of any force or effect; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the Company and the Executive (each individually a "PARTY" and together the "PARTIES") agree as follows. 1. DEFINITIONS. In addition to certain terms defined elsewhere in this Agreement, the following terms shall have the following respective meanings: 1.1 "AFFILIATE" shall mean any Person controlling, controlled by or under common control with, the Company. 1.2 "BASE AMOUNT" shall have the meaning ascribed to such term in Section 280G of the Code. 1.3 "BASE SALARY" shall mean the salary provided for in SUBSECTION 3.1 of this Agreement. 1.4 "BOARD" shall mean the Board of Directors of the Company. 1.5 "CAUSE" shall mean that the Executive: (a) has been formally charged with or convicted of any felony or any crime involving fraud, theft, embezzlement, dishonesty or moral turpitude; (b) has been found unsuitable to hold a gaming license; or Executive's Initials --- Company's Initials --- 2 (c) in carrying out his duties under this Agreement, has engaged in acts or omissions constituting gross negligence or willful misconduct resulting, in either case, in material economic harm to the Company. 1.6 "CHANGE IN CONTROL" shall be deemed to have occurred if: (a) (1) any Person, corporation, entity or group (other than the Existing Equity Holders) is or becomes the beneficial owner, directly or indirectly, of securities representing 50% or more of the combined voting power of the Company's Voting Stock (an "Acquisition Event"), or (2) the Company consolidates with or merges into another corporation or entity, or any corporation or entity consolidates with or merges into the Company, with the effect that the beneficial owners of the Company's Voting Stock held immediately prior to the consummation of such consolidation or merger cease to beneficially own, directly or indirectly, securities representing 50% or more of the combined voting power of the Company's Voting Stock (or if the Company is not the surviving entity, the surviving company's voting securities) upon the consummation of such consolidation or merger (a "Merger Event"), or (3) the Company sells, conveys, transfers or leases to any person, corporation, entity or group, directly or indirectly, in one transaction or series of related transactions, properties and/or assets that accounted for 75% or more of the earnings (before interest, taxes, depreciation and amortization) of the Company, on a consolidated basis for the four-fiscal quarter period immediately preceding the date of consummation of such transaction (a "Sale Event"); AND (b) within thirty-six (36) months following an Acquisition Event, Merger Event or Sale Event, individuals who immediately prior to such Acquisition Event, Merger Event or Sale Event constituted the Company's Board, together with any new or replacement directors whose election by the Company's Board, or whose nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then in office who were either directors on the Company's Board immediately prior to such Acquisition Event, Merger Event or Sale Event (or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of the directors of the Company's Board then in office. Notwithstanding the foregoing, a reincorporation, spin-off, split-off or other reorganization transaction (a "Reorganization Event"), or series of related transactions, in which either the "beneficial owners" of the Company's Voting Stock or the Existing Equity Holders beneficially own securities representing 50% or more of the combined voting power of the Company's Voting Stock upon the consummation of such transaction shall not constitute an Acquisition Event, Merger Event or Sale Event for purposes of this definition. For purposes of this Executive's Initials --- Company's Initials --- 3 definition, "beneficial ownership" shall have the same meaning as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. For the purposes of this definition, upon consummation of an Acquisition Event, Merger Event, Sale Event or Reorganization Event, the "Company's Board" and the "Company's Shareholders" shall refer to (i) in the case of an Acquisition Event, the Company, (ii) in the case of a Merger Event, the company surviving the merger or consolidation, (iii) in the case of a Sale Event, the transferee of the properties, and/or assets, and (iv) in the case of a Reorganization Event, the entity or entities surviving such Reorganization Event on a consolidated basis. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended. 1.8 "COMPANY PROPERTY" shall mean all items and materials provided by the Company to the Executive, or to which the Executive has access, in the course of his employment, including, without limitation, all files, records, documents, drawings, specifications, memoranda, notes, reports, manuals, equipment, computer disks, videotapes, drawings, blueprints and other documents and similar items relating to the Company, its Affiliates or their respective customers, whether prepared by the Executive or others, and any and all copies, abstracts and summaries thereof. 1.9 "COMPETING BUSINESS" shall mean any Person engaged in the gaming industry that directly or through an affiliate or subsidiary conducts its business within the Restricted Area. 1.10 "CONFIDENTIAL INFORMATION" shall mean all nonpublic and/or proprietary information respecting the business of the Company or any Affiliate, including, without limitation, its products, programs, projects, promotions, marketing plans and strategies, business plans or practices, business operations, employees, research and development, intellectual property, software, databases, trademarks, pricing information and accounting and financing data. Confidential Information also includes information concerning the Company's or any Affiliate's customers, such as their identity, address, preferences, playing patterns and ratings or any other information kept by the Company or any Affiliate concerning its customers whether or not such information has been reduced to documentary form. Confidential Information does not include information that is, or becomes, available to the public unless such availability occurs through an unauthorized act on the part of the Executive. 1.11 "DEFERRED COMPENSATION PLAN FOR EXECUTIVES" shall mean the Company's Deferred Compensation Plan for Executives, effective as of November 30, 1994, as the same may be amended from time to time. Executive's Initials --- Company's Initials --- 4 1.12 "DISABILITY" shall mean a physical or mental incapacity that prevents the Executive from performing the essential functions of his position with the Company for a period of ninety (90) days as determined (a) in accordance with any long-term disability plan provided by the Company of which the Executive is a participant, or (b) by the following procedure: The Executive agrees to submit to medical examinations by a licensed healthcare professional selected by the Company, in its sole discretion, to determine whether a Disability exists. In addition, the Executive may submit to the Company documentation of a Disability, or lack thereof, from a licensed healthcare professional of his choice. Following a determination of a Disability or lack of Disability by the Company's or the Executive's licensed healthcare professional, the other Party may submit subsequent documentation relating to the existence of a Disability from a licensed healthcare professional selected by such other Party. In the event that the medical opinions of such licensed healthcare professionals conflict, such licensed healthcare professionals shall appoint a third licensed healthcare professional to examine the Executive, and the opinion of such third licensed healthcare professional shall be dispositive. 1.13 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.14 "EXISTING EQUITY HOLDERS" shall mean Frank J. Fertitta III, Blake L. Sartini, Delise F. Sartini, Lorenzo J. Fertitta, Glenn C. Christenson and Scott M Nielson and their executors, administrators or the legal representatives of their estates, their heirs, distributees and beneficiaries, and any trust as to which any of the foregoing is a settlor or co-settlor and any corporation, partnership or other entity which is an affiliate of any of the foregoing, and any lineal descendants of such persons (but only to the extent that the beneficial ownership of the Voting Stock held by such lineal descendants was directly received by gift, trust or sale from any such person). 1.15 "GOOD REASON," as used in SUBSECTION 7.2, shall mean and exist if there has been a Change in Control and, thereafter, without the Executive's prior written consent, one or more of the following events occurs: (a) the Executive is assigned duties or responsibilities that are inconsistent, in any significant respect, with the position of a senior manager; (b) the Executive is required to relocate from, or maintain his principal office outside of, Clark County, Nevada; (c) the Executive's Base Salary is decreased by the Company; (d) the Executive is excluded from participation in any employee benefit or short-term incentive plan or program offered to other similarly executives of the Company or his benefits under such plans or programs are materially reduced; (e) the Company fails to pay the Executive any deferred payments that have become payable under the Deferred Compensation Plan for Executives; Executive's Initials --- Company's Initials --- 5 (f) the Company fails to reimburse the Executive for business expenses in accordance with the Company's policies, procedures or practices; (g) the Company fails to agree to or to actually indemnify the Executive for his actions and/or inactions, as either a director or an officer of the Company, in accordance with SECTION 10, and/or the Company fails to maintain reasonably sufficient levels of directors' and officers' liability insurance coverage for the Executive when such insurance is available; or (h) the Company fails to obtain a written agreement from any successor or assign of the Company to assume the obligations under this Agreement upon a Change in Control. 1.16 "LONG-TERM STAY-ON PERFORMANCE INCENTIVE PLAN" shall mean the Company's Long-Term Stay-On Performance Incentive Plan, effective as of September 27, 1994, as the same may be amended from time to time. 1.17 "PERSON" shall mean any individual, firm, partnership, association, trust, company, corporation or other entity. 1.18 "PRO RATA BONUS" shall mean an amount equal to sixty percent (60%) of the Executive's current Base Salary, multiplied by a fraction, the numerator of which is the number of days in such year during which the Executive was actually employed by the Company and the denominator of which is 365. 1.19 "RESTRICTED AREA" shall mean: (a) the City of Las Vegas, Nevada, and the area within a twenty-five (25) mile radius of that city; and (b) the Cities of Kansas City, Missouri and St. Louis, Missouri, and the areas within a fifty (50) mile radius of each of those cities; PROVIDED, HOWEVER, that in the event the Executive voluntarily terminates this Agreement pursuant to SUBSECTION 6.3, the Restricted Area shall exclude the Las Vegas Strip (which is defined as that area bounded by Paradise Road and straight extensions thereof on the East, Charleston Boulevard on the North, I-15 on the West, and Sunset Road on the South, as outlined in red on Exhibit A attached hereto) and Downtown Las Vegas (which is defined as that area bounded by Eastern Avenue and straight extensions thereof on the East, I-515 (U.S. Highway 93/95) on the North, I-15 on the West, and Charleston Boulevard on the South, as outlined in red on Exhibit A attached hereto). 1.20 "RESTRICTION PERIOD" shall mean the period ending twenty-four (24) months after the termination or expiration of the Term of Employment, regardless of the reason for such termination or expiration. Executive's Initials --- Company's Initials --- 6 1.21 "SPECIAL LONG-TERM DISABILITY PLAN" shall mean the Company's Special Long-Term Disability Plan, effective as of November 30, 1994, as the same may be amended from time to time. 1.22 "SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN" shall mean the Company's Supplemental Management Retirement Plan, effective as of November 30, 1994, as the same may be amended from time to time. 1.23 "TERM OF EMPLOYMENT" shall mean the period specified in SUBSECTION 2.2. 1.24 "VOTING STOCK" shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation. 2. TERM OF EMPLOYMENT, POSITION AND RESPONSIBILITIES. 2.1 EMPLOYMENT ACCEPTED. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, for the Term of Employment, in the position and with the responsibilities set forth in SUBSECTION 2.3 and upon such other terms and conditions as are stated in this Agreement. 2.2 TERM OF EMPLOYMENT. The initial Term of Employment shall commence upon the date of this Agreement and, unless earlier terminated pursuant to the provisions of this Agreement, shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the date of this Agreement; PROVIDED, HOWEVER, that the initial Term of Employment shall automatically be extended for successive five-year periods if neither Party has advised the other in writing in accordance with SECTION 14 at least twelve (12) months prior to the end of the then current Term of Employment that such Term of Employment will not be extended for an additional five year period. In the event that such notice is given, the Executive's employment shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the then current Term of Employment. 2.3 RESPONSIBILITIES. During the Term of Employment, the Executive shall be employed as Executive Vice President and Chief Operating Officer, or in such other capacity as the Company may direct, and shall have such responsibilities as the Company may direct from time to time. During the Term of Employment, the Executive shall devote his full time and attention to the business and affairs of the Company and shall use his best efforts, skills and abilities to promote the Company's interests. Anything herein to the contrary notwithstanding, the Executive shall not be precluded from engaging in charitable and community affairs and managing his personal investments. The Executive also may serve as a member of the board of directors of other corporations, subject to the approval of a majority of the Board, which approval shall not be unreasonably withheld or delayed. Executive's Initials --- Company's Initials --- 7 3. COMPENSATION. 3.1 BASE SALARY. During the Term of Employment, the Executive shall be entitled to receive a base salary (the "Base Salary") payable no less frequently than in equal bi-weekly installments at an annualized rate of no less than $600,000. The Base Salary shall be reviewed annually for increase (but not decrease) in the discretion of the Human Resources Committee of the Board. In conducting any such annual review, the Human Resources Committee shall take into account any change in the Executive's responsibilities, increases in the compensation of other executives of the Company or any Affiliate (or any competitor(s) of either or both), the performance of the Executive and/or other pertinent factors. Such increased Base Salary shall then constitute the Executive's "Base Salary" for purposes of this Agreement. 3.2 ANNUAL BONUS. The Company may pay the Executive an annual discretionary bonus for each fiscal year ending during the Term of Employment in an amount that will be determined by the Human Resources Committee based on the Executive's performance. Any annual bonus that may be awarded to the Executive shall be paid at the same time as annual bonuses are paid to other senior officers of the Company, unless the Executive has elected to defer receipt of all or part of the bonus amounts to which he is entitled in respect of any such calendar year in accordance with the terms and provisions of any deferred compensation program maintained by the Company. 3.3 STAY-ON INCENTIVES. The Executive shall be eligible to participate in the Company's Long-Term Stay-On Performance Incentive Plan pursuant to the terms of the Plan. 3.4 DEFERRED COMPENSATION. The Executive shall be eligible to participate in the Company's Deferred Compensation Plan for Executives, and any other deferred compensation plans that the Company may adopt for executives, pursuant to the terms of the plans. 4. EMPLOYEE BENEFIT PLANS AND PROGRAMS. 4.1 PENSION AND WELFARE BENEFIT PLANS. During the Term of Employment, the Executive shall be entitled to participate in all employee benefit programs made available to the Company's executives or salaried employees generally, as such programs may be in effect from time to time, including, without limitation, pension and other retirement plans, profit sharing plans, group life insurance, group health insurance, accidental death and dismemberment insurance, long-term disability, sick leave (including salary continuation arrangements), vacations, holidays and other employee benefit programs sponsored by the Company. Executive's Initials --- Company's Initials --- 8 4.2 ADDITIONAL PENSION AND WELFARE BENEFITS. In addition to the foregoing, the Company shall provide the Executive with the following benefits: (a) group health insurance coverage through the Company's Exec-U-Care Medical Plan, effective as of July 1, 1994, or pursuant to such other plan or plans as the Company may select from time to time, and which shall be fully paid for by the Company; (b) full salary continuation during the first 90 days of any physical or mental incapacity that prevents the Executive from performing his duties and, for any Disability that continues thereafter, benefits pursuant to the Company's Special Long-Term Disability Plan and any other long-term disability benefits pursuant to any other disability plan of which the Executive is a participant; (c) an annual supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan, in addition to any other benefit pursuant to any other retirement plan under which the Executive is covered; and (d) supplemental life insurance coverage, through an individual policy, a group policy or a combination thereof, in an aggregate amount of not less than $5.5 million. 5. BUSINESS EXPENSE REIMBURSEMENT AND PERQUISITES. 5.1 EXPENSE REIMBURSEMENT. During the Term of Employment, the Executive shall be entitled to receive reimbursement by the Company for all reasonable out-of-pocket expenses incurred by him in performing services under this Agreement, subject to providing the proper documentation of said expenses. 5.2 PERQUISITES. During the Term of Employment, the Executive shall also be entitled to any of the Company's executive perquisites in accordance with the terms and provisions of the applicable policies, including, without limitation: (a) vacation of four weeks per year; (b) payment or reimbursement of the cost of an annual physical examination; (c) payment or reimbursement of initiation fees and annual membership fees and assessments for a country club, a luncheon club and a physical fitness program of the Executive's choice; and (d) payment or reimbursement of fees and expenses, up to a maximum amount of $2500.00, incurred in connection with having this Agreement reviewed by legal counsel of his own choosing prior to execution. Executive's Initials --- Company's Initials --- 9 6. TERMINATION OF EMPLOYMENT. 6.1 TERMINATION DUE TO DEATH OR DISABILITY. The Executive's employment shall be terminated immediately in the event of his death or Disability. In the event of a termination due to the Executive's death or Disability, the Executive or his estate, as the case may be, shall be entitled, in lieu of any other compensation whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination until the date of death or Disability; (b) any annual bonus awarded but not yet paid; (c) a Pro Rata Bonus for the fiscal year in which death or Disability occurs; (d) in the case of death, any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral, and in the case of Disability, immediate vesting of any deferred compensation or bonuses, including interest or other credits on the deferred amounts; (e) reimbursement of expenses incurred but not paid prior to such termination of employment; and (f) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and provisions of such plans and programs. 6.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate the Executive's employment for Cause at any time during the Term of Employment by giving written notice to the Executive. In the event of a termination for Cause, the Executive shall be entitled, in lieu of any other compensation and benefits whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination through the date of termination of employment; (b) any annual bonus awarded but not yet paid; (c) any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; (d) reimbursement for expenses incurred but not paid prior to such termination of employment; and Executive's Initials --- Company's Initials --- 10 (e) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and conditions of such plans and programs. Notwithstanding anything to the contrary in this SUBSECTION 6.2, if the Executive's employment is terminated for Cause (i) due to his having been formally charged pursuant to SUBSECTION 1.5(A) but thereafter said charges are dismissed or the Executive is acquitted, or (ii) due to his having been convicted pursuant to SUBSECTION 1.5(A) but said conviction is subsequently overturned on appeal and he is not required to submit to re-trial within six (6) months thereafter, the Company shall have the option of reinstating the Executive with payment of all base salary payments that would have been paid to him had his employment not been terminated and restoration of all benefits provided for pursuant to SECTION 4, or making a payment to him of an amount equal to three times 160 percent of the Executive's Base Salary at the rate in effect at the time of his termination. 6.3 TERMINATION BY THE EXECUTIVE. The Executive may terminate his employment on his own initiative for any reason prior to a Change in Control upon thirty (30) days prior written notice to the Company. Such termination shall have the same consequences as a termination for Cause under SUBSECTION 6.2. 6.4 TERMINATION BY THE COMPANY WITHOUT CAUSE. Notwithstanding any other provision of this Agreement, the Company may terminate the Executive's employment without Cause, other than due to death or Disability, at any time during the Term of Employment by giving written notice to the Executive. In the event that the Company terminates the Executive's employment without Cause, the Executive shall be entitled, in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to three times 160 percent of the Executive's Base Salary at the rate in effect at the time of his termination, one-third of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3, and the other two-thirds of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period; (b) any annual bonus awarded but not yet paid; (c) any deferred bonus, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; (d) exercise, within 180 days, all stock options that have vested prior to termination, and shall forfeit all stock options that have not vested; (e) reimbursement for expenses incurred but not paid prior to such termination of employment; and Executive's Initials --- Company's Initials --- 11 (f) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 6.5 TERMINATION DUE TO EXPIRATION OF THE TERM OF EMPLOYMENT. If either Party elects not to extend the initial Term of Employment or any successive Term of Employment, the Executive shall not be entitled to any additional compensation after the expiration thereof, but such termination of employment shall not otherwise affect accrued but unpaid compensation or benefits provided under this Agreement or pursuant to any Company plan or program. 7. CHANGE IN CONTROL. 7.1 CHANGE IN CONTROL PAYMENT. Immediately upon a Change in Control, in addition to any other compensation or benefits payable pursuant to this Agreement or otherwise, the Executive shall be entitled to a payment in cash equal to three times 160 percent of his Base Salary. Unless otherwise provided for in this Agreement, the Executive's rights upon a Change in Control to benefits under programs, plans and policies of the Company shall be determined according to the terms and provisions of such programs, plans and policies. 7.2 TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD REASON AFTER A CHANGE IN CONTROL. If within five years following a Change in Control, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, the Executive shall be entitled, in addition to any payment paid or payable pursuant to SUBSECTION 7.1, but in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to the greater of (i) five times 160 percent of the Executive's Base Salary at the time of the Change in Control or (ii) five times 160 percent of the Executive's Base Salary at the time of the termination of his employment, three-fifths of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3 and two-fifths of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period, (b) immediate vesting of any restricted stock of the Company held in the Executive's name or for his benefit; (c) immediate vesting of any stock options and stock appreciation rights granted by the Company, which stock options and stock appreciation rights shall continue to be and shall remain exercisable until the earlier of (i) five years and (ii) the remaining term of such stock options and stock appreciation rights as set forth in the agreement granting, or otherwise awarding, such stock option or stock appreciation right as if no termination had taken place; Executive's Initials --- Company's Initials --- 12 (d) immediate vesting and cash-out of any phantom stock units granted to the Executive; (e) immediate vesting and pay out of any shares awarded to the Executive pursuant to the Company's Long-Term Stay-On Performance Incentive Plan; (f) immediate vesting of the Executive's supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan; (g) continued funding of the Executive's split dollar life insurance policy as if the Executive were employed by the Company through the maturity date of such policy or, at the Company's option, payment in full of all premium obligations under such policy; and (h) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 7.3 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON AFTER A CHANGE IN CONTROL. If the Executive terminates his employment without Good Reason within ninety (90) days following the first anniversary of a Change in Control, the Executive shall be entitled, in addition to any payment paid or payable pursuant to SUBSECTION 7.1, but in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to the greater of (i) three times 160 percent of the Executive's Base Salary at the time of the Change in Control or (ii) three times 160 percent of the Executive's Base Salary at the time of the termination of his employment, one-third of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3 and two-thirds of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period; (b) immediate vesting of any stock options and stock appreciation rights granted by the Company, which stock options and stock appreciation rights shall continue to be and shall remain exercisable until the earlier of (i) three years and (ii) the remaining term of such stock options and stock appreciation rights as set forth in the agreement granting, or otherwise awarding, such stock option or stock appreciation right as if no termination had taken place; (c) immediate vesting and cash-out of any phantom stock units granted to the Executive; (d) immediate vesting of the Executive's supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan; Executive's Initials --- Company's Initials --- 13 (e) continued funding of the Executive's split dollar life insurance policy as if the Executive were employed by the Company through the maturity date of such policy or, at the Company's option, payment in full of all premium obligations under such policy; and (f) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 7.4 TERMINATION FOR OTHER REASONS AFTER A CHANGE IN CONTROL. If the Executive's employment is terminated after a Change in Control for any reason not otherwise provided for in this SECTION 7, his rights shall be determined in accordance with the applicable subsection of SECTION 6. 8. CONDITIONS TO PAYMENTS UPON TERMINATION. 8.1 TIMING OF PAYMENTS. Unless otherwise provided herein, any payments to which the Executive shall be entitled pursuant to SECTIONS 6 AND 7 shall be payable upon the satisfaction of the conditions set forth in SUBSECTION 8.3. 8.2 NO MITIGATION; NO OFFSET. In the event of any termination of the Executive's employment under SECTIONS 6 OR 7, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due to the Executive on account of any remuneration attributable to any subsequent employment that the Executive may obtain. Notwithstanding any contrary provision contained herein, in the event of any termination of employment of the Executive, the exclusive remedies available to the Executive shall be the amounts due under SECTIONS 6 OR 7, which are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. In the event of a termination of this Agreement, neither Party shall publish in any way or make any negative comment or statement about the other Party or concerning the reasons for such termination. The provisions of this SUBSECTION 8.2 shall survive the expiration or earlier termination of this Agreement. 8.3 GENERAL RELEASE. No payments or benefits payable to the Executive upon the termination of his employment pursuant to SECTIONS 6 OR 7 shall be made to the Executive unless and until he executes a general release substantially in the form annexed to this Agreement as Exhibit B and such general release becomes effective pursuant to its terms. 8.4 COMPLIANCE WITH THE AGREEMENT. No payments or benefits payable to the Executive upon the termination of his employment pursuant to SECTIONS 6 OR 7 shall be made to the Executive if he fails to comply with all of the terms and conditions of this Agreement, including, without limitation, SECTIONS 11 AND 12. Executive's Initials --- Company's Initials --- 14 8.5 CONTINUING OBLIGATIONS OF EXECUTIVE. No act or omission by the Executive in breach of this Agreement, including, without limitation his failure to execute the general release and the resulting forfeiture of termination payments, shall be deemed to permit the Executive to forego or waive such payments in order to avoid his obligations under SECTION 11. 9. SPECIAL REIMBURSEMENT. 9.1 If any payment or benefit paid or payable, or received or to be received, by or on behalf of the Executive in connection with a Change in Control pursuant to SUBSECTION 7.1 or the termination of the Executive's employment pursuant to SUBSECTION 7.2 , whether any such payments or benefits are pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Affiliate, any Person, or otherwise (the "TOTAL PAYMENTS"), will or would be subject to the excise tax imposed under Section 4999 of the Code (the "EXCISE TAX"), the Company shall pay to the Executive an additional amount (the "GROSS-UP PAYMENT") such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) imposed upon or in respect of the Total Payments and the Gross-Up Payments, including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and any Excise Tax imposed thereon, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. 9.2 For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (a) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive (which opinion shall be provided to the Executive) such Total Payments (in whole or in part) (i) do not constitute parachute payments, including (without limitation) by reason of Section 280G(b)(4)(A) of the Code, (ii) such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, or (iii) are not, in the opinion of legal counsel, otherwise subject to the Excise Tax, and (b) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. Executive's Initials --- Company's Initials --- 15 9.3 In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the initial Gross-Up Payment), the Company shall make an additional Gross-Up Payment in accordance with SUBSECTION 9.1 in respect of such excess Excise Tax (plus any interest, penalties or additions payable by the Executive with respect to such excess Excise Tax) at the time that the amount of such excess Excise Tax is finally determined. The Executive and the Company shall each reasonably cooperate with each other in connection with any administrative or judicial proceedings concerning the existence or amount of any such subsequent liability for Excise Tax with respect to the Total Payments. 10. INDEMNIFICATION. 10.1 GENERAL. The Company agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (an "INDEMNIFIABLE ACTION"), by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Indemnifiable Action is alleged action in an official capacity as a director, officer, member, employee or agent, while serving as a director, officer, member, employee or agent, he shall be indemnified and held harmless by the Company to the fullest extent permitted by Nevada law and the Company's by-laws, as the same exist or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith. 10.2 PROCEDURE. The indemnification provided pursuant to this SECTION 10 shall be subject to the following conditions: (a) The Executive must promptly give the Company written notice of any actual or threatened Indemnifiable Action; (b) The Company will be permitted, at its option, to participate in, or to assume, the defense of any Indemnifiable Action; (c) The Executive must provide reasonable cooperation to the Company in the defense of any Indemnifiable Action; and (d) The Executive must refrain from settling any Indemnifiable Action without obtaining the Company's prior written consent, which consent shall not be unreasonably withheld. Executive's Initials --- Company's Initials --- 16 10.3 ADVANCEMENT OF COSTS AND EXPENSES. The Company agrees to advance all costs and expenses referred to in SUBSECTION 10.1; PROVIDED, HOWEVER, that the Executive agrees to repay to the Company all amounts so advanced in the event that the Company reasonably determines in good faith that any acts or omissions by the Executive were: (a) in knowing violation of any agreement between the Executive and the Company; (b) in bad faith or involving intentional misconduct or a knowing violation of law or that the Executive personally gained a financial profit or other advantage to which he was not legally entitled; or (c) for which a court, having jurisdiction in the matter, determines that indemnification is not lawful. 10.4 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending an Indemnifiable Action in advance of its final disposition conferred in this SECTION 10 shall not be exclusive of any other right which the Executive may have or hereafter may acquire under any statute, provision of the certificate of incorporation or by-laws of the Company, agreement, vote of stockholders or disinterested directors or otherwise. 10.5 D&O INSURANCE. The Company will maintain a directors' and officers' liability insurance policy covering the Executive that provides coverage that is reasonable in relation to the Executive's position during the Term of Employment. 11. COVENANT NOT ENGAGE IN CERTAIN ACTS. 11.1 GENERAL. The Parties understand and agree that the purpose of the restrictions contained in this SECTION 11 is to protect the goodwill and other legitimate business interests of the Company, and that the Company would not have entered into this Agreement in the absence of such restrictions. The Executive acknowledges and agrees that the restrictions are reasonable and do not, and will not, unduly impair his ability to make a living after the termination of his employment with the Company. The provisions of this SECTION 11 shall survive the expiration or sooner termination of this Agreement. 11.2 NON-ASSISTANCE; NON-DIVERSION. In consideration for this Agreement to employ the Executive and the other valuable consideration provided hereunder, the Executive agrees and covenants that during the Term of Employment and during the Restriction Period, and except when acting on behalf of the Company or on behalf of any Affiliate, the Executive shall not, directly or indirectly, for himself or any third party, or alone or as a member of a partnership, or as an officer, director, shareholder or otherwise, engage in the following acts: (a) divert or attempt to divert any existing business of the Company or any Affiliate; (b) accept any position or affiliation with, or render any services on behalf of, any Competing Business; or Executive's Initials --- Company's Initials --- 17 (c) hire or retain any employee of the Company or any Affiliate to provide services for any other Person or induce, solicit, attempt to solicit, encourage, divert, cause or attempt to cause any employee or prospective employee of the Company or any Affiliate to (i) terminate and/or leave such employment, or (ii) accept employment with anyoneother than the Company or an Affiliate. 11.3 CESSATION/REIMBURSEMENT OF PAYMENTS. If the Executive violates any provision of this SECTION 11, the Company may, upon giving written notice to the Executive, immediately cease all payments and benefits that it may be providing to the Executive pursuant to SECTION 3, SECTION 6 or SUBSECTION 7.2, and the Executive may be required to reimburse the Company for any payments received from, and the cash value of any benefits provided by, the Company between the first day of the violation and the date such notice is given; PROVIDED, HOWEVER, that the foregoing shall be in addition to such other remedies as may be available to the Company and shall not be deemed to permit the Executive to forego or waive such payments in order to avoid his obligations under this SECTION 11. 11.4 SURVIVAL. The Executive agrees that the provisions of this SECTION 11 shall survive the termination of this Agreement and the termination of the Executive's employment. 12. CONFIDENTIAL INFORMATION AND COMPANY PROPERTY. 12.1 CONFIDENTIAL INFORMATION. The Executive understands and acknowledges that Confidential Information constitutes a valuable asset of the Company and its Affiliates and may not be converted to the Executive's own or any third party's use. Accordingly, the Executive hereby agrees that he shall not directly or indirectly, during the Term of Employment or any time thereafter, disclose any Confidential Information to any Person not expressly authorized by the Company to receive such Confidential Information. The Executive further agrees that he shall not directly or indirectly, during the Term of Employment or any time thereafter, use or make use of any Confidential Information in connection with any business activity other than that of the Company. The Parties acknowledge and agree that this Agreement is not intended to, and does not, alter either the Company's rights or the Executive's obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. 12.2 COMPANY PROPERTY. All Company Property is and shall remain exclusively the property of the Company. Unless authorized in writing to the contrary, the Executive shall promptly, and without charge, deliver to the Company on the termination of employment hereunder, or at any other time the Company may so request, all Company Property that the Executive may then possess or have under his control. Executive's Initials --- Company's Initials --- 18 12.3 REQUIRED DISCLOSURE. In the event the Executive is required by law or court order to disclose any Confidential Information or to produce any Company Property, the Executive shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which requires such disclosure and, if the Company so elects, to the extent permitted by applicable law, give the Company an adequate opportunity, at its own expense, to contest such law or court order prior to any such required disclosure or production by the Executive. 12.4 SURVIVAL. The Executive agrees that the provisions of this SECTION 12 shall survive the termination of this Agreement and the termination of the Executive's employment. 13. MUTUAL ARBITRATION AGREEMENT. 13.1 ARBITRABLE CLAIMS. All disputes between the Executive (and his attorneys, successors, and assigns) and the Company (and its trustees, beneficiaries, officers, directors, managers, affiliates, employees, agents, successors, attorneys, and assigns) relating in any manner whatsoever to the employment or termination of the Executive, including, without limitation, all disputes arising under this Agreement ("ARBITRABLE CLAIMS"), shall be resolved by binding arbitration as set forth in this SECTION 13 (the "MUTUAL ARBITRATION AGREEMENT"). Arbitrable Claims shall include, but are not limited to, claims for compensation, claims for breach of any contract or covenant (express or implied), and tort claims of all kinds, as well as all claims based on any federal, state, or local law, statute or regulation, but shall not include the claims based on the statutes enumerated in SUBSECTION 13.4 or the Company's right to seek injunctive relief as provided in SECTION 15. Arbitration shall be final and binding upon the Parties and shall be the exclusive remedy for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JUDGE OR JURY IN REGARD TO ARBITRABLE CLAIMS, EXCEPT AS PROVIDED BY SECTION 13.4. 13.2 PROCEDURE. Arbitration of Arbitrable Claims shall be in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association, as amended, and as augmented in this Agreement. Either Party may bring an action in court to compel arbitration under this Agreement and to enforce an arbitration award. Otherwise, neither Party shall initiate or prosecute any lawsuit, appeal or administrative action in any way related to an Arbitrable Claim. The initiating Party must file and serve an arbitration claim within sixty (60) days of learning the facts giving rise to the alleged claim. All arbitration hearings under this Agreement shall be conducted in Las Vegas, Nevada. The Federal Arbitration Act shall govern the interpretation and enforcement of this Agreement. The fees of the arbitrator shall be divided equally between both Parties. 13.3 CONFIDENTIALITY. All proceedings and all documents prepared in connection with any Arbitrable Claim shall be confidential and, unless otherwise required by law, the subject matter and content thereof shall not be disclosed to any Person other than the parties to the proceedings, their counsel, witnesses and experts, the arbitrator and, if involved, the court and court staff. Executive's Initials --- Company's Initials --- 19 13.4 APPLICABILITY. This SECTION 13 shall apply to all disputes under this Agreement other than: (a) disputes relating to the enforcement of the Company's rights under SECTIONS 11 AND 12 of this Agreement; and (b) claims brought under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Age Discrimination in Employment Act of 1967 (including the Older Workers Benefit Protection Act), and the Americans with Disabilities Act, the Fair Labor Standards Act, the Equal Pay Act, the Family and Medical Leave Act and the Employee Retirement Income Security Act of 1974, the Nevada Fair Employment Practices Act, the Missouri Human Rights Act or any other applicable state or local fair employment law. 13.5 ACKNOWLEDGEMENTS. The Executive acknowledges that he: (a) has carefully read this SECTION 13; (b) understands its terms and conditions; and (c) has entered into this Mutual Arbitration Agreement voluntarily and not in reliance on any promises or representations made by the Company other than those contained in this Mutual Arbitration Agreement. 14. NOTICES. All notices, demands and requests required or permitted to be given to either Party under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give notice of: If to the Company: Station Casinos, Inc. 2411 West Sahara Avenue Las Vegas, NV 89102 Attn: Scott M Nielson With a copy to: Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street, 30th Floor Los Angeles, CA 90017 Attn: Kenneth J. Baronsky If to the Executive: Blake L. Sartini 9100 Golden Eagle Drive Las Vegas, NV 89134 Executive's Initials --- Company's Initials --- 20 15. RIGHT TO SEEK INJUNCTIVE RELIEF. The Executive acknowledges that a violation on his part of any of the covenants contained in SECTIONS 11 AND 12 would cause immeasurable and irreparable damage to the Company. The Executive accordingly agrees and hereby grants his consent that, without limiting the remedies available to the Company, any actual or threatened violation of such covenants may be enforced by injunctive relief or by other equitable remedies issued or ordered by any court of competent jurisdiction. 16. EMPLOYEE BENEFIT PLAN DOCUMENTS. In the event that any terms and provisions of this Agreement conflict with the terms and provisions of any employee benefit plan document, the terms and provisions of this Agreement shall govern, and the Company shall take any and all actions that may be necessary, including amendment of any plan document, to effect the provision of benefits expressly provided upon termination of the Executive's employment pursuant to SECTIONS 6 AND 7. 17. BENEFICIARIES/REFERENCES. The Executive shall be entitled to select a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, by giving the Company written notice thereof. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiaries, estate or other legal representative. 18. SURVIVORSHIP. The respective rights and obligations of the Parties hereunder shall survive the expiration or earlier termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. The provisions of this SECTION 18 are in addition to the survivorship provisions of any other section of this Agreement. 19. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants that he or it is fully authorized and empowered to enter into this Agreement and that the performance of his or its obligations under this Agreement will not violate any Agreement between that Party and any other Person. 20. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, express or implied, between the Parties with respect hereto. No representations, inducements, promises or agreements not embodied herein shall be of any force or effect. 21. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs and assigns; PROVIDED, HOWEVER, that no rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive, other than rights to compensation and benefits hereunder, which may be transferred only by will or operation of law and subject to the limitations of this Agreement; and PROVIDED, FURTHER, that no rights or obligations of the Company under this Agreement may be assigned or transferred by the Company, except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or Executive's Initials --- Company's Initials --- 21 substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company under this Agreement, either contractually or as a matter of law. 22. AMENDMENT OR WAIVER. No provision in this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing, signed by both Parties. No waiver by one Party of any breach by the other Party of any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by the Executive with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. 23. SEVERABILITY. In the event that any provision or portion of this Agreement, except SECTIONS 6, SECTION 7 and SECTION 11, shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. If either SECTION 6, SECTION 7 or SECTION 11 is determined to be invalid or unenforceable for any reason, in whole or in part, either Party may terminate this Agreement without further obligations or duties hereunder. 24. GOVERNING LAW. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Nevada without reference to the principles of conflict of laws thereof. In the event of any dispute or controversy arising out of or relating to this Agreement that is not an arbitrable claim, the Parties mutually and irrevocably consent to, and waive any objection to, the exclusive jurisdiction of any court of competent jurisdiction in Clark County, Nevada, to resolve such dispute or controversy. 25. HEADINGS. The headings of the sections and subsections contained in this agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 26. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement with the same effect as if all Parties had signed the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement and reattached to any other counterpart of this Agreement identical in form hereto but having attached to it one or more additional signature pages. 27. ACKNOWLEDGEMENT. The Executive represents and acknowledges the following: (a) he has carefully read this Agreement in its entirety; (b) he understands the terms and conditions contained herein; Executive's Initials --- Company's Initials --- 22 (c) he has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by the Company or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and (d) he is entering into this Agreement knowingly and voluntarily. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. STATION CASINOS, INC. By: /s/ GLENN C. CHRISTENSON ------------------------ Name: Glenn C. Christenson Title: Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer /s/ BLAKE L. SARTINI --------------------------- Blake L. Sartini Executive's Initials --- Company's Initials --- EXHIBIT "B" GENERAL RELEASE AND COVENANT NOT TO SUE This GENERAL RELEASE AND COVENANT NOT TO SUE (this "Release") is executed and delivered by BLAKE L. SARTINI (the "Executive") to STATION CASINOS, INC., a Nevada corporation (the "Company"). In consideration of the agreement by the Company to provide the separation payments and benefits in SECTION 6 and SECTION 7 of the Employment Agreement between the Executive and the Company, dated as of December 1, 1999 (the "Employment Agreement"), and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Executive hereby agrees as follows: 1. RELEASE AND COVENANT. THE EXECUTIVE, OF HIS OWN FREE WILL, VOLUNTARILY RELEASES AND FOREVER DISCHARGES THE COMPANY AND ITS SUBSIDIARIES AND AFFILIATES, AND EACH OF THEIR RESPECTIVE PAST AND PRESENT AGENTS, EMPLOYEES, MANAGERS, REPRESENTATIVES, OFFICERS, DIRECTORS, ATTORNEYS, ACCOUNTANTS, TRUSTEES, SHAREHOLDERS, PARTNERS, INSURERS, HEIRS, PREDECESSORS-IN-INTEREST, ADVISORS, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE "RELEASED PARTIES") FROM, AND COVENANTS NOT TO SUE OR PROCEED AGAINST ANY OF THE FOREGOING ON THE BASIS OF, ANY AND ALL PAST OR PRESENT CAUSES OF ACTION, SUITS, AGREEMENTS OR OTHER RIGHTS OR CLAIMS WHICH THE EXECUTIVE, HIS DEPENDENTS, RELATIVES, HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS HAS OR HAVE AGAINST ANY OF THE RELEASED PARTIES UPON OR BY REASON OF ANY MATTER ARISING OUT OF HIS EMPLOYMENT BY THE COMPANY AND THE CESSATION OF SAID EMPLOYMENT, AND INCLUDING, BUT NOT LIMITED TO, ANY ALLEGED VIOLATION OF THE CIVIL RIGHTS ACTS OF 1964 AND 1991, THE EQUAL PAY ACT OF 1963, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967 (INCLUDING THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990), THE REHABILITATION ACT OF 1973, THE FAMILY AND MEDICAL LEAVE ACT OF 1993, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, THE NEVADA FAIR EMPLOYMENT PRACTICES ACT, THE MISSOURI HUMAN RIGHTS ACT, THE LABOR LAWS OF THE UNITED STATES, NEVADA AND MISSOURI, AND ANY OTHER FEDERAL, STATE OR LOCAL LAW, REGULATION OR ORDINANCE, OR PUBLIC POLICY, CONTRACT OR TORT LAW, HAVING ANY BEARING WHATSOEVER ON THE TERMS AND CONDITIONS OR CESSATION OF HIS EMPLOYMENT WITH THE COMPANY. 2. DUE CARE. THE EXECUTIVE ACKNOWLEDGES THAT HE HAS RECEIVED A COPY OF THIS RELEASE PRIOR TO ITS EXECUTION AND HAS BEEN ADVISED HEREBY OF HIS OPPORTUNITY TO REVIEW AND CONSIDER THIS RELEASE FOR TWENTY-ONE (21) DAYS PRIOR TO ITS EXECUTION. THE EXECUTIVE FURTHER ACKNOWLEDGES THAT HE HAS BEEN ADVISED HEREBY TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. THE EXECUTIVE ENTERS INTO THIS RELEASE HAVING FREELY AND KNOWINGLY ELECTED, AFTER DUE CONSIDERATION, TO EXECUTE THIS RELEASE AND TO FULFILL THE PROMISES SET FORTH HEREIN. THIS RELEASE SHALL BE REVOCABLE BY THE EXECUTIVE DURING THE SEVEN (7) DAY PERIOD FOLLOWING ITS EXECUTION, AND SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD. IN THE EVENT OF SUCH A REVOCATION, THE EXECUTIVE SHALL NOT BE ENTITLED TO THE CONSIDERATION FOR THIS RELEASE SET FORTH ABOVE. 3. RELIANCE BY THE EXECUTIVE. THE EXECUTIVE ACKNOWLEDGES THAT, IN HIS DECISION TO ENTER INTO THIS RELEASE, HE HAS NOT RELIED ON ANY REPRESENTATIONS, PROMISES OR ARRANGEMENT OF ANY KIND, INCLUDING ORAL STATEMENTS BY REPRESENTATIVES OF THE COMPANY, EXCEPT AS SET FORTH IN THIS RELEASE. 4. MISCELLANEOUS. THE EXECUTIVE SHALL NOT DISCLOSE THE EXISTENCE OR CONTENTS OF THIS RELEASE TO ANYONE OTHER THAN HIS IMMEDIATE FAMILY, ACCOUNTANTS OR ATTORNEYS, AND THE EXECUTIVE SHALL INSTRUCT SUCH THIRD PARTIES NOT TO DISCLOSE THE SAME. THIS RELEASE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. IF ANY PROVISION OF THIS RELEASE IS HELD INVALID OR UNENFORCEABLE FOR ANY REASON, THE REMAINING PROVISIONS SHALL BE CONSTRUED AS IF THE INVALID OR UNENFORCEABLE PROVISION HAD NOT BEEN INCLUDED. ii This GENERAL RELEASE AND COVENANT NOT TO SUE is executed by the Executive and delivered to the Company on _______________________. Executive - ------------------------------ Name: Blake L. Sartini STATE OF ) -------------------------- ) ss: COUNTY OF ) ------------------------- On this _____ day of ________________, ____, before me, a Notary Public of the State of _______________, personally appeared ____________, to me known and known to me to be the person described and who executed the foregoing release and did then and there acknowledge to me that he voluntarily executed the same. - ----------------------------- NOTARY PUBLIC [NOT TO BE SIGNED OR NOTARIZED UPON EXECUTION OF EMPLOYMENT AGREEMENT] iii EX-10.16 7 EXHIBIT 10.16 EXHIBIT 10.16 EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into as of the 1st day of December, 1999, by and between STATION CASINOS, INC., a Nevada corporation, with its principal offices located at 2411 West Sahara Avenue, Las Vegas, Nevada 89102 (the "COMPANY"), and WILLIAM W. WARNER (the "EXECUTIVE"). WHEREAS, the Company and the Executive are parties to an Amended and Restated Employment Agreement dated as of December 22, 1997 (the "FORMER AGREEMENT"); and WHEREAS, the Executive has agreed to continue his employment with the Company on the terms and conditions set forth herein; and WHEREAS, the parties to this Agreement desire to replace the Former Agreement in its entirety with this Agreement, and the Former Agreement shall no longer be of any force or effect; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the Company and the Executive (each individually a "PARTY" and together the "PARTIES") agree as follows. 1. DEFINITIONS. In addition to certain terms defined elsewhere in this Agreement, the following terms shall have the following respective meanings: 1.1 "AFFILIATE" shall mean any Person controlling, controlled by or under common control with, the Company. 1.2 "BASE AMOUNT" shall have the meaning ascribed to such term in Section 280G of the Code. 1.3 "BASE SALARY" shall mean the salary provided for in SUBSECTION 3.1 of this Agreement. 1.4 "BOARD" shall mean the Board of Directors of the Company. 1.5 "CAUSE" shall mean that the Executive: (a) has been formally charged with or convicted of any felony or any crime involving fraud, theft, embezzlement, dishonesty or moral turpitude; (b) has been found unsuitable to hold a gaming license; or Executive's Initials --- Company's Initials --- 2 (c) in carrying out his duties under this Agreement, has engaged in acts or omissions constituting gross negligence or willful misconduct resulting, in either case, in material economic harm to the Company. 1.6 "CHANGE IN CONTROL" shall be deemed to have occurred if: (a) (1) any Person, corporation, entity or group (other than the Existing Equity Holders) is or becomes the beneficial owner, directly or indirectly, of securities representing 50% or more of the combined voting power of the Company's Voting Stock (an "Acquisition Event"), or (2) the Company consolidates with or merges into another corporation or entity, or any corporation or entity consolidates with or merges into the Company, with the effect that the beneficial owners of the Company's Voting Stock held immediately prior to the consummation of such consolidation or merger cease to beneficially own, directly or indirectly, securities representing 50% or more of the combined voting power of the Company's Voting Stock (or if the Company is not the surviving entity, the surviving company's voting securities) upon the consummation of such consolidation or merger (a "Merger Event"), or (3) the Company sells, conveys, transfers or leases to any person, corporation, entity or group, directly or indirectly, in one transaction or series of related transactions, properties and/or assets that accounted for 75% or more of the earnings (before interest, taxes, depreciation and amortization) of the Company, on a consolidated basis for the four-fiscal quarter period immediately preceding the date of consummation of such transaction (a "Sale Event"); AND (b) within thirty-six (36) months following an Acquisition Event, Merger Event or Sale Event, individuals who immediately prior to such Acquisition Event, Merger Event or Sale Event constituted the Company's Board, together with any new or replacement directors whose election by the Company's Board, or whose nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then in office who were either directors on the Company's Board immediately prior to such Acquisition Event, Merger Event or Sale Event (or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of the directors of the Company's Board then in office. Notwithstanding the foregoing, a reincorporation, spin-off, split-off or other reorganization transaction (a "Reorganization Event"), or series of related transactions, in which either the "beneficial owners" of the Company's Voting Stock or the Existing Equity Holders beneficially own securities representing 50% or more of the combined voting power of the Company's Voting Stock upon the consummation of such transaction shall not constitute an Acquisition Executive's Initials --- Company's Initials --- 3 Event, Merger Event or Sale Event for purposes of this definition. For purposes of this definition, "beneficial ownership" shall have the same meaning as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. For the purposes of this definition, upon consummation of an Acquisition Event, Merger Event, Sale Event or Reorganization Event, the "Company's Board" and the "Company's Shareholders" shall refer to (i) in the case of an Acquisition Event, the Company, (ii) in the case of a Merger Event, the company surviving the merger or consolidation, (iii) in the case of a Sale Event, the transferee of the properties, and/or assets, and (iv) in the case of a Reorganization Event, the entity or entities surviving such Reorganization Event on a consolidated basis. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended. 1.8 "COMPANY PROPERTY" shall mean all items and materials provided by the Company to the Executive, or to which the Executive has access, in the course of his employment, including, without limitation, all files, records, documents, drawings, specifications, memoranda, notes, reports, manuals, equipment, computer disks, videotapes, drawings, blueprints and other documents and similar items relating to the Company, its Affiliates or their respective customers, whether prepared by the Executive or others, and any and all copies, abstracts and summaries thereof. 1.9 "COMPETING BUSINESS" shall mean any Person engaged in the gaming industry that directly or through an affiliate or subsidiary conducts its business within the Restricted Area. 1.10 "CONFIDENTIAL INFORMATION" shall mean all nonpublic and/or proprietary information respecting the business of the Company or any Affiliate, including, without limitation, its products, programs, projects, promotions, marketing plans and strategies, business plans or practices, business operations, employees, research and development, intellectual property, software, databases, trademarks, pricing information and accounting and financing data. Confidential Information also includes information concerning the Company's or any Affiliate's customers, such as their identity, address, preferences, playing patterns and ratings or any other information kept by the Company or any Affiliate concerning its customers whether or not such information has been reduced to documentary form. Confidential Information does not include information that is, or becomes, available to the public unless such availability occurs through an unauthorized act on the part of the Executive. 1.11 "DEFERRED COMPENSATION PLAN FOR EXECUTIVES" shall mean the Company's Deferred Compensation Plan for Executives, effective as of November 30, 1994, as the same may be amended from time to time. Executive's Initials --- Company's Initials --- 4 1.12 "DISABILITY" shall mean a physical or mental incapacity that prevents the Executive from performing the essential functions of his position with the Company for a period of ninety (90) days as determined (a) in accordance with any long-term disability plan provided by the Company of which the Executive is a participant, or (b) by the following procedure: The Executive agrees to submit to medical examinations by a licensed healthcare professional selected by the Company, in its sole discretion, to determine whether a Disability exists. In addition, the Executive may submit to the Company documentation of a Disability, or lack thereof, from a licensed healthcare professional of his choice. Following a determination of a Disability or lack of Disability by the Company's or the Executive's licensed healthcare professional, the other Party may submit subsequent documentation relating to the existence of a Disability from a licensed healthcare professional selected by such other Party. In the event that the medical opinions of such licensed healthcare professionals conflict, such licensed healthcare professionals shall appoint a third licensed healthcare professional to examine the Executive, and the opinion of such third licensed healthcare professional shall be dispositive. 1.13 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.14 "EXISTING EQUITY HOLDERS" shall mean Frank J. Fertitta III, Blake L. Sartini, Delise F. Sartini, Lorenzo J. Fertitta, Glenn C. Christenson and Scott M Nielson and their executors, administrators or the legal representatives of their estates, their heirs, distributees and beneficiaries, and any trust as to which any of the foregoing is a settlor or co-settlor and any corporation, partnership or other entity which is an affiliate of any of the foregoing, and any lineal descendants of such persons (but only to the extent that the beneficial ownership of the Voting Stock held by such lineal descendants was directly received by gift, trust or sale from any such person). 1.15 "GOOD REASON," as used in SUBSECTION 7.2, shall mean and exist if there has been a Change in Control and, thereafter, without the Executive's prior written consent, one or more of the following events occurs: (a) the Executive is assigned duties or responsibilities that are inconsistent, in any significant respect, with the position of a senior manager; (b) the Executive is required to relocate from, or maintain his principal office outside of, Clark County, Nevada; (c) the Executive's Base Salary is decreased by the Company; (d) the Executive is excluded from participation in any employee benefit or short-term incentive plan or program offered to other similarly executives of the Company or his benefits under such plans or programs are materially reduced; (e) the Company fails to pay the Executive any deferred payments that have become payable under the Deferred Compensation Plan for Executives; Executive's Initials --- Company's Initials --- 5 (f) the Company fails to reimburse the Executive for business expenses in accordance with the Company's policies, procedures or practices; (g) the Company fails to agree to or to actually indemnify the Executive for his actions and/or inactions, as either a director or an officer of the Company, in accordance with SECTION 10, and/or the Company fails to maintain reasonably sufficient levels of directors' and officers' liability insurance coverage for the Executive when such insurance is available; or (h) the Company fails to obtain a written agreement from any successor or assign of the Company to assume the obligations under this Agreement upon a Change in Control. 1.16 "LONG-TERM STAY-ON PERFORMANCE INCENTIVE PLAN" shall mean the Company's Long-Term Stay-On Performance Incentive Plan, effective as of April 1, 1999, as the same may be amended from time to time. 1.17 "PERSON" shall mean any individual, firm, partnership, association, trust, company, corporation or other entity. 1.18 "PRO RATA BONUS" shall mean an amount equal to sixty percent (60%) of the Executive's current Base Salary, multiplied by a fraction, the numerator of which is the number of days in such year during which the Executive was actually employed by the Company and the denominator of which is 365. 1.19 "RESTRICTED AREA" shall mean: (a) the City of Las Vegas, Nevada, and the area within a twenty-five (25) mile radius of that city; and (b) the Cities of Kansas City, Missouri and St. Louis, Missouri, and the areas within a fifty (50) mile radius of each of those cities; PROVIDED, HOWEVER, that in the event the Executive voluntarily terminates this Agreement pursuant to SUBSECTION 6.3, the Restricted Area shall exclude the Las Vegas Strip (which is defined as that area bounded by Paradise Road and straight extensions thereof on the East, Charleston Boulevard on the North, I-15 on the West, and Sunset Road on the South, as outlined in red on Exhibit A attached hereto) and Downtown Las Vegas (which is defined as that area bounded by Eastern Avenue and straight extensions thereof on the East, I-515 (U.S. Highway 93/95) on the North, I-15 on the West, and Charleston Boulevard on the South, as outlined in red on Exhibit A attached hereto). 1.20 "RESTRICTION PERIOD" shall mean the period ending twenty-four (24) months after the termination or expiration of the Term of Employment, regardless of the reason for such termination or expiration. Executive's Initials --- Company's Initials --- 6 1.21 "SPECIAL LONG-TERM DISABILITY PLAN" shall mean the Company's Special Long-Term Disability Plan, effective as of November 30, 1994, as the same may be amended from time to time. 1.22 "SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN" shall mean the Company's Supplemental Management Retirement Plan, effective as of November 30, 1994, as the same may be amended from time to time. 1.23 "TERM OF EMPLOYMENT" shall mean the period specified in SUBSECTION 2.2. 1.24 "VOTING STOCK" shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation. 2. TERM OF EMPLOYMENT, POSITION AND RESPONSIBILITIES. 2.1 EMPLOYMENT ACCEPTED. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, for the Term of Employment, in the position and with the responsibilities set forth in SUBSECTION 2.3 and upon such other terms and conditions as are stated in this Agreement. 2.2 TERM OF EMPLOYMENT. The initial Term of Employment shall commence upon the date of this Agreement and, unless earlier terminated pursuant to the provisions of this Agreement, shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the date of this Agreement; PROVIDED, HOWEVER, that the initial Term of Employment shall automatically be extended for successive five-year periods if neither Party has advised the other in writing in accordance with SECTION 14 at least twelve (12) months prior to the end of the then current Term of Employment that such Term of Employment will not be extended for an additional five year period. In the event that such notice is given, the Executive's employment shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the then current Term of Employment. 2.3 RESPONSIBILITIES. During the Term of Employment, the Executive shall be employed as Vice President of Finance of the Company, or in such other capacity as the Company may direct, and shall have such responsibilities as the Company may direct from time to time. During the Term of Employment, the Executive shall devote his full time and attention to the business and affairs of the Company and shall use his best efforts, skills and abilities to promote the Company's interests. Anything herein to the contrary notwithstanding, the Executive shall not be precluded from engaging in charitable and community affairs and managing his personal investments. The Executive also may serve as a member of the board of directors of other corporations, subject to the approval of a majority of the Board, which approval shall not be unreasonably withheld or delayed. Executive's Initials --- Company's Initials --- 7 3. COMPENSATION. 3.1 BASE SALARY. During the Term of Employment, the Executive shall be entitled to receive a base salary (the "Base Salary") payable no less frequently than in equal bi-weekly installments at an annualized rate of no less than $375,000. The Base Salary shall be reviewed annually for increase (but not decrease) in the discretion of the Human Resources Committee of the Board. In conducting any such annual review, the Human Resources Committee shall take into account any change in the Executive's responsibilities, increases in the compensation of other executives of the Company or any Affiliate (or any competitor(s) of either or both), the performance of the Executive and/or other pertinent factors. Such increased Base Salary shall then constitute the Executive's "Base Salary" for purposes of this Agreement. 3.2 ANNUAL BONUS. The Company may pay the Executive an annual discretionary bonus for each fiscal year ending during the Term of Employment in an amount that will be determined by the Human Resources Committee based on the Executive's performance. Any annual bonus that may be awarded to the Executive shall be paid at the same time as annual bonuses are paid to other senior officers of the Company, unless the Executive has elected to defer receipt of all or part of the bonus amounts to which he is entitled in respect of any such calendar year in accordance with the terms and provisions of any deferred compensation program maintained by the Company. 3.3 STAY-ON INCENTIVES. The Executive shall be eligible to participate in the Company's Long-Term Stay-On Performance Incentive Plan pursuant to the terms of the Plan. 3.4 DEFERRED COMPENSATION. The Executive shall be eligible to participate in the Company's Deferred Compensation Plan for Executives, and any other deferred compensation plans that the Company may adopt for executives, pursuant to the terms of the plans. 4. EMPLOYEE BENEFIT PLANS AND PROGRAMS. 4.1 PENSION AND WELFARE BENEFIT PLANS. During the Term of Employment, the Executive shall be entitled to participate in all employee benefit programs made available to the Company's executives or salaried employees generally, as such programs may be in effect from time to time, including, without limitation, pension and other retirement plans, profit sharing plans, group life insurance, group health insurance, accidental death and dismemberment insurance, long-term disability, sick leave (including salary continuation arrangements), vacations, holidays and other employee benefit programs sponsored by the Company. Executive's Initials --- Company's Initials --- 8 4.2 ADDITIONAL PENSION AND WELFARE BENEFITS. In addition to the foregoing, the Company shall provide the Executive with the following benefits: (a) group health insurance coverage through the Company's Exec-U-Care Medical Plan, effective as of July 1, 1994, or pursuant to such other plan or plans as the Company may select from time to time, and which shall be fully paid for by the Company; (b) full salary continuation during the first 90 days of any physical or mental incapacity that prevents the Executive from performing his duties and, for any Disability that continues thereafter, benefits pursuant to the Company's Special Long-Term Disability Plan and any other long-term disability benefits pursuant to any other disability plan of which the Executive is a participant; (c) an annual supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan, in addition to any other benefit pursuant to any other retirement plan under which the Executive is covered; and (d) supplemental life insurance coverage, through an individual policy, a group policy or a combination thereof, in an aggregate amount of not less than $4.0 million. 5. BUSINESS EXPENSE REIMBURSEMENT AND PERQUISITES. 5.1 EXPENSE REIMBURSEMENT. During the Term of Employment, the Executive shall be entitled to receive reimbursement by the Company for all reasonable out-of-pocket expenses incurred by him in performing services under this Agreement, subject to providing the proper documentation of said expenses. 5.2 PERQUISITES. During the Term of Employment, the Executive shall also be entitled to any of the Company's executive perquisites in accordance with the terms and provisions of the applicable policies, including, without limitation: (a) vacation of four weeks per year; (b) payment or reimbursement of the cost of an annual physical examination; (c) payment or reimbursement of initiation fees and annual membership fees and assessments for a country club, a luncheon club and a physical fitness program of the Executive's choice; and (d) payment or reimbursement of fees and expenses, up to a maximum amount of $2500.00, incurred in connection with having this Agreement reviewed by legal counsel of his own choosing prior to execution. Executive's Initials --- Company's Initials --- 9 6. TERMINATION OF EMPLOYMENT. 6.1 TERMINATION DUE TO DEATH OR DISABILITY. The Executive's employment shall be terminated immediately in the event of his death or Disability. In the event of a termination due to the Executive's death or Disability, the Executive or his estate, as the case may be, shall be entitled, in lieu of any other compensation whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination until the date of death or Disability; (b) any annual bonus awarded but not yet paid; (c) a Pro Rata Bonus for the fiscal year in which death or Disability occurs; (d) in the case of death, any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral, and in the case of Disability, immediate vesting of any deferred compensation or bonuses, including interest or other credits on the deferred amounts; (e) reimbursement of expenses incurred but not paid prior to such termination of employment; and (f) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and provisions of such plans and programs. 6.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate the Executive's employment for Cause at any time during the Term of Employment by giving written notice to the Executive. In the event of a termination for Cause, the Executive shall be entitled, in lieu of any other compensation and benefits whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination through the date of termination of employment; (b) any annual bonus awarded but not yet paid; (c) any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; (d) reimbursement for expenses incurred but not paid prior to such termination of employment; and Executive's Initials --- Company's Initials --- 10 (e) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and conditions of such plans and programs. Notwithstanding anything to the contrary in this SUBSECTION 6.2, if the Executive's employment is terminated for Cause (i) due to his having been formally charged pursuant to SUBSECTION 1.5(A) but thereafter said charges are dismissed or the Executive is acquitted, or (ii) due to his having been convicted pursuant to SUBSECTION 1.5(A) but said conviction is subsequently overturned on appeal and he is not required to submit to re-trial within six (6) months thereafter, the Company shall have the option of reinstating the Executive with payment of all base salary payments that would have been paid to him had his employment not been terminated and restoration of all benefits provided for pursuant to SECTION 4, or making a payment to him of an amount equal to three times 160 percent of the Executive's Base Salary at the rate in effect at the time of his termination. 6.3 TERMINATION BY THE EXECUTIVE. The Executive may terminate his employment on his own initiative for any reason prior to a Change in Control upon thirty (30) days prior written notice to the Company. Such termination shall have the same consequences as a termination for Cause under SUBSECTION 6.2. 6.4 TERMINATION BY THE COMPANY WITHOUT CAUSE. Notwithstanding any other provision of this Agreement, the Company may terminate the Executive's employment without Cause, other than due to death or Disability, at any time during the Term of Employment by giving written notice to the Executive. In the event that the Company terminates the Executive's employment without Cause, the Executive shall be entitled, in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to three times 160 percent of the Executive's Base Salary at the rate in effect at the time of his termination, one-third of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3, and the other two-thirds of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period; (b) any annual bonus awarded but not yet paid; (c) any deferred bonus, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; (d) exercise, within 180 days, all stock options that have vested prior to termination, and shall forfeit all stock options that have not vested; (e) reimbursement for expenses incurred but not paid prior to such termination of employment; and Executive's Initials --- Company's Initials --- 11 (f) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 6.5 TERMINATION DUE TO EXPIRATION OF THE TERM OF EMPLOYMENT. If either Party elects not to extend the initial Term of Employment or any successive Term of Employment, the Executive shall not be entitled to any additional compensation after the expiration thereof, but such termination of employment shall not otherwise affect accrued but unpaid compensation or benefits provided under this Agreement or pursuant to any Company plan or program. 7. CHANGE IN CONTROL. 7.1 CHANGE IN CONTROL PAYMENT. Immediately upon a Change in Control, in addition to any other compensation or benefits payable pursuant to this Agreement or otherwise, the Executive shall be entitled to a payment in cash equal to three times 160 percent of his Base Salary. Unless otherwise provided for in this Agreement, the Executive's rights upon a Change in Control to benefits under programs, plans and policies of the Company shall be determined according to the terms and provisions of such programs, plans and policies. 7.2 TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD REASON AFTER A CHANGE IN CONTROL. If within five years following a Change in Control, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, the Executive shall be entitled, in addition to any payment paid or payable pursuant to SUBSECTION 7.1, but in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to the greater of (i) five times 160 percent of the Executive's Base Salary at the time of the Change in Control or (ii) five times 160 percent of the Executive's Base Salary at the time of the termination of his employment, three-fifths of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3 and two-fifths of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period, (b) immediate vesting of any restricted stock of the Company held in the Executive's name or for his benefit; (c) immediate vesting of any stock options and stock appreciation rights granted by the Company, which stock options and stock appreciation rights shall continue to be and shall remain exercisable until the earlier of (i) five years and (ii) the remaining term of such stock options and stock appreciation rights as set forth in the agreement granting, or otherwise awarding, such stock option or stock appreciation right as if no termination had taken place; Executive's Initials --- Company's Initials --- 12 (d) immediate vesting and cash-out of any phantom stock units granted to the Executive; (e) immediate vesting and pay out of any shares awarded to the Executive pursuant to the Company's Long-Term Stay-On Performance Incentive Plan; (f) immediate vesting of the Executive's supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan; (g) continued funding of the Executive's split dollar life insurance policy as if the Executive were employed by the Company through the maturity date of such policy or, at the Company's option, payment in full of all premium obligations under such policy; and (h) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 7.3 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON AFTER A CHANGE IN CONTROL. If the Executive terminates his employment without Good Reason within ninety (90) days following the first anniversary of a Change in Control, the Executive shall be entitled, in addition to any payment paid or payable pursuant to SUBSECTION 7.1, but in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to the greater of (i) three times 160 percent of the Executive's Base Salary at the time of the Change in Control or (ii) three times 160 percent of the Executive's Base Salary at the time of the termination of his employment, one-third of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3 and two-thirds of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period; (b) immediate vesting of any stock options and stock appreciation rights granted by the Company, which stock options and stock appreciation rights shall continue to be and shall remain exercisable until the earlier of (i) three years and (ii) the remaining term of such stock options and stock appreciation rights as set forth in the agreement granting, or otherwise awarding, such stock option or stock appreciation right as if no termination had taken place; (c) immediate vesting and cash-out of any phantom stock units granted to the Executive; (d) immediate vesting of the Executive's supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan; Executive's Initials --- Company's Initials --- 13 (e) continued funding of the Executive's split dollar life insurance policy as if the Executive were employed by the Company through the maturity date of such policy or, at the Company's option, payment in full of all premium obligations under such policy; and (f) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 7.4 TERMINATION FOR OTHER REASONS AFTER A CHANGE IN CONTROL. If the Executive's employment is terminated after a Change in Control for any reason not otherwise provided for in this SECTION 7, his rights shall be determined in accordance with the applicable subsection of SECTION 6. 8. CONDITIONS TO PAYMENTS UPON TERMINATION. 8.1 TIMING OF PAYMENTS. Unless otherwise provided herein, any payments to which the Executive shall be entitled pursuant to SECTIONS 6 AND 7 shall be payable upon the satisfaction of the conditions set forth in SUBSECTION 8.3. 8.2 NO MITIGATION; NO OFFSET. In the event of any termination of the Executive's employment under SECTIONS 6 OR 7, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due to the Executive on account of any remuneration attributable to any subsequent employment that the Executive may obtain. Notwithstanding any contrary provision contained herein, in the event of any termination of employment of the Executive, the exclusive remedies available to the Executive shall be the amounts due under SECTIONS 6 OR 7, which are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. In the event of a termination of this Agreement, neither Party shall publish in any way or make any negative comment or statement about the other Party or concerning the reasons for such termination. The provisions of this SUBSECTION 8.2 shall survive the expiration or earlier termination of this Agreement. 8.3 GENERAL RELEASE. No payments or benefits payable to the Executive upon the termination of his employment pursuant to SECTIONS 6 OR 7 shall be made to the Executive unless and until he executes a general release substantially in the form annexed to this Agreement as Exhibit B and such general release becomes effective pursuant to its terms. 8.4 COMPLIANCE WITH THE AGREEMENT. No payments or benefits payable to the Executive upon the termination of his employment pursuant to SECTIONS 6 OR 7 shall be made to the Executive if he fails to comply with all of the terms and conditions of this Agreement, including, without limitation, SECTIONS 11 AND 12. 8.5 CONTINUING OBLIGATIONS OF EXECUTIVE. No act or omission by the Executive in breach of this Agreement, including, without limitation his failure to execute the general release and the resulting forfeiture of termination payments, shall be deemed to permit Executive's Initials --- Company's Initials --- 14 the Executive to forego or waive such payments in order to avoid his obligations under SECTION 11. 9. SPECIAL REIMBURSEMENT. 9.1 If any payment or benefit paid or payable, or received or to be received, by or on behalf of the Executive in connection with a Change in Control pursuant to SUBSECTION 7.1 or the termination of the Executive's employment pursuant to SUBSECTION 7.2 , whether any such payments or benefits are pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Affiliate, any Person, or otherwise (the "TOTAL PAYMENTS"), will or would be subject to the excise tax imposed under Section 4999 of the Code (the "EXCISE TAX"), the Company shall pay to the Executive an additional amount (the "GROSS-UP PAYMENT") such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) imposed upon or in respect of the Total Payments and the Gross-Up Payments, including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and any Excise Tax imposed thereon, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. 9.2 For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (a) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive (which opinion shall be provided to the Executive) such Total Payments (in whole or in part) (i) do not constitute parachute payments, including (without limitation) by reason of Section 280G(b)(4)(A) of the Code, (ii) such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, or (iii) are not, in the opinion of legal counsel, otherwise subject to the Excise Tax, and (b) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. 9.3 In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's Initials --- Company's Initials --- 15 the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the initial Gross-Up Payment), the Company shall make an additional Gross-Up Payment in accordance with SUBSECTION 9.1 in respect of such excess Excise Tax (plus any interest, penalties or additions payable by the Executive with respect to such excess Excise Tax) at the time that the amount of such excess Excise Tax is finally determined. The Executive and the Company shall each reasonably cooperate with each other in connection with any administrative or judicial proceedings concerning the existence or amount of any such subsequent liability for Excise Tax with respect to the Total Payments. 10. INDEMNIFICATION. 10.1 GENERAL. The Company agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (an "INDEMNIFIABLE ACTION"), by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Indemnifiable Action is alleged action in an official capacity as a director, officer, member, employee or agent, while serving as a director, officer, member, employee or agent, he shall be indemnified and held harmless by the Company to the fullest extent permitted by Nevada law and the Company's by-laws, as the same exist or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith. 10.2 PROCEDURE. The indemnification provided pursuant to this SECTION 10 shall be subject to the following conditions: (a) The Executive must promptly give the Company written notice of any actual or threatened Indemnifiable Action; (b) The Company will be permitted, at its option, to participate in, or to assume, the defense of any Indemnifiable Action; (c) The Executive must provide reasonable cooperation to the Company in the defense of any Indemnifiable Action; and (d) The Executive must refrain from settling any Indemnifiable Action without obtaining the Company's prior written consent, which consent shall not be unreasonably withheld. Executive's Initials --- Company's Initials --- 16 10.3 ADVANCEMENT OF COSTS AND EXPENSES. The Company agrees to advance all costs and expenses referred to in SUBSECTION 10.1; PROVIDED, HOWEVER, that the Executive agrees to repay to the Company all amounts so advanced in the event that the Company reasonably determines in good faith that any acts or omissions by the Executive were: (a) in knowing violation of any agreement between the Executive and the Company; (b) in bad faith or involving intentional misconduct or a knowing violation of law or that the Executive personally gained a financial profit or other advantage to which he was not legally entitled; or (c) for which a court, having jurisdiction in the matter, determines that indemnification is not lawful. 10.4 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending an Indemnifiable Action in advance of its final disposition conferred in this SECTION 10 shall not be exclusive of any other right which the Executive may have or hereafter may acquire under any statute, provision of the certificate of incorporation or by-laws of the Company, agreement, vote of stockholders or disinterested directors or otherwise. 10.5 D&O INSURANCE. The Company will maintain a directors' and officers' liability insurance policy covering the Executive that provides coverage that is reasonable in relation to the Executive's position during the Term of Employment. 11. COVENANT NOT ENGAGE IN CERTAIN ACTS. 11.1 GENERAL. The Parties understand and agree that the purpose of the restrictions contained in this SECTION 11 is to protect the goodwill and other legitimate business interests of the Company, and that the Company would not have entered into this Agreement in the absence of such restrictions. The Executive acknowledges and agrees that the restrictions are reasonable and do not, and will not, unduly impair his ability to make a living after the termination of his employment with the Company. The provisions of this SECTION 11 shall survive the expiration or sooner termination of this Agreement. 11.2 NON-ASSISTANCE; NON-DIVERSION. In consideration for this Agreement to employ the Executive and the other valuable consideration provided hereunder, the Executive agrees and covenants that during the Term of Employment and during the Restriction Period, and except when acting on behalf of the Company or on behalf of any Affiliate, the Executive shall not, directly or indirectly, for himself or any third party, or alone or as a member of a partnership, or as an officer, director, shareholder or otherwise, engage in the following acts: (a) divert or attempt to divert any existing business of the Company or any Affiliate; Executive's Initials --- Company's Initials --- 17 (b) accept any position or affiliation with, or render any services on behalf of, any Competing Business; or (c) hire or retain any employee of the Company or any Affiliate to provide services for any other Person or induce, solicit, attempt to solicit, encourage, divert, cause or attempt to cause any employee or prospective employee of the Company or any Affiliate to (i) terminate and/or leave such employment, or (ii) accept employment with anyone other than the Company or an Affiliate. 11.3 CESSATION/REIMBURSEMENT OF PAYMENTS. If the Executive violates any provision of this SECTION 11, the Company may, upon giving written notice to the Executive, immediately cease all payments and benefits that it may be providing to the Executive pursuant to SECTION 3, SECTION 6 or SUBSECTION 7.2, and the Executive may be required to reimburse the Company for any payments received from, and the cash value of any benefits provided by, the Company between the first day of the violation and the date such notice is given; PROVIDED, HOWEVER, that the foregoing shall be in addition to such other remedies as may be available to the Company and shall not be deemed to permit the Executive to forego or waive such payments in order to avoid his obligations under this SECTION 11. 11.4 SURVIVAL. The Executive agrees that the provisions of this SECTION 11 shall survive the termination of this Agreement and the termination of the Executive's employment. 12. CONFIDENTIAL INFORMATION AND COMPANY PROPERTY. 12.1 CONFIDENTIAL INFORMATION. The Executive understands and acknowledges that Confidential Information constitutes a valuable asset of the Company and its Affiliates and may not be converted to the Executive's own or any third party's use. Accordingly, the Executive hereby agrees that he shall not directly or indirectly, during the Term of Employment or any time thereafter, disclose any Confidential Information to any Person not expressly authorized by the Company to receive such Confidential Information. The Executive further agrees that he shall not directly or indirectly, during the Term of Employment or any time thereafter, use or make use of any Confidential Information in connection with any business activity other than that of the Company. The Parties acknowledge and agree that this Agreement is not intended to, and does not, alter either the Company's rights or the Executive's obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. 12.2 COMPANY PROPERTY. All Company Property is and shall remain exclusively the property of the Company. Unless authorized in writing to the contrary, the Executive shall promptly, and without charge, deliver to the Company on the termination of employment hereunder, or at any other time the Company may so request, all Company Property that the Executive may then possess or have under his control. Executive's Initials --- Company's Initials --- 18 12.3 REQUIRED DISCLOSURE. In the event the Executive is required by law or court order to disclose any Confidential Information or to produce any Company Property, the Executive shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which requires such disclosure and, if the Company so elects, to the extent permitted by applicable law, give the Company an adequate opportunity, at its own expense, to contest such law or court order prior to any such required disclosure or production by the Executive. 12.4 SURVIVAL. The Executive agrees that the provisions of this SECTION 12 shall survive the termination of this Agreement and the termination of the Executive's employment. 13. MUTUAL ARBITRATION AGREEMENT. 13.1 ARBITRABLE CLAIMS. All disputes between the Executive (and his attorneys, successors, and assigns) and the Company (and its trustees, beneficiaries, officers, directors, managers, affiliates, employees, agents, successors, attorneys, and assigns) relating in any manner whatsoever to the employment or termination of the Executive, including, without limitation, all disputes arising under this Agreement ("ARBITRABLE CLAIMS"), shall be resolved by binding arbitration as set forth in this SECTION 13 (the "MUTUAL ARBITRATION AGREEMENT"). Arbitrable Claims shall include, but are not limited to, claims for compensation, claims for breach of any contract or covenant (express or implied), and tort claims of all kinds, as well as all claims based on any federal, state, or local law, statute or regulation, but shall not include the claims based on the statutes enumerated in SUBSECTION 13.4 or the Company's right to seek injunctive relief as provided in SECTION 15. Arbitration shall be final and binding upon the Parties and shall be the exclusive remedy for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JUDGE OR JURY IN REGARD TO ARBITRABLE CLAIMS, EXCEPT AS PROVIDED BY SECTION 13.4. 13.2 PROCEDURE. Arbitration of Arbitrable Claims shall be in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association, as amended, and as augmented in this Agreement. Either Party may bring an action in court to compel arbitration under this Agreement and to enforce an arbitration award. Otherwise, neither Party shall initiate or prosecute any lawsuit, appeal or administrative action in any way related to an Arbitrable Claim. The initiating Party must file and serve an arbitration claim within sixty (60) days of learning the facts giving rise to the alleged claim. All arbitration hearings under this Agreement shall be conducted in Las Vegas, Nevada. The Federal Arbitration Act shall govern the interpretation and enforcement of this Agreement. The fees of the arbitrator shall be divided equally between both Parties. 13.3 CONFIDENTIALITY. All proceedings and all documents prepared in connection with any Arbitrable Claim shall be confidential and, unless otherwise required by law, the subject matter and content thereof shall not be disclosed to any Person other than the parties to the proceedings, their counsel, witnesses and experts, the arbitrator and, if involved, the court and court staff. Executive's Initials --- Company's Initials --- 19 13.4 APPLICABILITY. This SECTION 13 shall apply to all disputes under this Agreement other than: (a) disputes relating to the enforcement of the Company's rights under SECTIONS 11 AND 12 of this Agreement; and (b) claims brought under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Age Discrimination in Employment Act of 1967 (including the Older Workers Benefit Protection Act), and the Americans with Disabilities Act, the Fair Labor Standards Act, the Equal Pay Act, the Family and Medical Leave Act and the Employee Retirement Income Security Act of 1974, the Nevada Fair Employment Practices Act, the Missouri Human Rights Act or any other applicable state or local fair employment law. 13.5 ACKNOWLEDGEMENTS. The Executive acknowledges that he: (a) has carefully read this SECTION 13; (b) understands its terms and conditions; and (c) has entered into this Mutual Arbitration Agreement voluntarily and not in reliance on any promises or representations made by the Company other than those contained in this Mutual Arbitration Agreement. 14. NOTICES. All notices, demands and requests required or permitted to be given to either Party under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give notice of: If to the Company: Station Casinos, Inc. 2411 West Sahara Avenue Las Vegas, NV 89102 Attn: Scott M Nielson With a copy to: Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street, 30th Floor Los Angeles, CA 90017 Attn: Kenneth J. Baronsky If to the Executive: William W. Warner 8504 Estrelita Las Vegas, NV 89128 Executive's Initials --- Company's Initials --- 20 15. RIGHT TO SEEK INJUNCTIVE RELIEF. The Executive acknowledges that a violation on his part of any of the covenants contained in SECTIONS 11 AND 12 would cause immeasurable and irreparable damage to the Company. The Executive accordingly agrees and hereby grants his consent that, without limiting the remedies available to the Company, any actual or threatened violation of such covenants may be enforced by injunctive relief or by other equitable remedies issued or ordered by any court of competent jurisdiction. 16. EMPLOYEE BENEFIT PLAN DOCUMENTS. In the event that any terms and provisions of this Agreement conflict with the terms and provisions of any employee benefit plan document, the terms and provisions of this Agreement shall govern, and the Company shall take any and all actions that may be necessary, including amendment of any plan document, to effect the provision of benefits expressly provided upon termination of the Executive's employment pursuant to SECTIONS 6 AND 7. 17. BENEFICIARIES/REFERENCES. The Executive shall be entitled to select a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, by giving the Company written notice thereof. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiaries, estate or other legal representative. 18. SURVIVORSHIP. The respective rights and obligations of the Parties hereunder shall survive the expiration or earlier termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. The provisions of this SECTION 18 are in addition to the survivorship provisions of any other section of this Agreement. 19. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants that he or it is fully authorized and empowered to enter into this Agreement and that the performance of his or its obligations under this Agreement will not violate any Agreement between that Party and any other Person. 20. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, express or implied, between the Parties with respect hereto. No representations, inducements, promises or agreements not embodied herein shall be of any force or effect. 21. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs and assigns; PROVIDED, HOWEVER, that no rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive, other than rights to compensation and benefits hereunder, which may be transferred only by will or operation of law and subject to the limitations of this Agreement; and PROVIDED, FURTHER, that no rights or obligations of the Company under this Agreement may be assigned or transferred by the Company, except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the Executive's Initials --- Company's Initials --- 21 assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company under this Agreement, either contractually or as a matter of law. 22. AMENDMENT OR WAIVER. No provision in this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing, signed by both Parties. No waiver by one Party of any breach by the other Party of any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by the Executive with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. 23. SEVERABILITY. In the event that any provision or portion of this Agreement, except SECTION 6, SECTION 7 and SECTION 11, shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. If either SECTION 6, SECTION 7 or SECTION 11 is determined to be invalid or unenforceable for any reason, in whole or in part, either Party may terminate this Agreement without further obligations or duties hereunder. 24. GOVERNING LAW. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Nevada without reference to the principles of conflict of laws thereof. In the event of any dispute or controversy arising out of or relating to this Agreement that is not an arbitrable claim, the Parties mutually and irrevocably consent to, and waive any objection to, the exclusive jurisdiction of any court of competent jurisdiction in Clark County, Nevada, to resolve such dispute or controversy. 25. HEADINGS. The headings of the sections and subsections contained in this agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 26. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement with the same effect as if all Parties had signed the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement and reattached to any other counterpart of this Agreement identical in form hereto but having attached to it one or more additional signature pages. 27. ACKNOWLEDGEMENT. The Executive represents and acknowledges the following: (a) he has carefully read this Agreement in its entirety; Executive's Initials --- Company's Initials --- 22 (b) he understands the terms and conditions contained herein; (c) he has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by the Company or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and (d) he is entering into this Agreement knowingly and voluntarily. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. STATION CASINOS, INC. By: /s/ GLENN C. CHRISTENSON ------------------------- Name: Glenn C. Christenson Title: Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer /s/ WILLIAM W. WARNER --------------------------- William W. Warner Executive's Initials --- Company's Initials --- EXHIBIT "B" GENERAL RELEASE AND COVENANT NOT TO SUE This GENERAL RELEASE AND COVENANT NOT TO SUE (this "Release") is executed and delivered by WILLIAM W. WARNER (the "Executive") to STATION CASINOS, INC., a Nevada corporation (the "Company"). In consideration of the agreement by the Company to provide the separation payments and benefits in SECTION 6 and SECTION 7 of the Employment Agreement between the Executive and the Company, dated as of December 1, 1999 (the "Employment Agreement"), and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Executive hereby agrees as follows: 1. RELEASE AND COVENANT. THE EXECUTIVE, OF HIS OWN FREE WILL, VOLUNTARILY RELEASES AND FOREVER DISCHARGES THE COMPANY AND ITS SUBSIDIARIES AND AFFILIATES, AND EACH OF THEIR RESPECTIVE PAST AND PRESENT AGENTS, EMPLOYEES, MANAGERS, REPRESENTATIVES, OFFICERS, DIRECTORS, ATTORNEYS, ACCOUNTANTS, TRUSTEES, SHAREHOLDERS, PARTNERS, INSURERS, HEIRS, PREDECESSORS-IN-INTEREST, ADVISORS, SUCCESSORS AND ASSIGNS (COLLECTIVELY, T/HE "RELEASED PARTIES") FROM, AND COVENANTS NOT TO SUE OR PROCEED AGAINST ANY OF THE FOREGOING ON THE BASIS OF, ANY AND ALL PAST OR PRESENT CAUSES OF ACTION, SUITS, AGREEMENTS OR OTHER RIGHTS OR CLAIMS WHICH THE EXECUTIVE, HIS DEPENDENTS, RELATIVES, HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS HAS OR HAVE AGAINST ANY OF THE RELEASED PARTIES UPON OR BY REASON OF ANY MATTER ARISING OUT OF HIS EMPLOYMENT BY THE COMPANY AND THE CESSATION OF SAID EMPLOYMENT, AND INCLUDING, BUT NOT LIMITED TO, ANY ALLEGED VIOLATION OF THE CIVIL RIGHTS ACTS OF 1964 AND 1991, THE EQUAL PAY ACT OF 1963, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967 (INCLUDING THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990), THE REHABILITATION ACT OF 1973, THE FAMILY AND MEDICAL LEAVE ACT OF 1993, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, THE NEVADA FAIR EMPLOYMENT PRACTICES ACT, THE MISSOURI HUMAN RIGHTS ACT, THE LABOR LAWS OF THE UNITED STATES, NEVADA AND MISSOURI, AND ANY OTHER FEDERAL, STATE OR LOCAL LAW, REGULATION OR ORDINANCE, OR PUBLIC POLICY, CONTRACT OR TORT LAW, HAVING ANY BEARING WHATSOEVER ON THE TERMS AND CONDITIONS OR CESSATION OF HIS EMPLOYMENT WITH THE COMPANY. 2. DUE CARE. THE EXECUTIVE ACKNOWLEDGES THAT HE HAS RECEIVED A COPY OF THIS RELEASE PRIOR TO ITS EXECUTION AND HAS BEEN ADVISED HEREBY OF HIS OPPORTUNITY TO REVIEW AND CONSIDER THIS RELEASE FOR TWENTY-ONE (21) DAYS PRIOR TO ITS EXECUTION. THE EXECUTIVE FURTHER ACKNOWLEDGES THAT HE HAS BEEN ADVISED HEREBY TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. THE EXECUTIVE ENTERS INTO THIS RELEASE HAVING FREELY AND KNOWINGLY ELECTED, AFTER DUE CONSIDERATION, TO EXECUTE THIS RELEASE AND TO FULFILL THE PROMISES SET FORTH HEREIN. THIS RELEASE SHALL BE REVOCABLE BY THE EXECUTIVE DURING THE SEVEN (7) DAY PERIOD FOLLOWING ITS EXECUTION, AND SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD. IN THE EVENT OF SUCH A REVOCATION, THE EXECUTIVE SHALL NOT BE ENTITLED TO THE CONSIDERATION FOR THIS RELEASE SET FORTH ABOVE. 3. RELIANCE BY THE EXECUTIVE. THE EXECUTIVE ACKNOWLEDGES THAT, IN HIS DECISION TO ENTER INTO THIS RELEASE, HE HAS NOT RELIED ON ANY REPRESENTATIONS, PROMISES OR ARRANGEMENT OF ANY KIND, INCLUDING ORAL STATEMENTS BY REPRESENTATIVES OF THE COMPANY, EXCEPT AS SET FORTH IN THIS RELEASE. 4. MISCELLANEOUS. THE EXECUTIVE SHALL NOT DISCLOSE THE EXISTENCE OR CONTENTS OF THIS RELEASE TO ANYONE OTHER THAN HIS IMMEDIATE FAMILY, ACCOUNTANTS OR ATTORNEYS, AND THE EXECUTIVE SHALL INSTRUCT SUCH THIRD PARTIES NOT TO DISCLOSE THE SAME. THIS RELEASE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. IF ANY PROVISION OF THIS RELEASE IS HELD INVALID OR UNENFORCEABLE FOR ANY REASON, THE REMAINING PROVISIONS SHALL BE CONSTRUED AS IF THE INVALID OR UNENFORCEABLE PROVISION HAD NOT BEEN INCLUDED. ii This GENERAL RELEASE AND COVENANT NOT TO SUE is executed by the Executive and delivered to the Company on _______________________. Executive - ------------------------------ Name: William W. Warner STATE OF ) -------------------------- ) ss: COUNTY OF ) ------------------------- On this _____ day of ________________, ____, before me, a Notary Public of the State of _______________, personally appeared ____________, to me known and known to me to be the person described and who executed the foregoing release and did then and there acknowledge to me that he voluntarily executed the same. - ----------------------------- NOTARY PUBLIC [NOT TO BE SIGNED OR NOTARIZED UPON EXECUTION OF EMPLOYMENT AGREEMENT] EX-10.17 8 EXHIBIT 10.17 EXHIBIT 10.17 EXECUTIVE EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into as of the 2nd day of August, 1999, by and between STATION CASINOS, INC., a Nevada corporation, with its principal offices located at 2411 West Sahara Avenue, Las Vegas, Nevada 89102 (the "COMPANY"), and MARK E. BROWN (the "EXECUTIVE"). WHEREAS, the Company desires to employ the Executive on the terms and conditions set forth herein; and WHEREAS, the Executive desires to be employed by the Company on the terms and conditions set forth herein; and NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the Company and the Executive (each individually a "PARTY" and together the "PARTIES") agree as follows. 1. DEFINITIONS. In addition to certain terms defined elsewhere in this Agreement, the following terms shall have the following respective meanings: 1.1 "AFFILIATE" shall mean any Person controlling, controlled by or under common control with, the Company. 1.2 "BASE AMOUNT" shall have the meaning ascribed to such term in SECTION 280G of the Code. 1.3 "BASE SALARY" shall mean the salary provided for in SUBSECTION 3.1 of this Agreement. 1.4 "BOARD" shall mean the Board of Directors of the Company. 1.5 "CAUSE" shall mean that the Executive: (a) has been formally charged with or convicted of any felony or any crime involving fraud, theft, embezzlement, dishonesty or moral turpitude; (b) has been found unsuitable to hold a gaming license; or (c) in carrying out his duties under this Agreement, has engaged in acts or omissions constituting gross negligence or willful misconduct resulting, in either case, in material economic harm to the Company. Executive's Initials --- Company's Initials --- 2 1.6 "CHANGE IN CONTROL" shall be deemed to have occurred if: (a) (1) any Person, corporation, entity or group (other than the Existing Equity Holders) is or becomes the beneficial owner, directly or indirectly, of securities representing 50% or more of the combined voting power of the Company's Voting Stock (an "Acquisition Event"), or (2) the Company consolidates with or merges into another corporation or entity, or any corporation or entity consolidates with or merges into the Company, with the effect that the beneficial owners of the Company's Voting Stock held immediately prior to the consummation of such consolidation or merger cease to beneficially own, directly or indirectly, securities representing 50% or more of the combined voting power of the Company's Voting Stock (or if the Company is not the surviving entity, the surviving company's voting securities) upon the consummation of such consolidation or merger (a "Merger Event"), or (3) the Company sells, conveys, transfers or leases to any person, corporation, entity or group, directly or indirectly, in one transaction or series of related transactions, properties and/or assets that accounted for 75% or more of the earnings (before interest, taxes, depreciation and amortization) of the Company, on a consolidated basis for the four-fiscal quarter period immediately preceding the date of consummation of such transaction (a "Sale Event"); AND (b) within thirty-six (36) months following an Acquisition Event, Merger Event or Sale Event, individuals who immediately prior to such Acquisition Event, Merger Event or Sale Event constituted the Company's Board, together with any new or replacement directors whose election by the Company's Board, or whose nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then in office who were either directors on the Company's Board immediately prior to such Acquisition Event, Merger Event or Sale Event (or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of the directors of the Company's Board then in office. Notwithstanding the foregoing, a reincorporation, spin-off, split-off or other reorganization transaction (a "Reorganization Event"), or series of related transactions, in which either the "beneficial owners" of the Company's Voting Stock or the Existing Equity Holders beneficially own securities representing 50% or more of the combined voting power of the Company's Voting Stock upon the consummation of such transaction shall not constitute an Acquisition Event, Merger Event or Sale Event for purposes of this definition. For purposes of this definition, "beneficial ownership" shall have the same meaning as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended, except that a Person shall be Executive's Initials --- Company's Initials --- 3 deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. For the purposes of this definition, upon consummation of an Acquisition Event, Merger Event, Sale Event or Reorganization Event, the "Company's Board" and the "Company's Shareholders" shall refer to (i) in the case of an Acquisition Event, the Company, (ii) in the case of a Merger Event, the company surviving the merger or consolidation, (iii) in the case of a Sale Event, the transferee of the properties, and/or assets, and (iv) in the case of a Reorganization Event, the entity or entities surviving such Reorganization Event on a consolidated basis. 1.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended. 1.8 "COMPANY PROPERTY" shall mean all items and materials provided by the Company to the Executive, or to which the Executive has access, in the course of his employment, including, without limitation, all files, records, documents, drawings, specifications, memoranda, notes, reports, manuals, equipment, computer disks, videotapes, drawings, blueprints and other documents and similar items relating to the Company, its Affiliates or their respective customers, whether prepared by the Executive or others, and any and all copies, abstracts and summaries thereof. 1.9 "COMPETING BUSINESS" shall mean any Person engaged in the gaming industry that directly or through an affiliate or subsidiary conducts its business within the Restricted Area. 1.10 "CONFIDENTIAL INFORMATION" shall mean all nonpublic and/or proprietary information respecting the business of the Company or any Affiliate, including, without limitation, its products, programs, projects, promotions, marketing plans and strategies, business plans or practices, business operations, employees, research and development, intellectual property, software, databases, trademarks, pricing information and accounting and financing data. Confidential Information also includes information concerning the Company's or any Affiliate's customers, such as their identity, address, preferences, playing patterns and ratings or any other information kept by the Company or any Affiliate concerning its customers whether or not such information has been reduced to documentary form. Confidential Information does not include information that is, or becomes, available to the public unless such availability occurs through an unauthorized act on the part of the Executive. 1.11 "DEFERRED COMPENSATION PLAN FOR EXECUTIVES" shall mean the Company's Deferred Compensation Plan for Executives, effective as of November 30, 1994, as the same may be amended from time to time. Executive's Initials --- Company's Initials --- 4 1.12 "DISABILITY" shall mean a physical or mental incapacity that prevents the Executive from performing the essential functions of his position with the Company for a period of ninety (90) days as determined (a) in accordance with any long-term disability plan provided by the Company of which the Executive is a participant, or (b) by the following procedure: The Executive agrees to submit to medical examinations by a licensed healthcare professional selected by the Company, in its sole discretion, to determine whether a Disability exists. In addition, the Executive may submit to the Company documentation of a Disability, or lack thereof, from a licensed healthcare professional of his choice. Following a determination of a Disability or lack of Disability by the Company's or the Executive's licensed healthcare professional, the other Party may submit subsequent documentation relating to the existence of a Disability from a licensed healthcare professional selected by such other Party. In the event that the medical opinions of such licensed healthcare professionals conflict, such licensed healthcare professionals shall appoint a third licensed healthcare professional to examine the Executive, and the opinion of such third licensed healthcare professional shall be dispositive. 1.13 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.14 "EXISTING EQUITY HOLDERS" shall mean Frank J. Fertitta III, Blake L. Sartini, Delise F. Sartini, Lorenzo J. Fertitta, Glenn C. Christenson and Scott M Nielson and their executors, administrators or the legal representatives of their estates, their heirs, distributees and beneficiaries, and any trust as to which any of the foregoing is a settlor or co-settlor and any corporation, partnership or other entity which is an affiliate of any of the foregoing, and any lineal descendants of such persons (but only to the extent that the beneficial ownership of the Voting Stock held by such lineal descendants was directly received by gift, trust or sale from any such person). 1.15 "GOOD REASON," as used in SUBSECTION 7.2, shall mean and exist if there has been a Change in Control and, thereafter, without the Executive's prior written consent, one or more of the following events occurs: (a) the Executive is assigned duties or responsibilities that are inconsistent, in any significant respect, with the position of a senior manager; (b) the Executive is required to relocate from, or maintain his principal office outside of, Clark County, Nevada; (c) the Executive's Base Salary is decreased by the Company; (d) the Executive is excluded from participation in any employee benefit or short-term incentive plan or program offered to other similarly executives of the Company or his benefits under such plans or programs are materially reduced; (e) the Company fails to pay the Executive any deferred payments that have become payable under the Deferred Compensation Plan for Executives; Executive's Initials --- Company's Initials --- 5 (f) the Company fails to reimburse the Executive for business expenses in accordance with the Company's policies, procedures or practices; (g) the Company fails to agree to or to actually indemnify the Executive for his actions and/or inactions, as either a director or an officer of the Company, in accordance with SECTION 10, and/or the Company fails to maintain reasonably sufficient levels of directors' and officers' liability insurance coverage for the Executive when such insurance is available; or (h) the Company fails to obtain a written agreement from any successor or assign of the Company to assume the obligations under this Agreement upon a Change in Control. 1.16 "LONG-TERM STAY-ON PERFORMANCE INCENTIVE PLAN" shall mean the Company's Long-Term Stay-On Performance Incentive Plan, effective as of August 2, 1999, as the same may be amended from time to time. 1.17 "PERSON" shall mean any individual, firm, partnership, association, trust, company, corporation or other entity. 1.18 "PRO RATA BONUS" shall mean an amount equal to sixty percent (60%) of the Executive's current Base Salary, multiplied by a fraction, the numerator of which is the number of days in such year during which the Executive was actually employed by the Company and the denominator of which is 365. 1.19 "RESTRICTED AREA" shall mean: (a) the City of Las Vegas, Nevada, and the area within a twenty-five (25) mile radius of that city; and (b) the Cities of Kansas City, Missouri and St. Louis, Missouri, and the areas within a fifty (50) mile radius of each of those cities; PROVIDED, HOWEVER, that in the event the Executive voluntarily terminates this Agreement pursuant to SUBSECTION 6.3, the Restricted Area shall exclude the Las Vegas Strip (which is defined as that area bounded by Paradise Road and straight extensions thereof on the East, Charleston Boulevard on the North, I-15 on the West, and Sunset Road on the South, as outlined in red on Exhibit A attached hereto) and Downtown Las Vegas (which is defined as that area bounded by Eastern Avenue and straight extensions thereof on the East, I-515 (U.S. Highway 93/95) on the North, I-15 on the West, and Charleston Boulevard on the South, as outlined in red on Exhibit A attached hereto). 1.20 "RESTRICTION PERIOD" shall mean the period ending twenty-four (24) months after the termination or expiration of the Term of Employment, regardless of the reason for such termination or expiration. Executive's Initials --- Company's Initials --- 6 1.21 "SPECIAL LONG-TERM DISABILITY PLAN" shall mean the Company's Special Long-Term Disability Plan, effective as of November 30, 1994, as the same may be amended from time to time. 1.22 "SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN" shall mean the Company's Supplemental Management Retirement Plan, effective as of November 30, 1994, as the same may be amended from time to time. 1.23 "TERM OF EMPLOYMENT" shall mean the period specified in SUBSECTION 2.2. 1.24 "VOTING STOCK" shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation. 2. TERM OF EMPLOYMENT, POSITION AND RESPONSIBILITIES. 2.1 EMPLOYMENT ACCEPTED. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, for the Term of Employment, in the position and with the responsibilities set forth in SUBSECTION 2.3 and upon such other terms and conditions as are stated in this Agreement. 2.2 TERM OF EMPLOYMENT. The initial Term of Employment shall commence upon the date of this Agreement and, unless earlier terminated pursuant to the provisions of this Agreement, shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the date of this Agreement; provided, however, that the initial Term of Employment shall automatically be extended for successive five-year periods if neither Party has advised the other in writing in accordance with SECTION 14 at least twelve (12) months prior to the end of the then current Term of Employment that such Term of Employment will not be extended for an additional five year period. In the event that such notice is given, the Executive's employment shall terminate upon the close of business on the day immediately preceding the fifth anniversary of the then current Term of Employment. 2.3 RESPONSIBILITIES. During the Term of Employment, the Executive shall be employed as Executive Vice President of the Company, or in such other capacity as the Company may direct, and shall have such responsibilities as the Company may direct from time to time. During the Term of Employment, the Executive shall devote his full time and attention to the business and affairs of the Company and shall use his best efforts, skills and abilities to promote the Company's interests. Anything herein to the contrary notwithstanding, the Executive shall not be precluded from engaging in charitable and community affairs and managing his personal investments, including the following outside interests: serving as a Member of the Board of Directors of Summerlin Medical Center, a Member of the Board of Directors of the YMCA of Southern Nevada, a Member of the Board of Directors of the Nevada Taxpayers Association, a Member of the Board of Directors and the Board of Trustees of the Las Vegas Chamber of Commerce, a Member of the Executive Search Committee of the Nevada Executive's Initials --- Company's Initials --- 7 Development Authority and a Member of the Board of Trustees of the UNLV Foundation. The Executive also may serve as a member of the board of directors of other corporations, subject to the approval of a majority of the Board, which approval shall not be unreasonably withheld or delayed. 3. COMPENSATION. 3.1 BASE SALARY. During the Term of Employment, the Executive shall be entitled to receive a base salary (the "Base Salary") payable no less frequently than in equal bi-weekly installments at an annualized rate of no less than $375,000. The Base Salary shall be reviewed annually for increase (but not decrease) in the discretion of the Human Resources Committee of the Board. In conducting any such annual review, the Human Resources Committee shall take into account any change in the Executive's responsibilities, increases in the compensation of other executives of the Company or any Affiliate (or any competitor(s) of either or both), the performance of the Executive and/or other pertinent factors. Such increased Base Salary shall then constitute the Executive's "Base Salary" for purposes of this Agreement. 3.2 ANNUAL BONUS. The Company may pay the Executive an annual discretionary bonus for each fiscal year ending during the Term of Employment in an amount that will be determined by the Human Resources Committee based on the Executive's performance. Any annual bonus that may be awarded to the Executive shall be paid at the same time as annual bonuses are paid to other senior officers of the Company, unless the Executive has elected to defer receipt of all or part of the bonus amounts to which he is entitled in respect of any such calendar year in accordance with the terms and provisions of any deferred compensation program maintained by the Company. 3.3 STAY-ON INCENTIVES. The Executive shall be eligible to participate in the Company's Long-Term Stay-On Performance Incentive Plan pursuant to the terms of the Plan. 3.4 DEFERRED COMPENSATION. The Executive shall be eligible to participate in the Company's Deferred Compensation Plan for Executives, and any other deferred compensation plans that the Company may adopt for executives, pursuant to the terms of the plans. 4. EMPLOYEE BENEFIT PLANS AND PROGRAMS. 4.1 PENSION AND WELFARE BENEFIT PLANS. During the Term of Employment, the Executive shall be entitled to participate in all employee benefit programs made available to the Company's executives or salaried employees generally, as such programs may be in effect from time to time, including, without limitation, pension and other retirement plans, profit sharing plans, group life insurance, group health insurance, accidental death and dismemberment insurance, long-term disability, sick leave (including salary continuation arrangements), vacations, holidays and other employee benefit programs sponsored by the Company. Executive's Initials --- Company's Initials --- 8 4.2 ADDITIONAL PENSION AND WELFARE BENEFITS. In addition to the foregoing, the Company shall provide the Executive with the following benefits: (a) group health insurance coverage through the Company's Exec-U-Care Medical Plan, effective as of July 1, 1994, or pursuant to such other plan or plans as the Company may select from time to time, and which shall be fully paid for by the Company; (b) full salary continuation during the first 90 days of any physical or mental incapacity that prevents the Executive from performing his duties and, for any Disability that continues thereafter, benefits pursuant to the Company's Special Long-Term Disability Plan and any other long-term disability benefits pursuant to any other disability plan of which the Executive is a participant; (c) an annual supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan, in addition to any other benefit pursuant to any other retirement plan under which the Executive is covered; and (d) supplemental life insurance coverage, through an individual policy, a group policy or a combination thereof, in an aggregate amount of not less than $4.0 million. 5. BUSINESS EXPENSE REIMBURSEMENT AND PERQUISITES. 5.1 EXPENSE REIMBURSEMENT. During the Term of Employment, the Executive shall be entitled to receive reimbursement by the Company for all reasonable out-of-pocket expenses incurred by him in performing services under this Agreement, subject to providing the proper documentation of said expenses. 5.2 PERQUISITES. During the Term of Employment, the Executive shall also be entitled to any of the Company's executive perquisites in accordance with the terms and provisions of the applicable policies, including, without limitation: (a) vacation of four weeks per year; (b) payment or reimbursement of the cost of an annual physical examination; (c) payment or reimbursement of initiation fees and annual membership fees and assessments for a country club, a luncheon club and a physical fitness program of the Executive's choice; and (d) payment or reimbursement of fees and expenses, up to a maximum amount of $2500.00, incurred in connection with having this Agreement reviewed by legal counsel of his own choosing prior to execution. Executive's Initials --- Company's Initials --- 9 6. TERMINATION OF EMPLOYMENT. 6.1 TERMINATION DUE TO DEATH OR DISABILITY. The Executive's employment shall be terminated immediately in the event of his death or Disability. In the event of a termination due to the Executive's death or Disability, the Executive or his estate, as the case may be, shall be entitled, in lieu of any other compensation whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination until the date of death or Disability; (b) any annual bonus awarded but not yet paid; (c) a Pro Rata Bonus for the fiscal year in which death or Disability occurs; (d) in the case of death, any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral, and in the case of Disability, immediate vesting of any deferred compensation or bonuses, including interest or other credits on the deferred amounts; (e) reimbursement of expenses incurred but not paid prior to such termination of employment; and (f) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and provisions of such plans and programs. 6.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate the Executive's employment for Cause at any time during the Term of Employment by giving written notice to the Executive. In the event of a termination for Cause, the Executive shall be entitled, in lieu of any other compensation and benefits whatsoever, to: (a) Base Salary at the rate in effect at the time of his termination through the date of termination of employment; (b) any annual bonus awarded but not yet paid; (c) any deferred compensation or bonuses, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; (d) reimbursement for expenses incurred but not paid prior to such termination of employment; and Executive's Initials --- Company's Initials --- 10 (e) such rights to other benefits as may be provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and conditions of such plans and programs. Notwithstanding anything to the contrary in this SUBSECTION 6.2, if the Executive's employment is terminated for Cause (i) due to his having been formally charged pursuant to SUBSECTION 1.5(a) but thereafter said charges are dismissed or the Executive is acquitted, or (ii) due to his having been convicted pursuant to SUBSECTION 1.5(a) but said conviction is subsequently overturned on appeal and he is not required to submit to re-trial within six (6) months thereafter, the Company shall have the option of reinstating the Executive with payment of all base salary payments that would have been paid to him had his employment not been terminated and restoration of all benefits provided for pursuant to SECTION 4, or making a payment to him of an amount equal to three times 160 percent of the Executive's Base Salary at the rate in effect at the time of his termination. 6.3 TERMINATION BY THE EXECUTIVE. The Executive may terminate his employment on his own initiative for any reason prior to a Change in Control upon thirty (30) days prior written notice to the Company. Such termination shall have the same consequences as a termination for Cause under SUBSECTION 6.2. 6.4 TERMINATION BY THE COMPANY WITHOUT CAUSE. Notwithstanding any other provision of this Agreement, the Company may terminate the Executive's employment without Cause, other than due to death or Disability, at any time during the Term of Employment by giving written notice to the Executive. In the event that the Company terminates the Executive's employment without Cause, the Executive shall be entitled, in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to three times 160 percent of the Executive's Base Salary at the rate in effect at the time of his termination, one-third of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3, and the other two-thirds of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period; (b) any annual bonus awarded but not yet paid; (c) any deferred bonus, including interest or other credits on the deferred amounts, to the extent provided in the plans or programs providing for deferral; (d) exercise, within 180 days, all stock options that have vested prior to termination, and shall forfeit all stock options that have not vested; (e) reimbursement for expenses incurred but not paid prior to such termination of employment; and Executive's Initials --- Company's Initials --- 11 (f) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 6.5 TERMINATION DUE TO EXPIRATION OF THE TERM OF EMPLOYMENT. If either Party elects not to extend the initial Term of Employment or any successive Term of Employment, the Executive shall not be entitled to any additional compensation after the expiration thereof, but such termination of employment shall not otherwise affect accrued but unpaid compensation or benefits provided under this Agreement or pursuant to any Company plan or program. 7. CHANGE IN CONTROL. 7.1 CHANGE IN CONTROL PAYMENT. Immediately upon a Change in Control, in addition to any other compensation or benefits payable pursuant to this Agreement or otherwise, the Executive shall be entitled to a payment in cash equal to three times 160 percent of his Base Salary. Unless otherwise provided for in this Agreement, the Executive's rights upon a Change in Control to benefits under programs, plans and policies of the Company shall be determined according to the terms and provisions of such programs, plans and policies. 7.2 TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD REASON AFTER A CHANGE IN CONTROL. If within five years following a Change in Control, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, the Executive shall be entitled, in addition to any payment paid or payable pursuant to SUBSECTION 7.1, but in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to the greater of (i) five times 160 percent of the Executive's Base Salary at the time of the Change in Control or (ii) five times 160 percent of the Executive's Base Salary at the time of the termination of his employment, three-fifths of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3 and two-fifths of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period, (b) immediate vesting of any restricted stock of the Company held in the Executive's name or for his benefit; (c) immediate vesting of any stock options and stock appreciation rights granted by the Company, which stock options and stock appreciation rights shall continue to be and shall remain exercisable until the earlier of (i) five years and (ii) the remaining term of such stock options and stock appreciation rights as set forth in the agreement granting, or otherwise awarding, such stock option or stock appreciation right as if no termination had taken place; Executive's Initials --- Company's Initials --- 12 (d) immediate vesting and cash-out of any phantom stock units granted to the Executive; (e) immediate vesting and pay out of any shares awarded to the Executive pursuant to the Company's Long-Term Stay-On Performance Incentive Plan; (f) immediate vesting of the Executive's supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan; (g) continued funding of the Executive's split dollar life insurance policy as if the Executive were employed by the Company through the maturity date of such policy or, at the Company's option, payment in full of all premium obligations under such policy; and (h) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 7.3 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON AFTER A CHANGE IN CONTROL. If the Executive terminates his employment without Good Reason within ninety (90) days following the first anniversary of a Change in Control, the Executive shall be entitled, in addition to any payment paid or payable pursuant to SUBSECTION 7.1, but in lieu of any other compensation and benefits whatsoever, to: (a) an amount equal to the greater of (i) three times 160 percent of the Executive's Base Salary at the time of the Change in Control or (ii) three times 160 percent of the Executive's Base Salary at the time of the termination of his employment, one-third of which shall be paid in a lump sum upon satisfaction of the conditions set forth in SUBSECTION 8.3 and two-thirds of which shall be paid out in equal bi-weekly installments for the duration of the Restriction Period; (b) immediate vesting of any stock options and stock appreciation rights granted by the Company, which stock options and stock appreciation rights shall continue to be and shall remain exercisable until the earlier of (i) three years and (ii) the remaining term of such stock options and stock appreciation rights as set forth in the agreement granting, or otherwise awarding, such stock option or stock appreciation right as if no termination had taken place; (c) immediate vesting and cash-out of any phantom stock units granted to the Executive; (d) immediate vesting of the Executive's supplemental retirement benefit as set forth in the Supplemental Management Retirement Plan; Executive's Initials --- Company's Initials --- 13 (e) continued funding of the Executive's split dollar life insurance policy as if the Executive were employed by the Company through the maturity date of such policy or, at the Company's option, payment in full of all premium obligations under such policy; and (f) continuation of the Executive's medical insurance, at the Company's expense, for 18 months or, at the Company's option, payment to the Executive of the economic equivalent thereof. 7.4 TERMINATION FOR OTHER REASONS AFTER A CHANGE IN CONTROL. If the Executive's employment is terminated after a Change in Control for any reason not otherwise provided for in this SECTION 7, his rights shall be determined in accordance with the applicable SUBSECTION of SECTION 6. 8. CONDITIONS TO PAYMENTS UPON TERMINATION. 8.1 TIMING OF PAYMENTS. Unless otherwise provided herein, any payments to which the Executive shall be entitled pursuant to SECTIONS 6 and 7 shall be payable upon the satisfaction of the conditions set forth in SUBSECTION 8.3. 8.2 NO MITIGATION; NO OFFSET. In the event of any termination of the Executive's employment under SECTIONS 6 OR 7, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due to the Executive on account of any remuneration attributable to any subsequent employment that the Executive may obtain. Notwithstanding any contrary provision contained herein, in the event of any termination of employment of the Executive, the exclusive remedies available to the Executive shall be the amounts due under SECTIONS 6 OR 7, which are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. In the event of a termination of this Agreement, neither Party shall publish in any way or make any negative comment or statement about the other Party or concerning the reasons for such termination. The provisions of this SUBSECTION 8.2 shall survive the expiration or earlier termination of this Agreement. 8.3 GENERAL RELEASE. No payments or benefits payable to the Executive upon the termination of his employment pursuant to SECTIONS 6 OR 7 shall be made to the Executive unless and until he executes a general release substantially in the form annexed to this Agreement as Exhibit B and such general release becomes effective pursuant to its terms. 8.4 COMPLIANCE WITH THE AGREEMENT. No payments or benefits payable to the Executive upon the termination of his employment pursuant to SECTIONS 6 OR 7 shall be made to the Executive if he fails to comply with all of the terms and conditions of this Agreement, including, without limitation, SECTIONS 11 AND 12. Executive's Initials --- Company's Initials --- 14 8.5 CONTINUING OBLIGATIONS OF EXECUTIVE. No act or omission by the Executive in breach of this Agreement, including, without limitation his failure to execute the general release and the resulting forfeiture of termination payments, shall be deemed to permit the Executive to forego or waive such payments in order to avoid his obligations under SECTION 11. 9. SPECIAL REIMBURSEMENT. 9.1 If any payment or benefit paid or payable, or received or to be received, by or on behalf of the Executive in connection with a Change in Control pursuant to SUBSECTION 7.1 or the termination of the Executive's employment pursuant to SUBSECTION 7.2 , whether any such payments or benefits are pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Affiliate, any Person, or otherwise (the "TOTAL PAYMENTS"), will or would be subject to the excise tax imposed under SECTION 4999 of the Code (the "EXCISE TAX"), the Company shall pay to the Executive an additional amount (the "GROSS-UP PAYMENT") such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) imposed upon or in respect of the Total Payments and the Gross-Up Payments, including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and any Excise Tax imposed thereon, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. 9.2 For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (a) the Total Payments shall be treated as "parachute payments" within the meaning of SECTION 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of SECTION 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company and reasonably acceptable to the Executive (which opinion shall be provided to the Executive) such Total Payments (in whole or in part) (i) do not constitute parachute payments, including (without limitation) by reason of SECTION 280G(b)(4)(A) of the Code, (ii) such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of SECTION 280G(b)(4)(B) of the Code, or (iii) are not, in the opinion of legal counsel, otherwise subject to the Excise Tax, and (b) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of SECTIONS 280G(d)(3) and (4) of the Code. Executive's Initials --- Company's Initials --- 15 9.3 In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in SECTION 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the initial Gross-Up Payment), the Company shall make an additional Gross-Up Payment in accordance with SUBSECTION 9.1 in respect of such excess Excise Tax (plus any interest, penalties or additions payable by the Executive with respect to such excess Excise Tax) at the time that the amount of such excess Excise Tax is finally determined. The Executive and the Company shall each reasonably cooperate with each other in connection with any administrative or judicial proceedings concerning the existence or amount of any such subsequent liability for Excise Tax with respect to the Total Payments. 10. INDEMNIFICATION. 10.1 GENERAL. The Company agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (an "INDEMNIFIABLE ACTION"), by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Indemnifiable Action is alleged action in an official capacity as a director, officer, member, employee or agent, while serving as a director, officer, member, employee or agent, he shall be indemnified and held harmless by the Company to the fullest extent permitted by Nevada law and the Company's by-laws, as the same exist or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith. 10.2 PROCEDURE. The indemnification provided pursuant to this SECTION 10 shall be subject to the following conditions: (a) The Executive must promptly give the Company written notice of any actual or threatened Indemnifiable Action; (b) The Company will be permitted, at its option, to participate in, or to assume, the defense of any Indemnifiable Action; (c) The Executive must provide reasonable cooperation to the Company in the defense of any Indemnifiable Action; and Executive's Initials --- Company's Initials --- 16 (d) The Executive must refrain from settling any Indemnifiable Action without obtaining the Company's prior written consent, which consent shall not be unreasonably withheld. 10.3 ADVANCEMENT OF COSTS AND EXPENSES. The Company agrees to advance all costs and expenses referred to in SUBSECTION 10.1; provided, however, that the Executive agrees to repay to the Company all amounts so advanced in the event that the Company reasonably determines in good faith that any acts or omissions by the Executive were: (a) in knowing violation of any agreement between the Executive and the Company; (b) in bad faith or involving intentional misconduct or a knowing violation of law or that the Executive personally gained a financial profit or other advantage to which he was not legally entitled; or (c) for which a court, having jurisdiction in the matter, determines that indemnification is not lawful. 10.4 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending an Indemnifiable Action in advance of its final disposition conferred in this SECTION 10 shall not be exclusive of any other right which the Executive may have or hereafter may acquire under any statute, provision of the certificate of incorporation or by-laws of the Company, agreement, vote of stockholders or disinterested directors or otherwise. 10.5 D&O INSURANCE. The Company will maintain a directors' and officers' liability insurance policy covering the Executive that provides coverage that is reasonable in relation to the Executive's position during the Term of Employment. 11. COVENANT NOT ENGAGE IN CERTAIN ACTS. 11.1 GENERAL. The Parties understand and agree that the purpose of the restrictions contained in this SECTION 11 is to protect the goodwill and other legitimate business interests of the Company, and that the Company would not have entered into this Agreement in the absence of such restrictions. The Executive acknowledges and agrees that the restrictions are reasonable and do not, and will not, unduly impair his ability to make a living after the termination of his employment with the Company. The provisions of this SECTION 11 shall survive the expiration or sooner termination of this Agreement. Executive's Initials --- Company's Initials --- 17 11.2 NON-ASSISTANCE; NON-DIVERSION. In consideration for this Agreement to employ the Executive and the other valuable consideration provided hereunder, the Executive agrees and covenants that during the Term of Employment and during the Restriction Period, and except when acting on behalf of the Company or on behalf of any Affiliate, the Executive shall not, directly or indirectly, for himself or any third party, or alone or as a member of a partnership, or as an officer, director, shareholder or otherwise, engage in the following acts: (a) divert or attempt to divert any existing business of the Company or any Affiliate; (b) accept any position or affiliation with, or render any services on behalf of, any Competing Business; or (c) hire or retain any employee of the Company or any Affiliate to provide services for any other Person or induce, solicit, attempt to solicit, encourage, divert, cause or attempt to cause any employee or prospective employee of the Company or any Affiliate to (i) terminate and/or leave such employment, or (ii) accept employment with anyone other than the Company or an Affiliate. 11.3 CESSATION/REIMBURSEMENT OF PAYMENTS. If the Executive violates any provision of this SECTION 11, the Company may, upon giving written notice to the Executive, immediately cease all payments and benefits that it may be providing to the Executive pursuant to SECTION 3, SECTION 6 or SUBSECTION 7.2, and the Executive may be required to reimburse the Company for any payments received from, and the cash value of any benefits provided by, the Company between the first day of the violation and the date such notice is given; provided, however, that the foregoing shall be in addition to such other remedies as may be available to the Company and shall not be deemed to permit the Executive to forego or waive such payments in order to avoid his obligations under this SECTION 11. 11.4 SURVIVAL. The Executive agrees that the provisions of this SECTION 11 shall survive the termination of this Agreement and the termination of the Executive's employment. 12. CONFIDENTIAL INFORMATION AND COMPANY PROPERTY. 12.1 CONFIDENTIAL INFORMATION. The Executive understands and acknowledges that Confidential Information constitutes a valuable asset of the Company and its Affiliates and may not be converted to the Executive's own or any third party's use. Accordingly, the Executive hereby agrees that he shall not directly or indirectly, during the Term of Employment or any time thereafter, disclose any Confidential Information to any Person not expressly authorized by the Company to receive such Confidential Information. The Executive further agrees that he shall not directly or indirectly, during the Term of Employment or any time thereafter, use or make use of any Confidential Information in connection with any business activity other than that of the Company. The Parties acknowledge and agree that this Agreement Executive's Initials --- Company's Initials --- 18 is not intended to, and does not, alter either the Company's rights or the Executive's obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. 12.2 COMPANY PROPERTY. All Company Property is and shall remain exclusively the property of the Company. Unless authorized in writing to the contrary, the Executive shall promptly, and without charge, deliver to the Company on the termination of employment hereunder, or at any other time the Company may so request, all Company Property that the Executive may then possess or have under his control. 12.3 REQUIRED DISCLOSURE. In the event the Executive is required by law or court order to disclose any Confidential Information or to produce any Company Property, the Executive shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which requires such disclosure and, if the Company so elects, to the extent permitted by applicable law, give the Company an adequate opportunity, at its own expense, to contest such law or court order prior to any such required disclosure or production by the Executive. 12.4 SURVIVAL. The Executive agrees that the provisions of this SECTION 12 shall survive the termination of this Agreement and the termination of the Executive's employment. 13. MUTUAL ARBITRATION AGREEMENT. 13.1 ARBITRABLE CLAIMS. All disputes between the Executive (and his attorneys, successors, and assigns) and the Company (and its trustees, beneficiaries, officers, directors, managers, affiliates, employees, agents, successors, attorneys, and assigns) relating in any manner whatsoever to the employment or termination of the Executive, including, without limitation, all disputes arising under this Agreement ("ARBITRABLE CLAIMS"), shall be resolved by binding arbitration as set forth in this SECTION 13 (the "MUTUAL ARBITRATION AGREEMENT"). Arbitrable Claims shall include, but are not limited to, claims for compensation, claims for breach of any contract or covenant (express or implied), and tort claims of all kinds, as well as all claims based on any federal, state, or local law, statute or regulation, but shall not include the claims based on the statutes enumerated in SUBSECTION 13.4 or the Company's right to seek injunctive relief as provided in SECTION 15. Arbitration shall be final and binding upon the Parties and shall be the exclusive remedy for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JUDGE OR JURY IN REGARD TO ARBITRABLE CLAIMS, EXCEPT AS PROVIDED BY SECTION 13.4. Executive's Initials --- Company's Initials --- 19 13.2 PROCEDURE. Arbitration of Arbitrable Claims shall be in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association, as amended, and as augmented in this Agreement. Either Party may bring an action in court to compel arbitration under this Agreement and to enforce an arbitration award. Otherwise, neither Party shall initiate or prosecute any lawsuit, appeal or administrative action in any way related to an Arbitrable Claim. The initiating Party must file and serve an arbitration claim within sixty (60) days of learning the facts giving rise to the alleged claim. All arbitration hearings under this Agreement shall be conducted in Las Vegas, Nevada. The Federal Arbitration Act shall govern the interpretation and enforcement of this Agreement. The fees of the arbitrator shall be divided equally between both Parties. 13.3 CONFIDENTIALITY. All proceedings and all documents prepared in connection with any Arbitrable Claim shall be confidential and, unless otherwise required by law, the subject matter and content thereof shall not be disclosed to any Person other than the parties to the proceedings, their counsel, witnesses and experts, the arbitrator and, if involved, the court and court staff. 13.4 APPLICABILITY. This SECTION 13 shall apply to all disputes under this Agreement other than: (a) disputes relating to the enforcement of the Company's rights under SECTIONS 11 AND 12 of this Agreement; and (b) claims brought under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Age Discrimination in Employment Act of 1967 (including the Older Workers Benefit Protection Act), and the Americans with Disabilities Act, the Fair Labor Standards Act, the Equal Pay Act, the Family and Medical Leave Act and the Employee Retirement Income Security Act of 1974, the Nevada Fair Employment Practices Act, the Missouri Human Rights Act or any other applicable state or local fair employment law. 13.5 ACKNOWLEDGEMENTS. The Executive acknowledges that he: (a) has carefully read this SECTION 13; (b) understands its terms and conditions; and (c) has entered into this Mutual Arbitration Agreement voluntarily and not in reliance on any promises or representations made by the Company other than those contained in this Mutual Arbitration Agreement. Executive's Initials --- Company's Initials --- 20 14. NOTICES. All notices, demands and requests required or permitted to be given to either Party under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give notice of: If to the Company: Station Casinos, Inc. 2411 West Sahara Avenue Las Vegas, NV 89102 Attn: Scott M Nielson With a copy to: Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street, 30th Floor Los Angeles, CA 90017 Attn: Kenneth J. Baronsky If to the Executive: Mark E. Brown 9049 Waterfield Court Las Vegas, NV 89134 15. RIGHT TO SEEK INJUNCTIVE RELIEF. The Executive acknowledges that a violation on his part of any of the covenants contained in SECTIONS 11 AND 12 would cause immeasurable and irreparable damage to the Company. The Executive accordingly agrees and hereby grants his consent that, without limiting the remedies available to the Company, any actual or threatened violation of such covenants may be enforced by injunctive relief or by other equitable remedies issued or ordered by any court of competent jurisdiction. 16. EMPLOYEE BENEFIT PLAN DOCUMENTS. In the event that any terms and provisions of this Agreement conflict with the terms and provisions of any employee benefit plan document, the terms and provisions of this Agreement shall govern, and the Company shall take any and all actions that may be necessary, including amendment of any plan document, to effect the provision of benefits expressly provided upon termination of the Executive's employment pursuant to SECTIONS 6 and 7. 17. BENEFICIARIES/REFERENCES. The Executive shall be entitled to select a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, by giving the Company written notice thereof. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiaries, estate or other legal representative. 18. SURVIVORSHIP. The respective rights and obligations of the Parties hereunder shall survive the expiration or earlier termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. The provisions of this SECTION 18 are in addition to the survivorship provisions of any other section of this Agreement. Executive's Initials --- Company's Initials --- 21 19. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants that he or it is fully authorized and empowered to enter into this Agreement and that the performance of his or its obligations under this Agreement will not violate any Agreement between that Party and any other Person. 20. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, express or implied, between the Parties with respect hereto. No representations, inducements, promises or agreements not embodied herein shall be of any force or effect. 21. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs and assigns; PROVIDED, HOWEVER, that no rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive, other than rights to compensation and benefits hereunder, which may be transferred only by will or operation of law and subject to the limitations of this Agreement; and PROVIDED, FURTHER, that no rights or obligations of the Company under this Agreement may be assigned or transferred by the Company, except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company under this Agreement, either contractually or as a matter of law. 22. AMENDMENT OR WAIVER. No provision in this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing, signed by both Parties. No waiver by one Party of any breach by the other Party of any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by the Executive with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. 23. SEVERABILITY. In the event that any provision or portion of this Agreement, except SECTION 6, SECTION 7 and SECTION 11, shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. If either SECTION 6, SECTION 7 or SECTION 11 is determined to be invalid or unenforceable for any reason, in whole or in part, either Party may terminate this Agreement without further obligations or duties hereunder. Executive's Initials --- Company's Initials --- 22 24. GOVERNING LAW. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Nevada without reference to the principles of conflict of laws thereof. In the event of any dispute or controversy arising out of or relating to this Agreement that is not an arbitrable claim, the Parties mutually and irrevocably consent to, and waive any objection to, the exclusive jurisdiction of any court of competent jurisdiction in Clark County, Nevada, to resolve such dispute or controversy. 25. HEADINGS. The headings of the sections and SUBSECTIONs contained in this agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 26. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement with the same effect as if all Parties had signed the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement and reattached to any other counterpart of this Agreement identical in form hereto but having attached to it one or more additional signature pages. 27. ACKNOWLEDGEMENT. The Executive represents and acknowledges the following: (a) he has carefully read this Agreement in its entirety; (b) he understands the terms and conditions contained herein; (c) he has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by the Company or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and (d) he is entering into this Agreement knowingly and voluntarily. Executive's Initials --- Company's Initials --- 23 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. STATION CASINOS, INC. By: /s/ GLENN C. CHRISTENSON ------------------------- Name: Glenn C. Christenson Title: Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer /s/ MARK E. BROWN --------------------------- Mark E. Brown Executive's Initials --- Company's Initials --- EXHIBIT "B" GENERAL RELEASE AND COVENANT NOT TO SUE This GENERAL RELEASE AND COVENANT NOT TO SUE (this "Release") is executed and delivered by MARK E. BROWN (the "Executive") to STATION CASINOS, INC., a Nevada corporation (the "Company"). In consideration of the agreement by the Company to provide the separation payments and benefits in SECTION 6 and SECTION 7 of the Employment Agreement between the Executive and the Company, dated as of August 2, 1999 (the "Employment Agreement"), and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Executive hereby agrees as follows: 1. RELEASE AND COVENANT. THE EXECUTIVE, OF HIS OWN FREE WILL, VOLUNTARILY RELEASES AND FOREVER DISCHARGES THE COMPANY AND ITS SUBSIDIARIES AND AFFILIATES, AND EACH OF THEIR RESPECTIVE PAST AND PRESENT AGENTS, EMPLOYEES, MANAGERS, REPRESENTATIVES, OFFICERS, DIRECTORS, ATTORNEYS, ACCOUNTANTS, TRUSTEES, SHAREHOLDERS, PARTNERS, INSURERS, HEIRS, PREDECESSORS-IN-INTEREST, ADVISORS, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE "RELEASED PARTIES") FROM, AND COVENANTS NOT TO SUE OR PROCEED AGAINST ANY OF THE FOREGOING ON THE BASIS OF, ANY AND ALL PAST OR PRESENT CAUSES OF ACTION, SUITS, AGREEMENTS OR OTHER RIGHTS OR CLAIMS WHICH THE EXECUTIVE, HIS DEPENDENTS, RELATIVES, HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS HAS OR HAVE AGAINST ANY OF THE RELEASED PARTIES UPON OR BY REASON OF ANY MATTER ARISING OUT OF HIS EMPLOYMENT BY THE COMPANY AND THE CESSATION OF SAID EMPLOYMENT, AND INCLUDING, BUT NOT LIMITED TO, ANY ALLEGED VIOLATION OF THE CIVIL RIGHTS ACTS OF 1964 AND 1991, THE EQUAL PAY ACT OF 1963, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967 (INCLUDING THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990), THE REHABILITATION ACT OF 1973, THE FAMILY AND MEDICAL LEAVE ACT OF 1993, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974, THE NEVADA FAIR EMPLOYMENT PRACTICES ACT, THE MISSOURI HUMAN RIGHTS ACT, THE LABOR LAWS OF THE UNITED STATES, NEVADA AND MISSOURI, AND ANY OTHER FEDERAL, STATE OR LOCAL LAW, REGULATION OR ORDINANCE, OR PUBLIC POLICY, CONTRACT OR TORT LAW, HAVING ANY BEARING WHATSOEVER ON THE TERMS AND CONDITIONS OR CESSATION OF HIS EMPLOYMENT WITH THE COMPANY. 2. DUE CARE. THE EXECUTIVE ACKNOWLEDGES THAT HE HAS RECEIVED A COPY OF THIS RELEASE PRIOR TO ITS EXECUTION AND HAS BEEN ADVISED HEREBY OF HIS OPPORTUNITY TO REVIEW AND CONSIDER THIS RELEASE FOR TWENTY-ONE (21) DAYS PRIOR TO ITS EXECUTION. THE EXECUTIVE FURTHER ACKNOWLEDGES THAT HE HAS BEEN ADVISED HEREBY TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. THE EXECUTIVE ENTERS INTO THIS RELEASE HAVING FREELY AND KNOWINGLY ELECTED, AFTER DUE CONSIDERATION, TO EXECUTE THIS RELEASE AND TO FULFILL THE PROMISES SET FORTH HEREIN. THIS RELEASE SHALL BE REVOCABLE BY THE EXECUTIVE DURING THE SEVEN (7) DAY PERIOD FOLLOWING ITS EXECUTION, AND SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD. IN THE EVENT OF SUCH A REVOCATION, THE EXECUTIVE SHALL NOT BE ENTITLED TO THE CONSIDERATION FOR THIS RELEASE SET FORTH ABOVE. 3. RELIANCE BY THE EXECUTIVE. THE EXECUTIVE ACKNOWLEDGES THAT, IN HIS DECISION TO ENTER INTO THIS RELEASE, HE HAS NOT RELIED ON ANY REPRESENTATIONS, PROMISES OR ARRANGEMENT OF ANY KIND, INCLUDING ORAL STATEMENTS BY REPRESENTATIVES OF THE COMPANY, EXCEPT AS SET FORTH IN THIS RELEASE. 4. MISCELLANEOUS. THE EXECUTIVE SHALL NOT DISCLOSE THE EXISTENCE OR CONTENTS OF THIS RELEASE TO ANYONE OTHER THAN HIS IMMEDIATE FAMILY, ACCOUNTANTS OR ATTORNEYS, AND THE EXECUTIVE SHALL INSTRUCT SUCH THIRD PARTIES NOT TO DISCLOSE THE SAME. THIS RELEASE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. IF ANY PROVISION OF THIS RELEASE IS HELD INVALID OR UNENFORCEABLE FOR ANY REASON, THE REMAINING PROVISIONS SHALL BE CONSTRUED AS IF THE INVALID OR UNENFORCEABLE PROVISION HAD NOT BEEN INCLUDED. ii This GENERAL RELEASE AND COVENANT NOT TO SUE is executed by the Executive and delivered to the Company on ____________________________. Executive - ------------------------------ Name: Mark E. Brown STATE OF ) -------------------------- ) ss: COUNTY OF ) ------------------------- On this _____ day of ________________, ____, before me, a Notary Public of the State of _______________, personally appeared ____________, to me known and known to me to be the person described and who executed the foregoing release and did then and there acknowledge to me that he voluntarily executed the same. - ----------------------------- NOTARY PUBLIC [NOT TO BE SIGNED OR NOTARIZED UPON EXECUTION OF EMPLOYMENT AGREEMENT] iii EX-10.23 9 EXHIBIT 10.23 EXHIBIT 10.23 April 1, 1999 William W. Warner 8504 Estrelita Drive Las Vegas, NV 89128 RE: LONG-TERM STAY-ON PERFORMANCE INCENTIVE PAYMENT. Dear Bill: This letter (the "AGREEMENT") sets forth the terms and conditions pursuant to which Station Casinos, Inc. (the "COMPANY") has decided to award you a Long-Term Stay-On Performance Incentive Payment (the "LTSO Payment"). 1. PURPOSE. The purpose of the LTSO Payment is to advance the interests of the Company by providing you with a cash incentive to remain with the Company through April 1, 2006. 2. AMOUNT. Subject to the conditions contained herein, the Company will provide you with a LTSO Payment in the amount of $500,000 as follows: (a) On April 1, 2003 (the "FIRST AWARD DATE"), you will be paid one-half of the LTSO Payment, minus the deductions required by law, provided that you have remained continuously employed by the Company from April 1, 1999 through March 31, 2003. In the event that your employment or service with the Company is terminated for any reason, including, but not limited to, your death, disability, resignation or retirement, at any time before the First Award Date, you will forfeit any and all eligibility for payments pursuant to this Agreement. (b) On April 1, 2006 (the "SECOND AWARD DATE"), you will be paid the second half of the LTSO Payment, minus the deductions required by law, provided that you have remained continuously employed by the Company from April 1, 1999 through March 31, 2006. In the event that your employment or service with the Company is terminated for any reason, including, but not limited to, your death, disability, resignation or retirement, at any time after the First Award Date but before the Second Award Date, you will forfeit any and all eligibility for remaining payments pursuant to this Agreement. Long-Term Stay-On Performance Plan April 1, 1999 Page 2 - -------------------------------------------------------------------------------- 3. EMPLOYMENT AGREEMENT. The LTSO Payment is conditioned upon your signing an employment agreement with the Company, which shall be dated as of December 1, 1999 (the "EMPLOYMENT AGREEMENT"). If prior to the First Award Date or the Second Award Date, you breach any term of the Employment Agreement, you will forfeit any and all rights to any and all payments under this Agreement as of the date of such breach. 4. RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Nothing in this Agreement shall confer on you any right to continue in the employ of or service to the Company or, except as may otherwise be limited by a written agreement between the Company and you, in any way affect the Company's right to terminate your employment or service without prior notice at any time for any or no reason. 5. CONFIDENTIALITY. As a condition of your receipt of the LTSO Payment, you agree that you will not disclose the contents of this Agreement, including the amount of the LTSO Payment, to anyone except your immediate family, accountant or attorney without the prior written consent of the Company. If you breach this obligation, you will forfeit any and all rights to any and all payments under this Agreement. 6. GOVERNING LAW. The validity, construction, interpretation and effect of this Agreement shall exclusively be governed by and determined in accordance with the law of the State of Nevada (without reference to the principles of conflict of laws thereof), except to the extent preempted by federal law, which shall govern to that extent. 7. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs and assigns; provided, however, that none of your rights or obligations under this Agreement may be assigned or transferred by you, other than rights to compensation and benefits hereunder, which may be transferred only by will or operation of law and subject to the limitations of this Agreement. STATION CASINOS, INC., A Nevada corporation By: /s/ GLENN C. CHRISTENSON --------------------------- Glenn C. Christenson Executive Vice President Chief Financial Officer Chief Administrative Officer By signing below, you hereby acknowledge and agree to all of the foregoing terms and conditions of this Agreement. AGREED TO AND ACCEPTED BY: /s/ WILLIAM W. WARNER - ---------------------------- William W. Warner EX-10.24 10 EXHIBIT 10.24 EXHIBIT 10.24 August 2, 1999 Mark E. Brown 9049 Waterfield Court Las Vegas, NV 89134 RE: LONG-TERM STAY-ON PERFORMANCE INCENTIVE PAYMENT. Dear Mark: This letter (the "AGREEMENT") sets forth the terms and conditions pursuant to which Station Casinos, Inc. (the "COMPANY") has decided to award you a Long-Term Stay-On Performance Incentive Payment (the "LTSO Payment"). 1. PURPOSE. The purpose of the LTSO Payment is to advance the interests of the Company by providing you with a cash incentive to remain with the Company through August 2, 2006. 2. AMOUNT. Subject to the conditions contained herein, the Company will provide you with a LTSO Payment in the amount of $500,000 as follows: (a) On August 2, 2003 (the "FIRST AWARD DATE"), you will be paid one-half of the LTSO Payment, minus the deductions required by law, provided that you have remained continuously employed by the Company from August 2,1999 through August 1, 2003. In the event that your employment or service with the Company is terminated for any reason, including, but not limited to, your death, disability, resignation or retirement, at any time before the First Award Date, you will forfeit any and all eligibility for payments pursuant to this Agreement. (b) On August 2, 2006 (the "SECOND AWARD DATE"), you will be paid the second half of the LTSO Payment, minus the deductions required by law, provided that you have remained continuously employed by the Company from August 2, 1999 through August 1, 2006. In the event that your employment or service with the Company is terminated for any reason, including, but not limited to, your death, disability, resignation or retirement, at any time after the First Award Date but before the Second Award Date, you will forfeit any and all eligibility for remaining payments pursuant to this Agreement. Long-Term Stay-On Performance Plan August 2, 1999 Page2 - -------------------------------------------------------------------------------- 3. EMPLOYMENT AGREEMENT. The LTSO Payment is conditioned upon your signing an employment agreement with the Company, which shall be dated as of August 2, 1999 (the "EMPLOYMENT AGREEMENT"). If prior to the First Award Date or the Second Award Date, you breach any term of the Employment Agreement, you will forfeit any and all rights to any and all payments under this Agreement as of the date of such breach. 4. RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Nothing in this Agreement shall confer on you any right to continue in the employ of or service to the Company or, except as may otherwise be limited by a written agreement between the Company and you, in any way affect the Company's right to terminate your employment or service without prior notice at any time for any or no reason. 5. CONFIDENTIALITY. As a condition of your receipt of the LTSO Payment, you agree that you will not disclose the contents of this Agreement, including the amount of the LTSO Payment, to anyone except your immediate family, accountant or attorney without the prior written consent of the Company. If you breach this obligation, you will forfeit any and all rights to any and all payments under this Agreement. 6. GOVERNING LAW. The validity, construction, interpretation and effect of this Agreement shall exclusively be governed by and determined in accordance with the law of the State of Nevada (without reference to the principles of conflict of laws thereof), except to the extent preempted by federal law, which shall govern to that extent. 7. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs and assigns; provided, however, that none of your rights or obligations under this Agreement may be assigned or transferred by you, other than rights to compensation and benefits hereunder, which may be transferred only by will or operation of law and subject to the limitations of this Agreement. STATION CASINOS, INC., A Nevada corporation By: /s/ GLENN C. CHRISTENSON --------------------------- Glenn C. Christenson Executive Vice President Chief Financial Officer Chief Administrative Officer By signing below, you hereby acknowledge and agree to all of the foregoing terms and conditions of this Agreement. AGREED TO AND ACCEPTED BY: /s/ MARK E. BROWN - ---------------------------------- Mark E. Brown EX-10.25 11 EXHIBIT 10.25 EXHIBIT 10.25 STATION CASINOS, INC. DEFERRED COMPENSATION PLAN FOR EXECUTIVES (As Amended and Restated) Effective September 30, 1999 * * * * * SECTION 1. PURPOSE. The purpose of the Plan is for the Company to provide certain select executives of the Company with an opportunity to defer receipt of compensation for services rendered to the Company. It is intended that the Plan shall aid the Company in retaining and attracting employees whose abilities, experience and judgment can contribute to the continued progress of the Company. This Plan is a continuation of the Company's Deferred Compensation Plan for Executives originally effective November 30, 1994. SECTION 2. DEFINITIONS. (a) "Account(s)" means the Deferred Compensation Account, the Supplemental Contributions Account and/or the Matching Contributions Account, as the context requires. (b) "Bonus" means any special and/or discretionary compensation amounts in excess of Salary, determined by the Company to be payable to a Participant with respect to services rendered. (c) "Change of Control" means and shall be deemed to have occurred if a "change of control," as the same is defined in the Indenture dated March 29, 1996, governing the Company's $198,000,000 principal amount of Senior Subordinated Notes Due 2006 and as in effect on the date of the initial issuance of such securities, occurs. (d) "Committee" means the Human Resources Committee of the Company's Board of Directors. (e) "Company" means Station Casinos, Inc. (f) "Continuous Service" means a Participant's uninterrupted service with the Company or any affiliate whether before or after the date of original effectiveness of the Plan. Service shall not be deemed interrupted by a leave of absence authorized by the Committee, an absence due to mandatory military service or an absence due to disability while the Participant is receiving benefits under any short-term or long-term disability plan or arrangement maintained or sponsored by the Company. (g) "Deferred Compensation" means the sum of Salary and Bonus that are the subject of an elective deferral under Section 5. (h) "Deferred Compensation Account" means the bookkeeping account established for a Participant under the Plan and to which Deferred Compensation amounts with respect to such Participant are credited from time to time, as adjusted from time to time as provided in the Plan. (i) "Deferred Compensation Election Form" means the form pursuant to which Eligible Executives elect to become Participants in the Plan and defer compensation thereunder, in such form as the Committee determines from time to time in its sole discretion. (j) "Disability" means mental or physical disability as determined by the Committee in accordance with standards and procedures similar to those under the Company's broad-based regular long-term disability plan, if any. At any time that the Company does not 2 maintain such a long-term disability plan, Disability shall mean the inability of a Participant, as determined by the Committee, substantially to perform such Participant's regular duties and responsibilities due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six (6) consecutive months. (k) "Eligible Executive" means any employee of the Company being paid Salary at a rate in excess of the amount specified in Section 401(a)(17) of the Internal Revenue Code of 1986, as amended, and who is selected for participation by the Committee. (l) "Matching Contributions Account" means the bookkeeping account established for a Participant under the Plan and to which the Company's matching contributions under Section 5(b) of the Plan are credited from time to time, as adjusted from time to time under the Plan. (m) "Participant" means an Eligible Executive who has elected to defer Salary and/or Bonus amounts pursuant to the Plan or on whose behalf the Company has made a supplemental contribution under Section 5(c). (n) "Plan" means The Station Casinos, Inc. Deferred Compensation Plan for Executives, as set forth herein and as amended from time to time. (o) "Plan Year" means the calendar year. (p) "Salary" means the regular base compensation paid by the Company to an employee (without regard to any reduction thereof pursuant to the Plan or any thrift or savings plan maintained by the Company), exclusive of Bonus payments and any other incentive payments made by the Company to such employee. (q) "Stock Unit" shall mean a right to receive one share of common stock of the Company under Section 6 of this Plan. 3 (r) "Supplemental Contributions Account" means the bookkeeping account established for the Participant under the Plan and to which the Company's supplemental contributions under Section 5(c) of the Plan are credited from time to time, as adjusted from time to time under the Plan. (s) "Unforeseeable Emergency" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary unforeseeable circumstances arising as a result of events beyond the control of the Participant. SECTION 3. ELIGIBILITY. Individuals eligible to participate in the Plan shall consist of the Eligible Executives of the Company. SECTION 4. ADMINISTRATION. (a) The Plan shall be administered by the Committee. The Committee is authorized to construe and interpret the Plan and promulgate, amend and rescind rules and regulations relating to the implementation, administration and maintenance of the Plan. Subject to the terms and conditions of the Plan, the Committee shall make all determinations necessary or advisable for the implementation, administration and maintenance of the Plan including, without limitation, determining the Eligible Executives and correcting any technical defect(s) or technical omission(s), or reconciling any technical inconsistency(ies), in the Plan. The Committee may designate persons other than members of the Committee to carry out the day-to-day ministerial administration of the Plan under such conditions and limitations as it may 4 prescribe; PROVIDED, HOWEVER, that the Committee shall not delegate its authority with regard to the determination of Eligible Executives. The Committee's determinations under the Plan need not be uniform and may be made selectively among Participants, whether or not such Participants are similarly situated. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration, implementation or maintenance of the Plan shall be final, conclusive and binding upon all Participants and any person(s) claiming under or through any Participants. (b) The Company will indemnify and hold harmless the Committee and each member thereof against any cost or expense (including without limitation attorney's fees) or liability (including without limitation any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act, except in the case of willful gross misconduct or gross negligence. SECTION 5. PARTICIPATION; ELECTIVE DEFERRALS; MATCHING CONTRIBUTIONS; SUPPLEMENTAL CONTRIBUTIONS; ADJUSTMENT OF STOCK UNITS. (a) To elect to participate in the Plan for a particular Plan Year, an Eligible Executive must execute a Deferred Compensation Election Form and file such form with the Committee (or its designee) before the commencement of such Plan Year; PROVIDED that the amount of Bonus deferred by the Executive may be determined by amendment to the Deferred Compensation Election Form made during the Plan Year but prior to the determination of the amount of such Bonus. To participate in the Plan during the first year in which an individual becomes eligible to participate in the Plan, the new Eligible Executive must make an election to defer Salary compensation for services to be performed subsequent to the election and/or to defer 5 Bonus compensation, in each case, within 30 days after the date the new Eligible Executive becomes eligible. Such election shall: (i) contain a statement that the Eligible Executive elects to defer a portion of the Eligible Executive's Salary (up to 50% thereof, in increments of 1%) and/or Bonus (up to 100% thereof, in increments of 1%) for a specified Plan Year that becomes payable to the Eligible Executive after the filing of such; (ii) apply only to the Salary otherwise payable to the Eligible Executive during the Plan Year for which such election is made and to any Bonus payment that is attributable to the Eligible Executive's services rendered to the Company during the Plan Year for which such election is made (whether or not actually payable in such Plan Year); (iii) be irrevocable with respect to the Plan Year to which it applies; and (iv) if the Eligible Executive so desires, specify a date, no earlier than thirteen months after the date such election is made, that the vested accrued balances of his or her Accounts will be paid pursuant to Section 6 below. Absent such election, the vested accrued balances of his or her Accounts will be paid following his or her termination of employment in accordance with Section 6 below. A Participant may change his or her election as to the date on which the vested accrued balances of his or her Accounts will be paid at any time prior to the payment of such amounts; PROVIDED, HOWEVER, that such election to change the distribution date shall only be effective with respect to payments of vested accrued Account balances to be made no earlier than 13 months after the date of such election. If a Participant was to receive payment of the vested accrued balances of his or her Accounts prior to the date which is 13 months after the date of such election, 6 such Participant's vested accrued Account balances shall be paid in accordance with his or her most recent other election made more than 13 months prior to the payment date of his or her vested accrued Account balances. Upon receipt of an Eligible Executive's deferral election, the Company shall establish as an accounting entry an individual Deferred Compensation Account for such Eligible Executive and such Eligible Executive shall become a Participant under the Plan. Thereafter, the Company shall credit the Executive's Deferred Compensation Account with all Deferred Compensation which would otherwise have been payable to the Eligible Executive in the absence of an election under the Plan. All amounts credited to the Deferred Compensation Account shall be credited in the form of Stock Units. The Deferred Compensation Account shall be credited no less frequently than the first day of each month in an amount equal to the sum of the Deferred Compensation that would otherwise have been paid by the Company in accordance with the Company's normal payroll practices for the immediately preceding month. The number of Stock Units credited to a Participant's Deferred Compensation Account shall equal the dollar amount deferred for credit to such account divided by the fair market value of one share of common stock of the Company, determined as the closing price on the market on which the common stock of the Company is listed (the "Fair Market Value of the Common Stock") on any day prior to the seventh calendar day after the date a deferral amount is credited to the Deferred Compensation Account. Fractional Stock Units will be used. Each Stock Unit shall be deemed to pay dividends and distributions as if it were one share of common stock of the Company and any such deemed dividends or distributions will result in the crediting of additional Stock Units to the Deferred Compensation Account as of the first day of the month following the month in which such dividends or distributions were paid, with the number of Stock Units so credited to 7 be calculated in the manner set forth above for deferrals. Such deferral amounts and deemed dividends and distributions, which are pending the crediting of Stock Units to the Deferred Compensation Account, shall not be credited with any earnings. After the crediting of Stock Units to the Deferred Compensation Account, subsequent fluctuations in the Fair Market Value of the Common Stock shall not effect any change in the number of such Stock Units then credited to the Deferred Compensation Account. (b) At the beginning of each month, the Company shall, if on the first day of any such month the Participant is employed by the Company, credit matching contributions to the Participant's Matching Contributions Account in an amount up to 10% of the salary amounts actually deferred under the Plan by the Participant in respect of the preceding month and up to 10% of the Bonus the Executive elected to defer on the then current Deferred Compensation Election Form (as adjusted for amendments) for such Plan Year. The Company match percentage cannot exceed the percentage deferred by the Participant. Such matching contributions shall be credited in Stock Units calculated in the same manner as Deferred Compensation is calculated. (c) From time to time, the Company may, in its sole discretion, credit supplemental contributions to the Participant's Supplemental Contributions Account in such amounts as the Company shall determine in its sole discretion. Such supplemental contributions shall be credited in Stock Units calculated in the same manner as Deferred Compensation is calculated. (d) In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, common stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, 8 spin-off, combination or other similar transaction or event affects the common stock of the Company such that an adjustment is determined by the Committee, in its discretion, to be necessary or appropriate, the Committee may, in such manner as it in good faith deems equitable, adjust any or all of the number of shares of common stock, other property (including cash) or other securities represented by a Stock Unit. (e) At the end of each Plan Year and at the time any payment or distribution is made in accordance with this Plan, the Accounts (or in the case of a payment or distribution, the Accounts from which the payment or distribution is made) shall be adjusted in the following manner: (i) if the Fair Market Value of the Common Stock increases by 4% or more as of the end of a Plan Year (or a prorated portion of 4% if calculated for a mid-year payment or distribution) no adjustment will be made, (ii) if the Fair Market Value of the Common Stock does not increase by at least 4% as of the end of a Plan Year (or a prorated portion of 4% if calculated for a mid-year payment or distribution), each Participant's Accounts will be credited with Stock Units at the time of calculation sufficient to make the Fair Market Value of the Common Stock represented by Stock Units in each Participant's Accounts equal to the sum of (1) the aggregate balance of his or her Accounts at the beginning of the Plan Year plus (2) the aggregate balance of his or her Accounts at the beginning of the Plan Year multiplied by 4% (or a prorated portion of 4% for a mid-year payment or distribution) plus (3) the amount of all the contributions made to the Participant's Accounts during the Plan Year plus (4) the product of the amount of all the contributions made to the Participant's Accounts during the Plan Year multiplied by 4% (or a prorated portion of 4% to the extent any portion of the contributions were invested in the Accounts for less than the full Plan Year with respect to each such portion and each such partial Plan Year). 9 SECTION 6. PAYMENT OF DEFERRED COMPENSATION. The vested accrued balances in a Participant's Deferred Compensation Account, Matching Contributions Account and Supplemental Account shall be paid to a Participant, or, in the case of any Participant's death prior to payment, the Participant's designated beneficiary(ies), only in common stock of the Company with one share of such common stock being issued for each Stock Unit no later than the earlier of (i) fifteen business days after the end of the month in which the termination of the Participant's employment occurs, or (ii) the date specified by the Participant on his or her most recent Deferred Compensation Election Form submitted to the Company in accordance with Section 5(a)(iv) above; PROVIDED, HOWEVER, that if any portion of the vested accrued balance in a Participant's Accounts is to be distributed in a Plan Year in which all or a portion of such distribution would not be deductible by the Company because of Section 162(m) of the Internal Revenue Code of 1986, as amended, the Company may, in its sole discretion, delay the payment of the nondeductible portion of such Participant's Accounts until such time as the Company determines the payment of such amounts will be deductible by the Company. SECTION 7. VALUATION. At the end of each Plan Year, the vested and unvested balances in the Deferred Compensation Account, Supplemental Contributions Account and the Matching Contributions Account of each Participant shall be determined by the Company, taking into account any increase therein for such Plan Year as a result of deemed dividends or distributions. The balance determined, as of the end of each Plan Year, shall be communicated in writing to each Participant as soon as practicable after the end of the Plan Year. In the case of any termination of employment under Section 6(i) above, the vested and unvested balances in the Deferred Compensation Account, Supplemental Contributions Account and the Matching Contributions Account of any affected Participant shall be determined by the Company as of the end of the month in which there occurs any such termination of employment, also taking into account any increase therein for such Plan Year to date as a result of any deemed dividends or distributions. In the case of a payment to a Participant under Section 6(ii) above, the vested and unvested balances in the 10 Deferred Compensation Account, Supplemental Contributions Account and the Matching Contributions Account of any affected Participant shall be determined by the Company as of the last day of the calendar month ending at least 15 days prior to the date of such payment, also taking into account any increase therein for such Plan Year to date as a result of any deemed dividends or distributions. SECTION 8. DISTRIBUTIONS IN CASES OF HARDSHIP. The Committee may make distributions to a Participant from the vested balances in such Participant's Deferred Compensation Account, Supplemental Contributions Account or Matching Contributions Account upon a showing by such Participant that an Unforeseeable Emergency has occurred. Such distributions shall be limited to the amount shown to be necessary to meet the Unforeseeable Emergency. SECTION 9. VESTING. Notwithstanding anything contained herein to the contrary, a Participant's accrued balance in such Participant's Deferred Compensation Account (and the amounts payable with respect thereto) shall be fully vested at all times. A Participant's accrued balance in such Participant's Matching Contributions Account (and the amounts 11 payable with respect thereto) and in such Participant's Supplemental Contributions Account (and the amounts payable with respect thereto) shall, in each case, be vested as to 20% of the balance in such Account for each year of Continuous Service completed by the Participant and shall be fully vested after the Participant has completed five years of Continuous Service. Notwithstanding the immediately preceding sentence, if (a) the Participant dies, (b) the Participant's employment with the Company is terminated due to Disability or (c) a Change of Control occurs, such Participant's accrued balance in the Matching Contributions Account and Supplemental Contributions Account shall be fully vested as of the date of death, the date of such termination or the date of any such Change of Control, as the case may be. SECTION 10. FORFEITURE. Upon any Participant's termination of employment other than due to death or Disability, such Participant's accrued balance in such Participant's unvested Matching Contributions Accounts (and the amounts payable with respect thereto) and in such Participant's unvested Supplemental Contributions Account (and the amounts payable with respect thereto) shall, in each case, be forfeited by such Participant. SECTION 11. AMENDMENT; TERMINATION. The Plan may be amended, modified or terminated at any time by the Committee except that no such amendment, modification or termination shall have a material adverse effect on the accrued balance of any Participant's Deferred Compensation Account, Supplemental Contributions Account and/or Matching Contributions Account as of the effective date of any such amendment, modification or termination (without the consent of the Participant (or, if the Participant is dead, his or her beneficiary(ies))); PROVIDED HOWEVER, that a termination of the Plan followed by a distribution of 12 all vested and unvested account balances shall be deemed to not have a material adverse effect on a Participant's accrued balances. SECTION 12. PARTICIPANT'S RIGHTS UNSECURED; NO DUTY TO INVEST. The right of a Participant to receive any payment or distribution hereunder shall be an unsecured claim against the general assets of the Company. No Company assets shall in any way be subject to any prior claim by any Participant. The Company shall have no duty whatsoever to set aside or invest any amounts credited to any Deferred Compensation Account, Supplemental Contributions Account or Matching Contributions Account established under the Plan. Nothing in the Plan shall confer upon any employee of the Company any right to continued employment with the Company, nor shall it interfere in any way with the right, if any, of the Company to terminate the employment of any employee at any time for any reason. A Participant shall have no right, title, or interest whatsoever in or to any specific assets of the Company, nor any investments, if any, which the Company may make to aid it in meeting its obligations hereunder. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and any Participant or any other person. The Company may enter into a "rabbi" trust agreement to provide for a source of funds out of which all or any portion of the benefits under the Plan may be satisfied. SECTION 13. RESTRICTIONS ON ALIENATION. No amount deferred or credited to any Account under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, levy or charge. Any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber, levy or charge the same shall be void; nor shall any amount 13 be in any manner be subject to any claims for the debts, contracts, liabilities, engagements or torts of the Participant (or the Participant's beneficiary or personal representative) entitled to such benefit. No Participant shall be entitled to borrow at any time any portion of the Participant's Account balances under the Plan. SECTION 14. WITHHOLDING. As a condition to the receipt of any Stock Units or shares of common stock pursuant to the terms of this Plan, the Participants, or their beneficiaries or personal representatives, as applicable, shall remit to the Company, in cash, an amount equal to amount of any taxes required to be withheld by the Company pursuant to any Federal, state or local law, rule or regulation with respect to the payment of such Stock Units or shares of common stock. The Participants, their beneficiaries and personal representatives shall bear any and all Federal, foreign, state, local, income, or other taxes imposed on amounts paid under the Plan. SECTION 15. PARTICIPANTS BOUND BY TERMS OF THE PLAN. By electing to become a Participant, each Eligible Executive shall be deemed conclusively to have accepted and consented to all terms of the Plan and all actions or decisions made by the Company with regard to the Plan. Such terms and consent shall also apply to and be binding upon the beneficiaries, personal representatives and other successors in interest of each Participant. Each Participant shall receive a copy of the Plan. SECTION 16. DESIGNATION OF BENEFICIARY(IES). Each Participant under the Plan may designate a beneficiary or beneficiaries to receive any payment which under the terms of the Plan 14 becomes payable on, after or as a result of the Participant's death. At any time, and from time to time, any such designation may be changed or cancelled by the Participant without the consent of any such beneficiary. Any such designation, change or cancellation must be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased Participant, or if the designated beneficiaries have predeceased the Participant, the beneficiary shall be the Participant's estate. If the Participant designates more than one beneficiary, any payments under the Plan to such beneficiaries shall be made in equal shares unless the Participant has expressly designated otherwise, in which case the payments shall be made in the shares designated by the Participant. SECTION 17. SEVERABILITY OF PROVISIONS. In the event any provision of the Plan would serve to invalidate the Plan, that provision shall be deemed to be null and void, and the Plan shall be construed as if it did not contain the particular provision that would make it invalid. The Plan shall be binding upon and inure to the benefit of (a) the Company and its respective successors and assigns, and (b) each Participant, his or her designees and estate. Nothing in the Plan shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation, or engaging in any other corporate transaction. SECTION 18. GOVERNING LAW AND INTERPRETATION. The Plan shall be construed and enforced in accordance with, and the rights of the parties hereto shall be governed by, the laws of the State of Nevada. This Plan shall not be interpreted as either an employment or trust agreement. 15 SECTION 19. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS. Payments and other benefits received by a Participant under the Plan shall not be deemed a part of a Participant's compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any affiliate of the Company. The existence of the Plan notwithstanding, the Company may adopt such other compensation plans or programs and additional compensation arrangements as it deems necessary to attract, retain and motivate employees. The Committee is authorized to cause to be established a trust agreement or several trust agreements or similar arrangements from which the Committee may make payments of amounts due or to become due to any Participants under the Plan. SECTION 20. EFFECTIVE DATE OF THE PLAN. The Plan as reflected herein shall be effective as of September 30, 1999 upon its adoption by the Company. The Plan originally was effective as of November 30, 1994. IN WITNESS WHEREOF, the Plan is hereby adopted by the Company on this 28th day of March, 2000. Station Casinos, Inc. By: /s/ GLENN C. CHRISTENSON ----------------------------- Glenn C. Christenson Executive Vice President Chief Financial Officer Chief Administrative Officer 16 EX-10.52 12 EXHIBIT 10.52 EXHIBIT 10.52 OPERATING AGREEMENT GREEN VALLEY RANCH GAMING, LLC TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS...................................................................................1 1.1 DEFINITIONS............................................................................1 ARTICLE II FORMATION...................................................................................16 2.1 FORMATION.............................................................................16 2.2 NAME..................................................................................16 2.3 PURPOSES AND POWERS...................................................................16 2.4 REGISTERED AGENT AND REGISTERED OFFICE................................................17 ARTICLE III MANAGEMENT.................................................................................17 3.1 THE MANAGER...........................................................................17 3.2 EXPENSE OF CONSTRUCTION...............................................................18 3.3 MANAGER'S DUTIES DURING PRE-OPENING PERIOD............................................18 3.4 MANAGER'S ADDITIONAL DUTIES, INCLUDING DURING OPERATIONAL PERIOD......................20 3.5 COMPENSATION OF THE MANAGER...........................................................28 3.6 REMOVAL OF MANAGER....................................................................28 3.7 OFFICERS..............................................................................30 3.8 CONFLICTS OF INTEREST.................................................................30 3.9 TAX MATTERS PARTNER...................................................................31 3.10 LIABILITY OF MEMBERS AND MANAGER......................................................32 3.11 PROHIBITION AGAINST PUBLICLY TRADED PARTNERSHIP.......................................32 3.12 THE EXECUTIVE COMMITTEE...............................................................32 3.13 DECISIONS SUBJECT TO EXECUTIVE COMMITTEE APPROVAL.....................................32 3.14 PLACE OF MEETINGS AND MEETINGS BY TELEPHONE...........................................33 3.15 REGULAR MEETINGS......................................................................33 3.16 SPECIAL MEETINGS......................................................................33 3.17 QUORUM................................................................................33 3.18 MANNER OF ACTING......................................................................33 3.19 WAIVER OF NOTICE......................................................................33 3.20 ADJOURNMENT...........................................................................33 3.21 ACTION WITHOUT A MEETING..............................................................34 3.22 RESIGNATION...........................................................................34 3.23 REMOVAL...............................................................................34 3.24 VACANCIES.............................................................................34 3.25 COMPENSATION TO EXECUTIVE COMMITTEE MEMBERS...........................................34 3.26 LIABILITY TO THIRD PARTIES............................................................34 3.27 NO GUARANTEE OF RETURN BY MEMBERS OF THE EXECUTIVE COMMITTEE..........................34 3.28 TRANSACTIONS WITH COMPANY OR OTHERWISE................................................34 3.29 INDEMNIFICATION.......................................................................35 ARTICLE IV FINANCIAL MATTERS...........................................................................35 4.1 INITIAL CAPITAL CONTRIBUTIONS.........................................................35 4.2 ADDITIONAL CAPITAL CONTRIBUTIONS......................................................38 i 4.3 DEFAULT...............................................................................39 4.4 ALLOCATION OF PROFITS AND LOSSES......................................................43 4.5 DISTRIBUTIONS.........................................................................45 ARTICLE V MEMBERS; TRANSFER OF INTERESTS...............................................................46 5.1 ADMISSION.............................................................................46 5.2 TRANSFER OF INTERESTS.................................................................46 5.3 GAMING LICENSING......................................................................48 5.4 REQUIRED MEMBER APPROVALS.............................................................49 5.5 PLACE OF MEETINGS AND MEETINGS BY TELEPHONE...........................................49 5.6 ANNUAL MEETING........................................................................49 5.7 SPECIAL CALL OF MEETINGS..............................................................50 5.8 NOTICE OF MEETINGS OF MEMBERS.........................................................50 5.9 MANNER OF GIVING NOTICE...............................................................50 5.10 ADJOURNED MEETING; NOTICE.............................................................50 5.11 QUORUM; VOTING........................................................................50 5.12 WAIVER OF NOTICE BY CONSENT OF ABSENT MEMBERS.........................................50 5.13 MEMBER ACTION BY WRITTEN CONSENT WITHOUT A MEETING....................................51 5.14 RECORD DATE FOR MEMBER NOTICE, VOTING, AND GIVING CONSENTS............................51 5.15 IN GENERAL...........................................................................51 ARTICLE VI DISSOLUTION, LIQUIDATION AND TERMINATION....................................................53 6.1 DISSOLUTION...........................................................................53 6.2 LIQUIDATION AND TERMINATION...........................................................53 6.3 ARTICLES OF DISSOLUTION...............................................................54 6.4 NEGATIVE CAPITAL ACCOUNTS.............................................................54 6.5 DEEMED DISTRIBUTION AND RECONTRIBUTION................................................54 6.6 LIMITATIONS ON RIGHTS OF MEMBERS......................................................54 ARTICLE VII AMENDMENTS.................................................................................54 7.1 AMENDMENTS GENERALLY..................................................................54 7.2 AMENDMENTS BY THE EXECUTIVE COMMITTEE.................................................55 ARTICLE VIII MISCELLANEOUS.............................................................................55 8.1 NOTICES...............................................................................56 8.2 BINDING EFFECT........................................................................56 8.3 HEADINGS..............................................................................56 8.4 SEVERABILITY..........................................................................56 8.5 FURTHER ACTION........................................................................56 8.6 GOVERNING LAW.........................................................................56 8.7 WAIVER OF ACTION FOR PARTITION........................................................56 8.8 COUNTERPART EXECUTION.................................................................56 8.9 CPI ADJUSTMENT........................................................................56 8.10 PUBLICITY.............................................................................56 8.11 TRANSITION AS MANAGER.................................................................57 8.12 BROKER FEES...........................................................................57
ii LIST OF EXHIBITS Exhibit A List of Investment Banking Firms Exhibit B Fertitta Family Members Exhibit C GCR Gaming Guarantor, LLC Guaranty Exhibit D Infrastructure Improvements Exhibit E Initial Members and Membership Interests Exhibit F Permitted Exceptions Exhibit G Legal Description of Resort Property Exhibit H Example of Shared Expenses Exhibit I Station Guaranty Exhibit J Articles of Organization Exhibit K Grant, Bargain and Sale Deed Exhibit L GCR Property Representations Exhibit M Notice Addresses LIST OF SCHEDULES Schedule I Contracts Schedule II Legal Proceedings iii OPERATING AGREEMENT GREEN VALLEY RANCH GAMING, LLC Operating Agreement dated as of March 10, 2000 (the "EFFECTIVE DATE"), among Green Valley Ranch Gaming, LLC, a Nevada limited-liability company (the "COMPANY"), GCR Gaming, LLC, a Nevada limited-liability company ("GCR"), GV Ranch Station, Inc., a Nevada corporation ("STATION") and a wholly-owned subsidiary of Station Casinos, Inc. ("PARENT"), and Station in its capacity as the Manager (as hereinafter defined). ARTICLE I DEFINITIONS 1.1 DEFINITIONS. The following capitalized words and phrases have the indicated meanings in this Agreement: "ACT" means Chapter 86 of the Nevada Revised Statutes, as amended from time to time (and any corresponding provisions of succeeding law). "ADDITIONAL CONTRIBUTION DEFAULT" has the meaning set forth in SECTION 4.3(b)(i). "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (1) Credit to such Capital Account any amounts that such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (2) Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. "AFFILIATE" means, with respect to any Person, (i) any other Person directly or indirectly controlling, controlled by, or under common control with, such Person (excluding employees of a Person, other than executive officers and board members of such Person), (ii) any Person who is an officer or director of any Person described in Clause (i) of this definition, (iii) with respect to GCR, any Greenspun Family Member, and with respect to either Parent or Station, any Fertitta Family Member, or (iv) any family member of any Person described in Clause (iii). For purposes of this definition, the term "family member" shall be deemed to be the spouses and lineal descendants of the Persons described in Clause (iii). "AFFILIATE TRANSACTION" has the meaning set forth in SECTION 3.8(B). "AGREEMENT" means this Operating Agreement, as amended from time to time. Words such as "herein," "hereinafter," "hereof," "hereto," and "hereunder" refer to this Agreement as a whole, unless the context otherwise requires. "ANNUAL PLAN AND OPERATING BUDGET" means the operating plan and budget for each Fiscal Year during the Operating Period, as proposed by the Manager and approved by the Executive Committee pursuant to the terms of this Agreement, setting forth in reasonable detail the Company's projected Gross Revenues, Operating Expenses, debt service requirements and capital expenditure and working capital requirements, including in each case the components thereof. The annual plan also shall include a concise written narrative regarding any material changes to the Project's operating standards, policies and procedures or to the Company's projections regarding the components of Gross Revenues or Operating Expenses. "APPRAISED VALUE" means, in the case of a Membership Interest, the fair market value thereof as determined by agreement of Station and GCR or, in the event that Station and GCR are unable to agree upon such value within 30 days after the requirement to determine Appraised Value arises, as determined by one investment banking firm selected jointly by (and paid equally by) Station and GCR from the list attached hereto as EXHIBIT A; provided, however, if either Station or GCR give written notice to the other within 5 days after the expiration of the foregoing 30-day period that it desires to have 3 investment banking firms determine the Appraised Value of the Membership Interests, rather than one investment banking firm, or if Station and GCR are unable to agree on one investment banking firm within such 30-day period, the decision shall be made by three investment banking firms one of which shall be selected and paid by Station from EXHIBIT A and one shall be selected and paid by GCR from EXHIBIT A within 15 days after the expiration of the foregoing 30-day period and one shall be selected from EXHIBIT A by the two investment banking firms so selected within 15 days after the expiration of the foregoing 15-day period and paid equally by Station and GCR. In the event that there is one investment banking firm, its determination shall be the Appraised Value. If there are three investment banking firms, the Appraised Value shall be the average of the two closest determinations in dollar value made by the three investment banking firms as so selected. The determination of Appraised Value pursuant to the foregoing process shall be final and binding on all parties. The determination of the fair market value by the investment banking firms shall be based on the value of the Company as a going concern (without any discount for lack of liquidity, restrictions on transferability or minority interest), but less any Company indebtedness, multiplied by the percentage ownership interest represented by the Membership Interest in question. "ARTICLES" means the Articles of Organization of the Company filed with the Nevada Secretary of State on November 19, 1999. "AVAILABLE FUNDS LETTER" means a letter from a national bank, investment banking company or certified public accounting firm stating that GCR Gaming Guarantor, LLC or Parent, as the case may be, has sufficient cash, available credit line, readily marketable securities or other evidence of ability to pay $125,000,000 in the case of GCR Gaming Guarantor, LLC, or to pay $150,000,000 in the case of Parent, as of the date of such letter. 2 "BANK ACCOUNTS" means those bank or financial institution accounts as are necessary for the construction, day-to-day and long-term management and operation of the Project, including the Operating Bank Account and the Reserve Fund. "BANKRUPT" means with respect to any Member the occurrence of any of the following: (3) Filing a voluntary petition in bankruptcy or for reorganization or for adoption of an arrangement under the United States Bankruptcy Code; (4) Making a general assignment for the benefit of creditors; (5) The appointment by a court of a receiver for all or substantially all of the assets of such Member; (6) The entry of an order for relief in the case of an involuntary petition in bankruptcy; or (7) The assumption of custody or sequestration by a court of competent jurisdiction of all or substantially all of the Member's assets. "BASE MANAGEMENT FEE" means the base management fee to be paid to the Manager pursuant to SECTION 3.5(a). "CAPITAL ACCOUNT" means, with respect to any Member, the capital account maintained for such Member in accordance with the following provisions: (8) To each Member's Capital Account there shall be credited such Member's Capital Contributions, such Member's distributive share of Profits and any items in the nature of income or gain that are specially allocated to such Member pursuant to SECTION 4.4(c) hereof, and the amount of any Company liabilities assumed by such Member or that are secured by any Company property distributed to such Member; (9) To each Member's Capital Account there shall be debited the amount of cash and the Gross Asset Value of any property other than money distributed to such Member pursuant to any provision of this Agreement (other than payments made pursuant to SECTION 3.5 hereof) and such Member's distributive share of Losses and any items in the nature of expenses or losses that are specially allocated to such Member pursuant to SECTION 4.4(c) hereof; (10) In the event that all or any part of a Membership Interest in the Company is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred interest; and (11) In determining the amount of any liability for purposes of the foregoing Clauses (i) and (ii) of this definition of Capital Account, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. 3 The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Regulations. The Manager shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of capital reflected on the Company's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Section 1.704-1(b) of the Regulations. "CAPITAL CONTRIBUTION" means, with respect to a Member as of any date, the amount of money and other property actually contributed to the Company by such Member through such date. The amount of a Capital Contribution made in property other than money shall be the fair market value, net of assumed liabilities, of the contributed property as determined in good faith by the Executive Committee; provided, however, GCR's Initial Capital Contribution (including the Resort Property) shall have the value ascribed in SECTION 4.1(a)). "CAPITAL IMPROVEMENTS AND REPLACEMENTS" means a capital expenditure, as defined under GAAP, for a modification, refurbishment, alteration, addition, improvement or renovation to any portion of the Project, including the Furniture, Fixtures and Equipment associated with the Project. "CHANGE IN CONTROL" means, in the case of Station, either of the following: (12) Neither Frank Fertitta, III, Blake Sartini or Lorenzo J. Fertitta, or their respective lineal descendants, are, for a period of ninety (90) days or more in any calendar year, the chief executive officer of Parent with the powers, duties and authority commensurate with such office; or (13) Parent or a wholly-owned subsidiary of Parent ceases to own 100% of the capital stock of Station. For the purposes of the definition of "PARENT," "Parent" shall include any entity that survives a merger or consolidation in the event Parent merges with or consolidates into another entity and any entity that acquires all or substantially all of the assets of Parent in the event that Parent sells, transfers or otherwise disposes of all or substantially all of its assets. "CHANGE IN CONTROL CALL" has the meaning set forth in SECTION 5.2(b). "CHANGE IN CONTROL PUT" has the meaning set forth in SECTION 5.2(b). "CHANGE IN CONTROL PUT EXERCISE NOTICE" has the meaning set forth in SECTION 5.2(b). "CODE" means the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law). "CONSTRUCTION FINANCING" means third-party debt financing for the construction of the Project. 4 "CONSTRUCTION MANAGER" means the individual selected and appointed by the Manager with the prior approval of the Executive Committee to manage and supervise the construction activities of the Project on a day-to-day basis. "CONSTRUCTION PLAN" means the comprehensive construction plan for the Project submitted by a construction firm selected by the Executive Committee, including the estimated time frame for completion and implementation of such plan, which Construction Plan shall be approved by the Executive Committee. The Construction Plan may be approved as a whole or in segments or by components by the Executive Committee. "CPI ADJUSTMENT" has the meaning set forth in SECTION 8.9. "DEFAULT AMOUNT" has the meaning set forth in SECTION 4.3(b)(i). "DEFAULT CALL" has the meaning set forth in SECTION 4.3(d). "DEFAULT CONTRIBUTION" has the meaning set forth in SECTION 4.3(b)(i). "DEFAULT DISTRIBUTIONS" has the meaning set forth in SECTION 4.3(b)(i). "DEFAULT PUT" has the meaning set forth in SECTION 4.3(d)(ii). "DEFAULT PUT EXERCISE DATE" has the meaning set forth in SECTION 4.3(d)(ii). "DEFAULT REPAYMENT EVENT" has the meaning set forth in SECTION 4.3(B)(ii). "DESIGN, DEVELOPMENT AND CONSTRUCTION BUDGET" means the aggregate hard and soft costs of construction of the Project, proposed by the Manager and approved by the Executive Committee, including real estate costs, all costs associated with the Resort Property, Vertical Improvements and Infrastructure Improvements, allowances for Furniture, Fixtures and Equipment attached or used within the Project, construction and design fees, permits and licenses, Pre-Opening Program costs, capitalized interest, and all associated financing fees through the date that the Project receives a final certificate of occupancy from the applicable governmental authority. The Design, Development and Construction Budget may be approved as a whole or in segments or by components (e.g., the Infrastructure Improvements separate from the Vertical Improvements, or components of the Vertical Improvements, such as interior furnishings as compared to the foundation and exterior facade, etc.). "DESIGN PLAN" means the architectural, interior design and landscaping plans for the Project submitted by architectural, interior design and landscaping firms selected by the Manager and approved by the Executive Committee, which Design Plan shall be approved by the Executive Committee. The Design Plan may be approved as a whole or in segments or by components by the Executive Committee. "DILUTION DATE" has the meaning set forth in SECTION 4.3(d). "DILUTION INTEREST" has the meaning set forth in SECTION 4.3(b)(i). 5 "DILUTION INTEREST PAYMENT AMOUNT" has the meaning set forth in SECTION 4.3(b)(i). "DISPROPORTIONATE CONTRIBUTION" has the meaning set forth in SECTION 4.2(d). "DISTRIBUTABLE CASH" has the meaning set forth in SECTION 3.4(k). "EBITDA" for any period means the Company's net income for such period (after deduction of the Base Management Fee for such period but prior to any deduction of the Incentive Management Fee for such period) PLUS, to the extent deducted in determining such net income, the Company's interest, income tax, depreciation and amortization expenses (including pre-opening expenses) for such period, in accordance with GAAP consistently applied and excluding in such calculation non-operating, non-recurring gains and losses. "EFFECTIVE DATE" has the meaning set forth in the Preamble. "EXECUTIVE COMMITTEE" has the meaning set forth in SECTION 3.12. "EXEMPT AFFILIATE" means a Person who is not a Fertitta Family Member, but who is an Affiliate solely because such Person is an investor in Parent or an investor in a successor to Parent by merger, consolidation, acquisition or similar manner, for a bona fide business purpose other than to evade the prohibition set forth in SECTION 3.8a). "EXEMPT PROPERTY" means a hotel and/or casino owned, operated, or managed by an investor in Parent (other than a Fertitta Family Member) or a successor to Parent (by merger, consolidation, acquisition or similar manner which is undertaken for an independent, bona fide business purpose other than to evade the prohibition set forth in SECTION 3.8a)) which was owned, operated or managed by such an investor in Parent (other than a Fertitta Family Member) or a successor to Parent prior to such merger, consolidation, acquisition or similar transaction. "FERTITTA FAMILY MEMBERS" means those Persons on EXHIBIT B, and such Persons' spouses and lineal descendants or trusts for the benefit of such Persons or their spouses or lineal descendants if such Persons or such spouses or lineal descendants are the trustees therefor. "FISCAL MONTH" means an individual monthly accounting period of the Company ending on the close of business on the last day of each calendar month. "FISCAL YEAR" means the Company's fiscal year ending on December 31 of each year (or, if earlier, the date on which the Company is liquidated within the meaning of Regulations Section 1.704-1(b)(ii)(g)). The first Fiscal Year of the Company shall commence on the Effective Date, and subsequent Fiscal Years shall commence on January 1. "FORCE MAJEURE" means war, insurrection, strikes, walkouts, riots, floods, earthquakes, fires, casualties, acts of God, acts of the public enemy, epidemics, quarantine restrictions, freight embargoes, lack of transportation, governmental restrictions, laws, rules, regulations, ordinances and/or proceedings (including, without limitation, those relating to building, zoning and land use and litigation brought by unrelated third parties, including eminent domain), unusually severe weather, inability to secure necessary labor, materials or tools, delays of any contractor, 6 subcontractor or supplier outside the reasonable control of the affected party, acts or failures to act (including the failure to issue Governmental Approvals or other approvals, consents, permits or licenses) of an unaffiliated party, acts or failures to act of any public or governmental agency, private or public utility or other entity (including GCR with regard to Station, and Station with regard to GCR) not due to the delay or fault of the affected party, or any other causes beyond the reasonable control or without the fault of the party claiming an extension of time to perform; provided, however, that such event actually affects such party's ability to perform and only for so long as it does affect such party's ability to perform. "FURNITURE, FIXTURES AND EQUIPMENT" means all furniture, fixtures and equipment reasonably required for the operation of the Project, including but not limited to office furniture, computer and communications systems, specialized hotel equipment necessary for the operation of the hotel/casino, food and beverage equipment, laundries and recreational facilities, but not including any such furniture, fixtures or equipment owned by Parent, Manager or their Subsidiaries (other than the Company) and used in the operation of the Project. Such items also shall include specialized casino equipment, including cashier, money sorting and money counting equipment, slot machines, table games, video gaming equipment, and other similar gaming equipment as well as surveillance equipment. "GAAP" means United States generally accepted accounting principles, as in effect from time to time. "GAMING AUTHORITY" means those federal, state and local governmental, regulatory and administrative authorities, agencies, boards and officials responsible for or involved in the regulation of gaming or gaming activities in any jurisdiction, including within the State of Nevada, specifically, the Nevada Gaming Commission, the Nevada State Gaming Control Board, and applicable local authorities. "GAMING LAWS" means those laws pursuant to which any Gaming Authority possesses regulatory, licensing or permit authority over gaming within any jurisdiction and, within the State of Nevada, specifically, the Nevada Gaming Control Act, as codified in NRS Chapter 463, as amended from time to time, and the regulations of the Nevada Gaming Commission promulgated thereunder, as amended from time to time. "GAMING LICENSES" shall mean all licenses, consents, permits, approvals, authorizations, registrations, findings of suitability, franchises and entitlements issued by any Gaming Authority necessary for or relating to the conduct of activities under the Gaming Laws. "GCR GUARANTY" means the Guaranty of GCR Gaming Guarantor, LLC, attached to this Agreement as EXHIBIT C. "GCR'S INITIAL CAPITAL CONTRIBUTION" has the meaning set forth in SECTION 4.1(a). "GENERAL MANAGER" means the individual selected and appointed by the Manager with the prior approval of the Executive Committee to manage and supervise the activities of the Project on a day-to-day basis during the Operating Period. 7 "GOVERNMENTAL APPROVALS" means all permits, licenses, consents and approvals of agencies of the City of Henderson, Nevada, Clark County, Nevada, the State of Nevada, or United States necessary for the construction of the Project and related Infrastructure Improvements in accordance with the Master Development Plan, and operation of the Project, excluding any Gaming Licenses or liquor licenses, permits or approvals required to be obtained by the Members. The material terms and conditions of all Governmental Approvals (excluding Gaming Licenses and liquor licenses) shall be subject to the prior approval of the Executive Committee; provided, however, that if neither member of the Executive Committee notifies the Manager within seven (7) calendar days after such written request for approval of a material term that he objects to such term, the Executive Committee shall be deemed to have approved such material term. "GRANT, BARGAIN AND SALE DEED" has the meaning set forth in SECTION 4.1(a). "GREENSPUN FAMILY MEMBER" means any of the following people: Susan Fine, Danny Greenspun, Jane Greenspun Gayle, Brian Greenspun, and Phillip Peckman, and each of such Persons' spouses and lineal descendants or trusts for the benefit of any such Persons or their spouses and lineal descendants if such Person or such spouses or lineal descendants are the trustees therefor. "GROSS ASSET VALUE" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (14) The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values, as determined in good faith by the Executive Committee, as of the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a DE MINIMIS Capital Contribution; and the distribution by the Company to a Member of more than a DE MINIMIS amount of property as consideration for the Member's interest in the Company; (15) The Gross Asset Value of any Company asset distributed to any Member shall be the gross fair market value of such asset, as determined in good faith by the Executive Committee, on the date of distribution; (16) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this Clause (iii) to the extent that an adjustment pursuant to the foregoing Clause (i) is made in connection with a transaction that would otherwise result in an adjustment pursuant to this Clause (iii); and (17) The Gross Asset Value of any asset contributed to the Company shall be its agreed-upon fair-market value, adjusted for book depreciation, amortization or other cost recovery deductions for periods subsequent to its contribution in the manner provided in Paragraph (vi) of the definition of "Profit" and "Loss." 8 "GROSS REVENUES" means all cash revenues and income (excluding interest income) of any kind derived from the use or operation of the Project determined in accordance with GAAP consistently applied, including without limitation, income from gaming activities; income from rental of guest rooms; food and beverage sales; income from entertainment programs and merchandise sales; telephone, telegraph and telex revenues; rental or other payments from lessees, sublessees and concessionaires and others occupying space or rendering services at the Project (but not (A) reimbursements for utilities, taxes or similar matters, or (B) the gross receipts of such lessees, sublessees or concessionaires except to the extent the same is part of such rental payments); income from vending machines; health club fees; and the actual cash proceeds of business interruption or similar insurance and of temporary condemnation awards after deducting necessary expenses in connection with the adjustment or collection of such proceeds; excluding, however, to the extent included in cash revenues and income of any kind derived from the use or operation of the Project and without duplication, (i) any proceeds from the sale, financing or refinancing or other disposition of the Project or substantially all of the assets of the Company; (ii) any proceeds from the sale, financing, refinancing or other disposition of Furniture, Fixtures and Equipment or other capital assets; (iii) proceeds of any fire, extended coverage or other insurance policies (excluding any proceeds of business interruption or similar insurance); (iv) condemnation (other than temporary) awards and other amounts received by the Company in lieu of condemnation; (v) any refunds, rebates, discounts and credits of a similar nature given, paid or returned in the course of obtaining Gross Revenues or components thereof, other than complementaries provided to patrons of the Project in the ordinary course of business and consistent with the Annual Plan and Operating Budget; (vi) gratuities or service charges or other similar receipts which the Company or the Manager pays to employees or others; (vii) excise, sales, gross receipts, admission, entertainment, tourist, use or similar taxes or charges collected from patrons or guests or as part of the sale price for goods, services or entertainment, other than taxes imposed on gaming revenues; (viii) any sum and credits received for lost or damaged merchandise; (ix) credit card processing fees and costs; and (x) bad debts. "GUARANTIES" means the GCR Guaranty and Station Guaranty. "GUARANTOR" means each of Station Casinos, Inc. and GCR Gaming Guarantor, LLC in their respective capacities as the signatories on the Guaranties attached to this Agreement. "INCENTIVE MANAGEMENT FEE" means the incentive management fee payable to the Manager pursuant to SECTION 3.5(b). "INDEX" has the meaning set forth in SECTION 8.9. "INFRASTRUCTURE IMPROVEMENTS" means (i) the rough grading of the Resort Property, and (ii) those physical improvements relating to the Resort Property identified in EXHIBIT D. "INITIAL CAPITAL CONTRIBUTIONS" has the meaning set forth in SECTION 4.1(b). "INITIAL DILUTION" has the meaning set forth in SECTION 4.3(b)(i). "LICENSING PROBLEM" has the meaning set forth in SECTION 5.3(b). 9 "MANAGER" means Station or any successor to Station approved by the Executive Committee pursuant to the terms of this Agreement. "MASTER DEVELOPMENT PLAN" means the comprehensive development plan (including estimated time lines therefor) for the Project, including the Design Plan, the Construction Plan, the Design, Development and Construction Budget and Infrastructure Improvements, each as may be amended from time to time in accordance with the terms of this Agreement, and all as approved by the Executive Committee. The components of the Master Development Plan may be approved as a whole or in segments or by components by the Executive Committee. "MEMBER" means any Person that is or becomes a party to this Agreement as a member of the Company. The initial Members of the Company are GCR and Station, and the addresses of the initial Members are set forth on EXHIBIT E. "MEMBER NONRECOURSE DEDUCTIONS" shall mean "partner nonrecourse deductions" as determined in accordance with Regulations Section 1.704-2(i)(2). "MEMBERSHIP INTEREST" means a Member's undivided percentage interest in the Company. Such interest includes any and all rights to which such Member may be entitled as provided in this Agreement or the Act, including such Member's Capital Account, together with all obligations of such Member under this Agreement or the Act. The initial percentage Membership Interests of the initial Members of the Company are set forth on Exhibit E, which percentages shall be subject to adjustment from time to time as set forth in SECTION 4.3. "MEMBER'S REPRESENTATIVE" has the meaning set forth in SECTION 5.6(b). "MINIMUM GAIN" shall mean "partnership minimum gain" as determined in accordance with Regulations Section 1.704-2(d)(1). "MINIMUM GAIN ATTRIBUTABLE TO MEMBER NONRECOURSE DEBT" shall mean "partner nonrecourse debt minimum gain" as determined in accordance with Regulations Section 1.704-2(i)(3). "NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Regulations Section 1.704-2(c). "NOTICE ADDRESS" has the meaning set forth in SECTION 8.1. "NOTICES" has the meaning set forth in SECTION 8.1. "OPENING" means the date on which the casino portion of the Project is first opened to the public and commences business. "OPERATING COSTS" means, to the extent included within the Design, Development and Construction Budget or the then-current Annual Plan and Operating Budget or to the extent otherwise approved by the Executive Committee, all costs and expenses of constructing, maintaining, conducting and supervising the operation of the Project which are properly attributable 10 to the Fiscal Month or Fiscal Year under consideration in accordance with GAAP, including without limitation: (18) the cost of all food and beverages sold or consumed by the Company and of all Operating Supplies and Operating Consumables, with the exception of the cost of food and beverages and other items sold or consumed by lessees and sublessees; (19) salaries, wages and other benefits of the Company's personnel employed with respect to the Project, including costs of payroll taxes and employee benefits, the salaries, wages, benefits, and expenses, including travel expenses, of third-party consultants; (20) the cost of all other materials, supplies, goods and services in connection with the operation of the Project including, without limitation, heat and utilities, trash removal, office supplies, security and all other services performed by third parties, telephone and data processing equipment and other equipment; (21) the cost of repairs to and maintenance of the Project to the extent not paid for from the Reserve Fund or by the actual cash proceeds of any fire or casualty insurance after deducting necessary expenses in connection with the adjustment or collection of such proceeds; (22) insurance and bonding premiums with respect to the Project, including, without limitation, property damage insurance, public liability insurance, workers' compensation insurance, or insurance required by similar employee benefits acts and such business interruption or other insurance as may be provided for protection against claims, liabilities and losses incurred with respect to deductibles applicable to the foregoing types of insurance; (23) all taxes, assessments, water/sewer charges, and other fees and charges (other than federal, state or local income taxes and franchise taxes or the equivalent) payable by or assessed against the Company with respect to the operation of the Project; (24) legal, consulting, lobbying, accounting and other fees for professionals for services related to the development or operation of the Project; (25) all expenses for marketing the Project, including all expenses of advertising, sales, promotion and public relations activities; and (26) all excise, sales, gross receipts, admission, entertainment, tourist or use taxes, gaming taxes and device fees, real estate taxes, ad valorem taxes, personal property taxes, utility taxes and other taxes (as those terms are defined by GAAP), assessments for public improvements, and municipal, county and state license and permit fees. Operating Costs shall include Shared Expenses. The type and estimated amount of Shared Expenses and method for calculation of the same shall be approved by the Executive Committee to fairly distribute the costs of such services when it considers the Annual Plan and Operating Budget; provided, however, that such allocation will not discriminate against the Company as compared with 11 the allocation of such expenses among other properties operated by Parent, Manager or their Subsidiaries. For example, subject to the prior sentence, Shared Expenses may include the costs incurred by the Manager, Parent or their respective Subsidiaries for direct salary and wages (including, without limitation, employer's contributions under FICA, unemployment compensation or other employment taxes, and Manager's, Parent's or their respective Subsidiaries' regular pension fund contributions, worker's compensation, group life, accident, health and other health insurance premiums, profit sharing, and retirement plans, disability and other similar benefits) paid to or accrued for the benefit of employees of the Manager, Parent or their respective Subsidiaries that are assigned to perform a function for the Company that otherwise would be filled by an employee of, or third party provider to, the Company, prorated to the extent actually attributable to each such employee's actual time incurred for the benefit of the Company. Shared Expenses shall be subject to audit by any Member not more than once every Fiscal Year. Operating Costs and Shared Expenses will not include (i) any costs incurred by the Manager, Parent, or Manager's or Parent's Subsidiaries, Station or GCR that are not expressly reimbursable by the Company pursuant to the terms of this Agreement or the then-current Annual Plan and Operating Budget, such as general overhead expenses of Station, Manager, or Parent or Manager's or Parent's Subsidiaries, or (ii) the Base Management Fee or Incentive Management Fee. "OPERATING BANK ACCOUNT" means the Bank Account maintained by and in the name of the Company for the payment of Operating Costs and the deposit of monies related to the business, which account shall be separate and distinct from any other accounts, reserves or deposits required by this Agreement. The Operating Bank Account shall be an interest bearing account if such an account is reasonably available and all interest earned shall be retained in the Operating Bank Account. "OPERATING CONSUMABLES" means all food, beverages and other immediately consumable items utilized in operating the Project, such as soap, cleaning materials, matches, stationary, brochures, folios, and other similar items. "OPERATING PERIOD" means that time period from the Opening until the liquidation of the Company. "OPERATING SUPPLIES" means all non-capital equipment necessary for the day-to-day operation of the Project, including but not limited to chips, tokens, uniforms, playing cards, glassware, linens, silverware, utensils and dishware. "PERMANENT FINANCING" means any debt financing incurred by the Company in refinancing or replacement of the Construction Financing or prior Permanent Financing on terms and conditions approved by the Executive Committee. "PERMITTED EXCEPTIONS" means, with respect to the Resort Property, those matters set forth on EXHIBIT F. "PERSON" means any individual, corporation, limited liability company, partnership, trust or other entity. 12 "PRE-OPENING PERIOD" means that time period from the Effective Date to the Opening. "PRE-OPENING PLAN" means an action plan and budget (which need not be in writing, except for the budget therefor) delineating the key actions (with estimated timelines) to be taken by the Manager on behalf of the Company to prepare the Project for the Opening, including recruitment, training, marketing, advertising, operations planning and cost estimates, in each case consistent with the Design, Development and Construction Budget, which Pre-Opening Plan shall be subject to approval by the Executive Committee. "PROBLEM MEMBER" has the meaning set forth in SECTIONS 5.3(a) AND (b). "PROFITS" and "LOSSES" for each Fiscal Year (or other period) means an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (27) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be added to such taxable income or loss; (28) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be subtracted from such taxable income or loss; (29) In the event the Gross Asset Value of any Company asset is adjusted pursuant to Clause (i) or Clause (ii) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; (30) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (31) Notwithstanding any other provision of this definition, any items that are specially allocated pursuant to SECTIONS 4.4(c) AND 4.4(d)(ii) hereof shall be excluded from such taxable income or loss; and (32) If the Gross Asset Value of any Company asset is different from its adjusted tax basis at the beginning of the Fiscal Year, then, in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction bears to such beginning adjusted tax basis; provided, however, that if such beginning adjusted tax basis is zero, such amount shall be determined with reference 13 to such beginning Gross Asset Value using any reasonable method determined by the Manager. "PROJECT" means the Vertical Improvements and the Infrastructure Improvements, all in accordance with the Master Development Plan. "REGULATIONS" means the Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "REGULATORY ALLOCATIONS" has the meaning set forth in SECTION 4.4(c)(vi). "REMOVAL PUT EXERCISE DATE" has the meaning set forth in SECTION 3.6(c). "RESERVE FUND" means a Bank Account maintained by and in the name of the Company for the payment of Capital Improvements and Replacements for the Project, which account shall be separate and distinct from any other accounts, reserves or deposits required by this Agreement. The Reserve Fund shall be an interest bearing account if such an account is reasonably available and all interest earned shall be retained in the Reserve Fund. "RESORT PROPERTY" means the real property upon which the Project is to be developed. The Resort Property is legally described on EXHIBIT G attached hereto. "RESTRICTED ACTIVITY" has the meaning set forth in SECTION 3.8(a). "RETAINED DISTRIBUTIONS" has the meaning set forth in SECTION 4.3(b)(ii). "RETURN ON TOTAL PROJECT COST" means, with respect to any Fiscal Year of the Company, the percentage determined by dividing the Company's EBITDA for such Fiscal Year by the quotient resulting from dividing (A) the Total Project Cost as of the beginning of such Fiscal Year, plus the Total Project Cost as of the end of such Fiscal Year, by (B) the integer two (2). (In the event that the Incentive Management Fee is payable in any year in which there are less than 12 calendar months, then the Incentive Management Fee shall be calculated in such year utilizing the EBITDA for the actual months (or portions thereof) on an annualized basis, with the Return on Total Project Costs similarly being determined based on the first and last day of the applicable period, rather than a Fiscal Year). "SECONDARY DILUTION" has the meaning set forth in SECTION 4.3(b)(i). "SHARED EXPENSES" means Parent's, the Manager's or their respective Subsidiaries' (as the case may be) allocated out-of-pocket costs (not including any mark-up or other profit margin) for shared employees and for shared services related to the Project as approved by the Executive Committee (examples of Shared Expenses and method for allocating the same are set forth on EXHIBIT H). "STATION GUARANTY" means the Guaranty of Station Casinos, Inc. attached to this Agreement as EXHIBIT I. 14 "STATION'S INITIAL CAPITAL CONTRIBUTION" has the meaning set forth in SECTION 4.1(b). "SUBSIDIARY" means, with respect to any Person, any other Person at least fifty percent (50%) of the economic or voting interest of which is owned by such Person. "TAX ITEMS" has the meaning set forth in SECTION 4.4(d)(i). "TAX MATTERS MEMBER" has the meaning set forth in SECTION 3.9. "TOTAL PROJECT COSTS" means the total investment in the land, property, improvements, plant and equipment of the Project, in accordance with GAAP, plus pre-opening expenses, but excluding amortization and depreciation. "TRANSFER" means, as a noun, any voluntary or involuntary transfer, sale, assignment, pledge, hypothecation or other disposition and, as a verb, voluntarily or involuntarily to transfer, sell, assign, pledge, hypothecate or otherwise dispose of. "TRANSITION PERIOD" has the meaning set forth in SECTION 4.3(f). "TWENTY FIVE PERCENT PAYMENT" means a payment of twenty-five percent (25%) per annum on the outstanding amount of a Default Amount (after reflecting at each point during the calculation of such 25% payment the amount of any Default Distributions or Retained Distributions) to be paid by the defaulting Member to the non-defaulting Member pursuant to the terms of SECTION 4.3 from the date on which such Default Amount was to be paid through the date on which such Default Amount is last outstanding (up to a maximum of one year). "UNSUITABLE PERSON" means a Member, Manager or officer of the Company, or an Affiliate of any such Person, (i) who is denied or refused a Gaming License by any Gaming Authority in the State of Nevada, disqualified from eligibility for a Gaming License necessary for the ownership of or participation in non-restricted gaming in the State of Nevada, determined to be unsuitable to own or control a Membership Interest or determined to be unsuitable to be connected with a Person engaged in gaming activities in the State of Nevada by a Gaming Authority or otherwise fails to obtain a Gaming License necessary for the ownership of or participation in non-restricted gaming in the State of Nevada, or (ii) whose continued involvement in the business of the Company as a Member, Manager, officer, employee or otherwise, (A) causes the Company to lose or to be threatened with the reasonably likely loss of any Gaming License, or (B) is deemed likely, in the reasonable discretion of GCR and Station and based on verifiable information or information received from the Gaming Authorities, to jeopardize or adversely affect the likelihood that the Gaming Authorities will issue a Gaming License to the Company or to adversely affect the Company's use of or entitlement to any Gaming License or that of GCR, Station or Parent, or any of their Affiliates. "VERTICAL IMPROVEMENTS" means all buildings, structures and improvements to be constructed on the Resort Property and all fixtures and equipment attached to or forming a part thereof (including, without limitation, heating, lighting, plumbing, sanitation, air conditioning, laundry, refrigeration, kitchen, elevator and similar items or systems, guest rooms, restaurants, bars and banquet, meeting and other public areas, commercial space, including concessions and shops, garage 15 and parking space, storage and service areas, recreational facilities and areas, public grounds and gardens, permanently affixed signage, aquatic facilities, and other facilities and appurtenances) in accordance with the Master Development Plan, but excluding the Infrastructure Improvements. "VOTING STOCK" means all issued and outstanding shares of a Person's stock of any type, or class or any other security issued by such Person, entitling the holder of such stock or other security to vote for any member of such Person's board of directors or otherwise with respect to the control and affairs of such Person. "WITHHELD TAXES" has the meaning ascribed to it in SECTION 4.5(b) hereof. ARTICLE II FORMATION 1.2 FORMATION. The Company was formed by the filing of the Articles of Organization with the Nevada Secretary of State on November 19, 1999, which Articles of Organization are attached hereto as EXHIBIT J . 1.3 NAME. The name of the Company shall be Green Valley Ranch Gaming, LLC, and all business of the Company shall be conducted in such name or in any other name or names that are selected by the Manager with the prior approval of the Executive Committee. Subject to Executive Committee approval, the name of the casino portion of the Project may include some variation of the words "Station Casino," and Station and Parent shall license to the Company such name and all associated trademarks, logos and systems necessary for use in connection with the operation of the Project pursuant to a license agreement executed contemporaneously with this Agreement. Such license agreement provides, among other things, that, in the event that Station ceases to be a Member of the Company pursuant to a termination of this Agreement or otherwise, the Company or the successor to the business of the Company will have the right to use such name, marks, logos and systems (including, but not limited to, reservation systems and computer systems) in the manner used on the date of termination of Station's status as a Member for a period equal to the greater of (i) two months, or (ii) the duration of the Transition Period, if GCR has exercised its rights pursuant to the terms of this Agreement to cause Station to act as Manager during such Transition Period, in both instances after which time such name, marks, logos and systems may no longer be used in connection with the Project without Parent's consent. If Station is terminated as the Manager pursuant to SECTION 3.6(a)(i, ii OR iii), then such right to use such name, mark, logos and systems shall be for up to six months. 1.4 PURPOSES AND POWERS. The purpose of the Company is to develop and operate the Project. In connection therewith, the Company shall have authority to engage in any lawful business, purpose or activity permitted by the Act, and it shall possess and may exercise all of the powers and privileges granted by the Act or which may be exercised by any limited-liability company organized pursuant to the Act, together with any powers incidental thereto, so far as such powers or privileges are necessary or convenient to the conduct, promotion or attainment of the business, purposes or activities of the Company. 16 1.5 REGISTERED AGENT AND REGISTERED OFFICE. The Manager shall constitute the Company's registered agent for purposes of the Act and the Manager shall maintain the registered office of the Company as required by the Act. The address of the Company's initial registered office shall be 2411 Sahara Avenue, Las Vegas, Nevada 89102. In addition to any records required by the Act, the Manager shall maintain the following records at the registered office: (i) a current list of the full name and last known business address of each Member and Manager, separately identifying the Members in alphabetical order and the Manager(s) in alphabetical order; (ii) a copy of the filed Articles of the Company and all amendments thereto, together with executed copies of any powers of attorney pursuant to which any document has been executed; (iii) copies of the Company's federal, foreign, state and local income tax returns and reports, if any, for the three most recent years; (iv) copies of this Agreement and any amendments thereto; and (v) any financial statements of the Company for the three most recent years. The Company's registered agent and office may be changed by the Executive Committee. ARTICLE III MANAGEMENT 1.6 THE MANAGER. Subject to the approval rights vested in the Executive Committee, the Members or GCR pursuant to this Agreement, the sole responsibility and authority for the management of the Company is vested in the Manager, and the Manager shall have the complete right and authority to manage the business and affairs of the Company. The rights, duties and obligations of Station as Manager are personal to Station based on Station and Parent's unique experience and, except as expressly set forth in this Agreement, may not be transferred, assigned or delegated without the prior approval of GCR and Station. Except as limited in SECTION 3.7 below, any duly authorized officer of the Manager shall have the authority to act on behalf of the Manager. Except as set forth in this Agreement, the Manager may not resign without the unanimous approval of the Members and may be removed only as expressly set forth in this Agreement. No Member, acting in its capacity as a Member, shall constitute an agent of the Company or have any authority to act for or bind the Company. The Members agree that they shall use commercially reasonably efforts to cooperate with the Manager as reasonably requested by the Manager in carrying out its duties under this Agreement and in complying with any restrictions placed on the Members or the Company by any Gaming Authority. (a) STANDARD OF CARE. In conducting the management of the Company, the Manager shall (i) comply with the provisions of this Agreement, and (ii) act in good faith in a manner reasonably believed to be in the best interests of the Company and with the same care as a prudent person would exercise in the management of its own hotel and gaming properties. Subject to the foregoing, the Manager may reasonably rely on information, opinions, reports or statements prepared or presented by officers, employees or other agents of the Company acting within the scope of their employment or by counsel, public accountants or other advisors to the Company. (b) STANDARD OF OPERATION. The Manager shall operate the casino portion of the Project (including restaurants, food and beverage and all other components related thereto) to a standard of operation at least as high as that existing at the Parent's or the Parent's Subsidiaries' highest quality casinos as of the date of this Agreement, unless the Annual Plan and Operating Budget would not reasonably allow the maintenance of such standard of operation. The Manager 17 shall, at all times during this Agreement, operate the hotel, meeting facilities, room service, restaurants related to the hotel, pool, spa (if the Manager operates the spa), concierge, hotel and meeting facilities' valet parking and ancillary food and beverage and other components related to the hotel (excluding the casino related components) to a standard of operation competitive with service at the then-existing higher-end Las Vegas area resorts, unless the Annual Plan and Operating Budget would not reasonably allow the maintenance of such standard of operation. 1.7 EXPENSE OF CONSTRUCTION. Subject to the Design, Development and Construction Budget approved by the Executive Committee, the Company shall pay the fees, costs and expenses of planning, constructing, financing, designing, equipping, decorating and furnishing the Project. Notwithstanding the foregoing, GCR shall pay directly to the contractor the costs of rough grading the Resort Property and constructing the Infrastructure Improvements in excess of $11,000,000.00, after the Company has expended in full $11,000,000 for such Infrastructure Improvements pursuant to the Design, Development and Construction Budget. Any such payment by GCR shall not be deemed to be a Capital Contribution and shall not affect the Capital Account of GCR. 1.8 MANAGER'S DUTIES DURING PRE-OPENING PERIOD. During the Pre-Opening Period, the Manager shall make available to the Company Station's and Parent's unique experience in the design and planning of modern hotels and casinos, and shall supervise the planning, designing, equipping, decorating and furnishing of the Project. Without limiting the foregoing, the Manager shall have the following duties and responsibilities: (1) MASTER DEVELOPMENT PLAN. The Manager shall consult with the Executive Committee on a regular basis regarding the formulation of the components of the Master Development Plan and shall submit such components for approval by the Executive Committee prior to submittal thereof to the City of Henderson (or other application or filing to any governmental or quasi-governmental entity) and at times necessary to assure construction of the Project can commence by July 1, 2000. Further, at the sole expense of the Company pursuant to the approved Design, Development and Construction Budget, the Manager shall, subject to Force Majeure, take commercially reasonable steps to cause the Company to obtain timely all Governmental Approvals necessary in order to commence construction of the Project by July 1, 2000. In addition, at the sole expense of the Company pursuant to the approved Design, Development and Construction Budget, the Manager shall take commercially reasonably steps to cause the Company to procure and maintain insurance during construction that conforms to reasonable industry standards; such insurance shall conform to the applicable requirements of SECTION 3.4(l) (e.g., the Members' being additional insureds, 30-day notice of cancellation, etc.). (2) CONSTRUCTION FINANCING. The Manager shall promptly make application for, and shall, subject to Force Majeure, take all commercially reasonable steps within its control to cause the Company to obtain, at the Company's sole cost and expense, a commitment or signed engagement letter for Construction Financing on or prior to March 15, 2000. Such Construction Financing (including any commitment therefor), and any Permanent Financing incurred by the Company, including the documentation with respect thereto, shall be subject to the prior approval of the Executive Committee. (3) CONSTRUCTION OF INFRASTRUCTURE IMPROVEMENTS. Commencing no later than April 15, 2000, subject to Force Majeure, the Manager shall cause the Company to commence rough 18 grading of the Resort Property and construction of the Infrastructure Improvements and shall diligently prosecute such construction to completion, and in any event shall use commercially reasonable efforts to protect the Resort Property's land use entitlements. The Manager shall not authorize any change in the scope of the rough grading or the Infrastructure Improvements without the prior written approval of GCR. Further, the Manager shall not, without the prior written approval of GCR, authorize any increase in the cost of any line item for Infrastructure Improvements as set forth in the Design, Development and Construction Budget by more than five percent (5%), or any increase in the aggregate cost of the rough grading and Infrastructure Improvements exceeding $12,400,000. GCR shall not unreasonably withhold or delay its approval to a request by the Manager pursuant to this SECTION 3.3.(c). (4) CONSTRUCTION OF VERTICAL IMPROVEMENTS. Commencing no later than July 1, 2000, subject to Force Majeure, the Manager shall cause the Company to commence construction of the Vertical Improvements and shall use commercially reasonable efforts to protect the Resort Property's land use entitlements. Thereafter, the Manager shall use commercially reasonable efforts to supervise and cause the completion of the construction of the Project and to obtain on behalf of the Company all Furniture, Fixtures and Equipment requisite for the operation of the Project, all in accordance with the Master Development Plan and at the Company's sole cost and expense. Except as set forth in SECTION 3.3(c) with respect to rough grading of the Resort Property and Infrastructure Improvements, the Manager may authorize a change order which changes the Design Plan, the Construction Plan, the Design, Development and Construction Budget or Master Development Plan without the prior approval of the Executive Committee; provided, however, the Executive Committee's prior approval shall be required for any change order that materially changes the Design Plan, the Construction Plan, the Design, Development and Construction Budget or Master Development Plan. In the event that neither member of the Executive Committee notifies the Manager within seven (7) calendar days after receipt of such written request for approval of a material change to the Design Plan, the Construction Plan, the Design, Development and Construction Budget or Master Development Plan that he objects to such change, the Executive Committee shall be deemed to have approved such material change. A material change requiring the approval of the Executive Committee is any item that: (a) materially changes the scope, appearance or functionality of the Project; or (b) increases the cost of the design and construction of the Project (excluding the Infrastructure Improvements) as set forth in the Design, Development and Construction Budget of the Vertical Improvements to more than $265,000,000.00, regardless of whether such changes are covered by a contingency reserve. (5) CONSTRUCTION CONTRACT APPROVALS. The Manager shall submit the Company's contracts with the architect, interior design and landscaping prime contractors for the Project and the general construction contractor for the Project for the prior approval of the Executive Committee. If requested by GCR, the contract with the general contractor shall be divided into two contracts, one for the Infrastructure Improvements and one for the remainder of the Project. (6) PRE-OPENING PLAN. The Manager shall prepare and submit for Executive Committee approval within 90 days prior to the Opening, and put into effect as appropriate after receiving such approval, a Pre-Opening Plan for the organization, services, sales and marketing program of the Project, and shall use commercially reasonable efforts to cause the Company to engage the General Manager and such employees as may be necessary in connection with the operation of the Project. 19 (7) PRE-OPENING SERVICES. Consistent with the approved Pre-Opening Plan, the Manager shall use commercially reasonable efforts to cause the Company to enter into agreements and arrangements with concessionaires, licensees, tenants, suppliers, sub-contractors or other intended users of the facilities of the Project, subject to the prior approval of the Executive Committee in the case of leases, licenses or concessions or other contracts as set forth in SECTION 3.4(m) AND SECTION 3.13. The Manager shall recruit and train for and on behalf of the Company the initial staff of the Project through such training programs and other training techniques as the Manager shall deem advisable and test the proposed operation of the Project by furnishing the services normally offered in the operation of a hotel/casino, including the serving of food and beverages, and generally operating the completed portions of the Project for a reasonable test period immediately prior to the Opening. (8) REPORTING. During the Pre-Opening Period, the Manager shall provide the Executive Committee with monthly progress reports not later than the twentieth day of each month, which progress reports shall set forth in reasonable detail all expenditures during the preceding month together with a comparison of such expenditures to budgeted amounts and a revised estimate of the Project's remaining cost to completion. In addition, representatives of the Manager shall be available to meet with representatives of the Members on at least a monthly basis to review the status of the Project. (9) CONTRACTS. The Manager shall use commercially reasonable efforts to cause the Company to comply with and not to become in default under any contract, agreement, loan document or other obligation of the Company if the failure to comply therewith or a default thereunder would have a material adverse effect on the Company or any Member. (10) ADDITIONAL RESPONSIBILITIES. The Manager shall comply with the provisions of SECTIONS 3.4(c), 3.4(h), 3.4(j), 3.4(n) AND 3.4(p) prior to Opening, and the Members and Executive Committee shall have their respective rights as set forth therein. Also, the provisions of SECTIONS 3.4(d), 3.4(e) AND 3.4(f) shall apply prior to the Opening to the extent that they reasonably should be applicable. 1.9 MANAGER'S ADDITIONAL DUTIES, INCLUDING DURING OPERATIONAL PERIOD. During the Operating Period, the Manager shall provide to the Company all services customarily provided by Parent, Station or their respective Subsidiaries or Affiliates to other casinos owned or controlled by Parent, including financial, accounting, marketing, reservations, human resources and risk management services, shall afford the Company the benefit of group purchasing and similar services, and shall, subject to the Annual Plan and Operating Budget, take commercially reasonable steps to include the Company in such promotions being offered through Parent's (or its Subsidiaries' or Affiliates') other casinos in the Las Vegas area. In addition, the Manager shall provide the Company with the services of senior management personnel of Parent to the extent required to enable the Company to conduct its operations in accordance with SECTION 3.1(b). Without limiting the foregoing, the Manager shall have the following responsibilities and duties during the Operating Period and, to the extent applicable, prior to the Operating Period, which, except as provided in this Agreement (including the necessity for approval of the Annual Plan and Operating Budget or inclusion in the Design, Development and Construction Budget, as applicable), shall be at the sole cost and expense of the Company: 20 (1) ANNUAL PLAN AND OPERATING BUDGET. (1) Not less than ninety (90) days prior to Opening and not less than forty-five (45) days prior to the commencement of each full Fiscal Year thereafter, the Manager shall submit for approval by the Executive Committee a proposed Annual Plan and Operating Budget. If the Executive Committee fails to approve the proposed Annual Plan and Operating Budget by December 1 of any given calendar year, the Project shall continue to operate under the most recent Annual Plan and Operating Budget as if it were for such upcoming Fiscal Year until the Executive Committee otherwise agrees; except that capital expenditures (including equipment leases and similar transactions) for Capital Improvements and Replacements shall be permitted to the extent that amounts on deposit in the Reserve Fund are sufficient to fund the costs of such expenditures and thereafter only to repair or replace damaged portions of the Project or damaged or unusable Furniture, Fixtures and Equipment. (2) The Manager shall propose revisions to the Annual Plan and Operating Budget from time to time to reflect any unanticipated significant changes, variables or events or to include significant additional unanticipated items of income or expense. Any such revision shall be submitted to the Executive Committee for approval. If the Executive Committee fails to approve such revision within thirty (30) days after the date of such submission, the Project shall be operated in accordance with the original Annual Plan and Operating Budget until the Executive Committee otherwise agrees. (3) Except as expressly set forth in SECTION 3.13 or elsewhere in this Agreement, the Manager may enter into any contract, agreement, license or other financial obligation so long as the amounts required to finance the Company's performance of such contract, agreement, license or other financial obligation during the then-current fiscal year have been included in the then-current Annual Plan and Operating Budget, or make any change in the interior or exterior use, operation, functionality or appearance of the Project (that is not a material change), without the prior approval of the Executive Committee. In the event that the Manager requests the approval of the Executive Committee for a material change to the interior or exterior use, operation, functionality or appearance of the Project and neither member of the Executive Committee notifies the Manager within seven (7) calendar days after receipt of such written request that he objects to such change, the Executive Committee shall be deemed to have approved such material change. (4) A pro forma for the first 5-years of operation of the Project, including compensation projected to be payable to the Manager pursuant to SECTION 3.5, previously has been provided to the Members. The pro forma is for illustrative purposes only and is not an approved Annual Plan and Operating Budget and neither Station nor GCR make any representations or warranties with respect thereto. (2) CAPITAL EXPENDITURES. 21 (1) The Manager shall recommend to the Executive Committee from time to time proposed Capital Improvements and Replacements and the design and specifics thereof. If the Executive Committee approves such Capital Improvements and Replacements (including a budget therefor), the Manager shall use commercially reasonable efforts to cause the installation thereof. All Capital Improvements and Replacements approved by the Executive Committee shall be made at the sole cost and expense of the Company (subject to the budget therefor) and to the extent reasonably feasible in a manner that will minimize any adverse impact on the normal operation of the Project. (2) The Manager shall, to the extent Company funds are available following allocation pursuant to SECTION 3.4(k), set aside within 15 days following the end of each Fiscal Month after Opening an amount equal to three percent (3%) of Gross Revenues for such Fiscal Month, which amounts shall be deposited into the Reserve Fund to pay for Capital Improvements and Replacements. Any expenditures for Capital Improvements and Replacements during any Fiscal Year which have been budgeted in the Annual Plan and Operating Budget or otherwise approved by the Executive Committee may be made by the Manager without additional approval and, to the extent funds are available, such payments shall be made by the Manager from the Reserve Fund (including accrued interest and unused accumulations from earlier years). Any amounts remaining in the Reserve Fund at the close of a Fiscal Year shall be carried forward and retained in the Reserve Fund until fully used as herein provided. To the extent the Reserve Fund is insufficient at a particular time, or to the extent the Reserve Fund plus anticipated contributions for the existing Fiscal Year is less than the amount required by the Annual Plan and Operating Budget for the ensuing Fiscal Year, then additional expenditures shall be subject to the prior approval by the Executive Committee and, if such expenditures are approved, the Executive Committee shall determine the source of funds for such Capital Improvements and Replacements; provided that the Members shall have the funding obligation set forth in SECTION 4.2(c) hereof. The Manager may, in its reasonable discretion, sell capital items that are obsolete or are no longer needed for the operation of the Project and deposit the proceeds thereof in the Reserve Fund; provided that Executive Committee prior approval shall be required with respect to the sale of any capital item with a fair market value of $500,000 or more. (3) In the event a condition should exist with respect to the Project of an emergency nature, including structural repairs, which requires that immediate repairs are necessary to preserve and protect the Project, assure its continued operation or protect the health and safety of its guests or employees, the Manager, on behalf and at the sole cost and expense of the Company and as an Operating Cost, is authorized to take all steps and to make all expenditures reasonably necessary to repair and correct any such condition, whether or not provisions have been made in the applicable Annual Plan and Operating Budget for any such emergency expenditures, up to a maximum of $500,000 for any single such emergency. The Manager agrees that it shall cause the Company to make such repairs and replacements only after it has made a reasonable attempt (if circumstances permit) to inform the Executive Committee of the existence of such emergency, the repairs and replacements it proposes to make, and the estimated amount of expenditures to be incurred. If the Manager has been unable to advise the Executive Committee in advance, it shall promptly notify the Executive Committee after taking any necessary action. Expenditures made by the Manager in connection with an emergency shall be paid for first by the Company from the Reserve Fund to the extent funds are available, and then from the Operating Bank Account. 22 (4) In the event that repairs to, or additions, changes or corrections in, the Project of any nature shall be required by reason of any laws, ordinances, rules or regulations now or hereafter in force, or by order of any governmental or municipal power, department, agency, authority or officer, the Manager shall inform the Executive Committee of the existence of the governmental regulations and the repairs, additions, changes or corrections it believes are required to be made and the estimated expenditures to be incurred. The Executive Committee shall determine whether to contest the validity or application of any such governmental requirements or to make such repairs; provided, however, that the Manager shall be authorized and empowered to take all actions it reasonable believes are necessary to comply with applicable laws if the failure to so comply might expose the Company, any Member, or the Manager to criminal liability, materially and adversely affect the operation of the Project, or jeopardize any Gaming License held by the Manager, Parent, any of Parent's Subsidiaries, any Member or the Company. (3) PERMITS. The Manager, at the sole cost and expense of the Company, shall use commercially reasonable efforts to obtain on or before the Opening and thereafter keep in full force and effect, all Governmental Approvals, including Gaming Licenses and liquor, bar, restaurant, sign and hotel licenses, as may be required for the operation of the Project pursuant to the operations standard in SECTION 3.1(b), other than any Gaming Licenses or liquor licenses, permits or approvals required to be obtained by the Members and their Affiliates in their individual capacities (which the Members agree to use their best efforts to obtain at their respective sole cost and expense prior to the scheduled Opening, including the timely submission of all applications and disclosures required or requested by the Gaming Authorities and liquor licensing authorities). The Manager shall operate and manage the Project in a manner that will not materially adversely affect the Governmental Approvals necessary for the operation of the Project, but in all events shall use all reasonable efforts within its control to cause the Company, at the Company's sole cost and expense, to comply with all material conditions or requirements set out in any Governmental Approvals. (4) OPERATING SUPPLIES AND OPERATING CONSUMABLES. After Opening, the Manager shall, on behalf of the Company, use commercially reasonable efforts to obtain and maintain such Operating Supplies and Operating Consumables as it deems reasonably necessary for the operation of the Project in accordance with the Master Development Plan and subject to the provisions of this Agreement and the then-current Annual Plan and Operating Budget. (5) PERSONNEL. (1) The Manager shall hire all employees of the Company for and on behalf of the Company. All personnel hired by the Company for the Project (other than those that constitute Shared Expenses) shall be employees of the Company and all wages, compensation and benefits shall be the exclusive obligation of the Company and the Manager shall not be liable to any of the Company's personnel therefor, except to the extent that the Manager sets the compensation in contravention of the Annual Plan and Operating Budget without the Executive Committee's approval. Subject to the Annual Plan and Operating Budget, the Manager shall hire, supervise, direct, discharge and determine the compensation, other benefits and terms of employment of the Company's personnel. With the exception of the General Manager, the Manager shall be the sole judge of the fitness and qualifications of such personnel and is vested with absolute discretion in hiring, supervising, directing, discharging and determining the compensation, other benefits and terms of employment of such personnel. The Members may consult, advise or communicate with 23 the Manager, Construction Manager, or the General Manager regarding Project personnel or problems related to personnel at any time, but no Member shall interfere with or give orders or instructions to any personnel employed at the Project. (2) The Manager shall use commercially reasonable efforts to cause the Company to obtain workers' compensation insurance and employer's liability insurance. The insurance coverages required hereunder shall be set forth in the Annual Plan and Operating Budget. (3) The general hiring policies and the discharge of employees at the Project shall in all material respects comply with all "Equal Employment Opportunity" laws and regulations, and the Manager agrees to comply in all material respects with all laws, regulations and ordinances regarding the employment and payment of persons engaged in the operation of the Project, including without limitation all "Equal Employment Opportunity" laws and regulations. (4) The Manager shall keep the Executive Committee informed of all negotiations with labor unions representing employees at the Project, and neither the Manager nor the Company shall enter into any union contracts covering its employees without the prior approval of the Executive Committee, unless required by law to do so (which contracts, in all cases, shall be furnished to the Executive Committee as soon as reasonably possible). (6) SALES, MARKETING AND ADVERTISING. Subject to the Annual Plan and Operating Budget, the Manager shall, at the sole cost and expense of the Company, advertise and promote the business of the Project, institute and supervise a sales and marketing program, and coordinate with tour programs marketed by airlines, travel agents and government tourist departments when the Manager deems the same to be advisable for the operation of the Project. Subject to the Annual Plan and Operating Budget, the Manager may cause the Project to participate in sales and promotional campaigns and activities involving complimentary rooms, food and beverages to customers, bona fide travel agents, tourist officials and airline representatives where such is customary and appropriate in the gaming industry. (7) MAINTENANCE AND REPAIRS. Subject to the Annual Plan and Operating Budget, the Manager shall make or cause the Company to make, at the sole cost and expense of the Company, all repairs, replacements, corrections and maintenance items to the Project as shall be required in the normal and ordinary course of operation of the Project. In conjunction therewith and subject to this Agreement (including SECTION 3.13) and the Annual Plan and Operating Budget, the Manager is authorized to make and enter into in the name of, for the account of and at the expense of the Company, all such contracts and agreements as in the Manager's opinion are reasonably necessary for the repair and maintenance of the Project and to cause the same to be paid by the Company when due. (8) COMPLIANCE WITH LEGAL REQUIREMENTS. The Manager shall take all commercially reasonable actions necessary to materially comply with, and to cause the Company to materially comply with, any and all laws, orders or requirements of any federal, state, county or municipal agency affecting the Project or the ownership or operations thereof. The Executive Committee shall determine whether to contest any tax payment or assessment, or any governmental or regulatory order or requirements (except that, where failure to comply promptly with any such order or requirements might expose the Company, any Member or the Manager to criminal liability, 24 materially and adversely affect the operation of the Project or jeopardize any Gaming License held by the Manager, Parent, any of Parent's Subsidiaries, any Member or the Company, the Manager may take such action without Executive Committee approval). The Manager shall promptly notify the Executive Committee in writing of all such orders and notices or requirements that are received by the Manager. Except as otherwise provided in this Agreement, the costs of such compliance shall be at the expense of the Company. (9) FINANCIAL STATEMENTS. (1) On or before the fifteenth day of each Fiscal Month, the Manager shall deliver to each Member a profit and loss statement, statement of income and balance sheet showing the results of the operation of the Project for the preceding Fiscal Month and the year-to-date, and having attached thereto a computation of the Base Management Fee and Incentive Management Fee for such preceding month and the year-to-date. (2) Within ninety (90) days after the end of each Fiscal Year, the Manager shall deliver to each Member an audited balance sheet together with a comparison to the previous Fiscal Year (after the first full Fiscal Year) and a related detailed statement of profit and loss (including all supporting departmental schedules of revenues and expenses), together with a comparison to the previous Fiscal Year and the current Annual Plan and Operating Budget, and having annexed thereto a computation in reasonable detail of the Base Management Fee and Incentive Management Fee for such Fiscal Year; and (3) Upon the written request of any Member, such other additional statements, computations and reports regularly or otherwise prepared by the Company, or otherwise contemplated or required under this Agreement. (10) ACCOUNTING MATTERS AND FISCAL PERIODS. (1) At the cost and expense of the Company, the Manager shall cause an audit of the Company's annual financial statements to be performed following the end of each Fiscal Year (and upon termination of this Agreement if not coincident with a Fiscal Year end) by a nationally-recognized, independent certified public accounting firm with expertise in gaming proposed by the Manager and approved by the Executive Committee. (2) The books and records reflecting the Project operations shall be kept by the Manager in accordance with GAAP applied on a consistent basis, and shall be maintained in the Las Vegas, Nevada metropolitan area. The Members and their respective accounting firms shall have the right to examine and copy the books and records of the Project upon reasonable prior notice to the Manager. (11) OPERATING BANK ACCOUNT. Subject to the terms and conditions of this Agreement, all sums received from the operation of the Project and all sums advanced by the Company for purposes other than Capital Improvements and Replacement shall be deposited in the Operating Bank Account. The Manager shall disburse funds from the Operating Bank Account on a monthly basis in the following order of priority and to the extent available: 25 (1) when due, all Operating Costs; (2) when due, the payment of debt service with respect to the Construction Financing or any Permanent Financing; (1) (3) when due, the payment of debt service with respect to other loans from third parties; (4) the Base Management Fee and Incentive Management Fee (including any accrued Base Management Fee and Incentive Management Fee from prior periods); except in the event that Station (A) is no longer a Member, the Base Management Fee and Incentive Management Fee (including any accrued Base Management Fee and Incentive Management Fee from prior periods) shall be paid as an Operating Cost under subsection (i) above, or (B) is in default of its obligations as a Member under this Agreement, including, but, not limited to, to make any capital contributions pursuant to Article IV, in which event the Base Management Fee and Incentive Management Fee that accrues following such default shall be paid after the payment of any debt service due to any non-defaulting Member under subsection (vii) below; (5) the payment for emergency expenditures to the extent paid from the Operating Bank Account or from amounts on deposit in the Reserve Fund; (6) deposits into the Reserve Fund and any other reserves established by the Executive Committee for anticipated expenditures, liabilities or contingencies; (7) when due, the payment of debt service with respect to any loans from the Members; and (8) the remaining balance thereof shall constitute "DISTRIBUTABLE CASH" for purposes of this Agreement. In following the priorities set forth above, the Manager will reserve funds in the Operating Bank Account each Fiscal Month for payment of any Operating Costs for any of the above items which the Manager has a duty to pay that are not paid on a monthly basis (e.g., real estate taxes, insurance premiums and so on). To the extent that there are sufficient funds on deposit in the Operating Bank Account, the Manager shall perform the function of paying all Operating Costs and other items set forth above (including but not limited to debt service, real estate taxes, insurance premiums, etc.) unless otherwise agreed by the Executive Committee. (12) INSURANCE COVERAGE. The Manager agrees to use commercially reasonable efforts to cause the Company to procure and maintain at all times during the term hereof, as an Operating Cost, insurance in such amounts and coverages as may be required by the then-current Annual Plan and Operating Budget, which shall be no less than that necessary to conform to reasonable industry standards for a similar hotel and casino, taking into consideration inflation and any events or trends of liability which affect the risks attendant to owning and operating the Project. All such insurance shall be provided under policies issued by insurance companies of good reputation and of sound financial responsibility and licensed by the State of Nevada. All liability, business interruption and crime insurance policies shall be written in the name of the Company with 26 each of the Members and the Manager being named thereon as additional insureds. All insurance policies shall be endorsed specifically to the effect that the proceeds of any crime or business interruption losses shall be made payable to the Company, or to the extent required by any lender of Construction Financing, Permanent Financing or other financing, to such lender. All such policies of insurance shall also be endorsed specifically to the effect that such policies shall not be canceled or materially changed without at least thirty (30) days prior written notice to the Members and the Manager. To the extent obtainable without significantly increasing the premium cost, all policies of comprehensive public liability insurance and comprehensive crime insurance shall contain an endorsement to the effect that such insurance shall be primary to any other similar insurance carried by the Company, the Members or the Manager. Certificates of insurance shall be sent to the Members and the Manager at the addresses provided in SECTION 8.1. (13) LEASE AGREEMENTS. The Manager shall be responsible for the leasing of space in the Project in the Company's name to third-party lessees, licensees and concessionaires, subject to the prior approval of the Executive Committee of the tenant, licensee or concessionaire, and terms of such leases, licenses or other occupancy agreements. The Manager will enforce such leases, licenses or other occupancy agreements in a manner which is consistent with sound business practices. Revenues received by the Company under any lease, license or occupancy agreements shall be deemed a part of Gross Revenues as defined under this Agreement, except for reimbursements for utilities, taxes or similar matters. (14) LEGAL ACTION. The Manager shall have the right to institute, on behalf of and in the name of the Company, any and all legal actions or proceedings affecting the Project, including the construction thereof, such as, but not limited to, to collect charges, rent or other income from the Project or to remove any tenants, terminate a lease, license, or concession agreement, a breach thereof or default entered by any tenant, licensee, concessionaire, supplier, or contractor, or to protect and/or litigate to final decision in any appropriate forum, any violation, rule, regulation or agreement concerning the Project, including the construction thereof; provided that approval of the Executive Committee shall be required with respect to the institution or defense of any action (or settlement thereof) where there is a reasonable possibility of exposure to the Company in excess of $250,000 or that could have a material adverse effect on the operation of the Project; provided further, however, that the Executive Committee shall be deemed to have approved the institution of any action or defense of an action unless either member of the Executive Committee notifies the Manager that he disapproves such action within seven (7) days after receipt of written notice requesting such institution or defense. Any counsel to be engaged under this subsection with respect to any matter with a reasonable possibility of exposure to the Company in excess of $250,000 or that could have a material adverse effect on the operation of the Project shall be proposed by the Manager, subject to the prior approval of the Executive Committee. (15) CONSULTATION. At the monthly Member Representative meeting, representatives of the Manager and the General Manager shall meet with the Member Representatives to discuss the performance of the Project and of the Manager of its obligations hereunder and the Manager's plans and expectations for the Project for the remaining Fiscal Year. (16) EMERGENCIES. Notwithstanding anything to the contrary contained within this SECTION 3.4, if at any time it becomes necessary in the Manager's reasonable judgment to cease operations of all or part of the Project to protect the Project from material and adverse consequences 27 or to protect the health, safety or welfare of the guests or employees of the Project, then the Manager may close and cease operations of that portion of the Project, reopening the same when the Manager reasonably believes that such event has passed; provided, however, that the Manager shall immediately notify the Executive Committee of such event and shall keep that portion of the Project closed for the minimum reasonable period of time. (17) CONTRACTS. The Manager shall use commercially reasonable efforts to cause the Company to comply with and not to become in default under any contract, agreement, loan document or other obligation of the Company if such failure to comply or a default thereunder would have a material adverse effect on the Company or any Member. 1.10 COMPENSATION OF THE MANAGER. In addition to other reimbursements expressly provided for in this Agreement, during the Operating Period but except for any period occurring after Station has been removed as Manager pursuant to SECTION 3.6(a), and subject to SECTIONS 3.6(b) AND 3.4(k), the Company shall pay to Station when it is the Manager the amounts set forth below in this SECTION 3.5. (1) BASE MANAGEMENT FEE. The Company shall pay the Manager a Base Management Fee equal to two percent (2%) of the Company's Gross Revenues for the applicable period. The Base Management Fee for each Fiscal Year during the Operating Period will be paid in monthly installments in arrears immediately following the delivery of the Company's financial statements for each Fiscal Month. After the delivery of the Company's audited financial statements for each Fiscal Year, appropriate adjustments shall be made for any overpayment or underpayment of Base Management Fees during such Fiscal Year on the next monthly installment of Base Management Fees due. (2) INCENTIVE MANAGEMENT FEE. In addition to the Base Management Fee, the Company shall pay the Manager an Incentive Management Fee in an amount equal to the sum (determined without duplication) of (x) 5.0% of the Company's EBITDA during the Operating Period for the applicable Fiscal Year to the extent such EBITDA is positive and represents a Return on Total Project Cost of up to 15.0%, and (y) 10.0% on that portion of the Company's EBITDA during the Operating Period for such Fiscal Year that exceeds a 15% Return on Total Project Costs; provided, however, that the Incentive Management Fee for any Fiscal Year shall not exceed an amount equal to 5.4% of the Company's EBITDA for the applicable Fiscal Year. Five percent (5%) of the Company's monthly EBITDA shall be paid monthly in arrears immediately following delivery of the Company's financial statements for each Fiscal Month as a partial payment on the annual Incentive Management Fee. After the delivery of the Company's audited financial statements for each Fiscal Year, appropriate adjustments shall be made for any overpayment or underpayment of the Incentive Management during such Fiscal Year on the next monthly installment of Incentive Management Fees due. (3) EXPENSE REIMBURSEMENT. The Company shall be responsible for all Operating Costs incurred in accordance with the terms and provisions of this Agreement, including the Annual Plan and Operating Budget, and will reimburse all such Operating Costs incurred thereby by or on behalf of the Manager or Members pursuant to an approved Annual Plan and Operating Budget. 28 1.11 REMOVAL OF MANAGER. (1) So long as GCR is not in material breach of the provisions of this Agreement, GCR may give notice to the Manager that it desires to remove Station as the Manager: (1) upon 30 days prior written notice in the event that Station defaults upon the making of its Initial Capital Contribution pursuant to SECTION 4.1(b), if Station has not made its Initial Capital Contribution within such 30-day period; (2) upon not less than 10 days prior written notice in the event (A) Station's Gaming License is revoked or is suspended for more than thirty days in any calendar year (provided, however, that Station shall not act as Manager during any such period of revocation or suspension), (B) Station becomes Bankrupt, or (C) a trustee in bankruptcy is appointed for Parent, a receiver is appointed for substantially all of the assets of Parent, or Parent is Bankrupt and because of such Bankruptcy Station is unable to fulfill the material terms of its obligations as Manager; provided that, in no event may GCR remove Station as Manager upon a determination that Station is an Unsuitable Person until the conditions contained in clause (A) of this subsection (ii) have been satisfied; provided, further, for the time that Station is not acting as Manager, it shall not receive the compensation set forth in SECTION 3.5; or (3) upon 30 days prior written notice in the event that Station engages in an act or omission that is grossly negligent, reckless or constitutes intentional misconduct, and such action or omission has a material adverse effect on the Company; provided that such termination shall be effective with respect to any such action or omission that is susceptible to complete cure (I.E., as if there has been no such action or failure to act) only if such action or failure to act has remained uncured at the end of such 30-day period; or (4) if Station no longer is a Member of the Company. GCR shall give Station notice of its desire to remove Station as Manager pursuant to SECTION 3.6(a) within 60 days after GCR has actual knowledge of the events giving rise to the right to remove Station. If GCR does not give such written notice within such 60-day period, then GCR shall not have a right to remove Station based on the grounds for which it had such actual knowledge; provided, however, nothing herein shall prevent GCR from removing Station if it subsequently has actual knowledge of further ground(s) for removal. (2) Notwithstanding that GCR may not have grounds to remove Station as the Manager pursuant to this SECTION 3.6(a), GCR nonetheless may bring an action on its own behalf or on behalf of the Company, at law, equity or pursuant to other available remedies against Station as the Manager for breach of its material obligations hereunder (including, but not limited to material breach of the standards of care and operation) as the Manager and for any damages or other costs incurred by GCR or the Company as a result of such breach, including, but not limited to, during the design and construction phase of the Project. The Company may offset any final non-appealable judgment against the Manager against any fees owed Manager pursuant to SECTION 3.5. (3) In the event that Station is removed as Manager, Station shall have the right to require GCR to acquire Station's Membership Interest in the Company at the Appraised Value. 29 Station shall notify GCR in writing within 60 days after being removed as the Manager that it is considering exercising such right and that the Appraised Value must be determined. Within 30 days following the determination of Appraised Value, Station must give written notice to GCR if it desires to sell its Membership Interests at the Appraised Value (the "REMOVAL PUT EXERCISE DATE"). The closing on such acquisition shall occur within 60 days after the receipt of all necessary consents and approvals for such Transfer. Station's Membership Interest shall be conveyed free and clear of all liens and encumbrances, except those of this Agreement, and Station and its Affiliates shall be released from all indebtedness or guaranties incurred on behalf of the Company. The purchase price shall be paid in cash, unless otherwise agreed by Station. In the event GCR defaults on acquiring a Station's Membership Interest pursuant to this subsection, or the requisite consents and approvals to transfer have not been (or cannot be) obtained for such sale within one year after the Removal Put Exercise Date, or and its Affiliates cannot be released from all indebtedness or guaranties upon such sale (including the Guarantee by Parent attached to this Agreement) within one year after the Removal Put Exercise Date, then Station can require the Company or its assets to be sold pursuant to actions taken by an investment banker (selected by Station from the list on EXHIBIT A) in a commercially reasonable time frame. 1.12 OFFICERS. Subject to applicable provisions of the Gaming Laws, the Manager shall have the authority to appoint and remove, in its sole discretion, persons serving as officers of the Company subordinate to the General Manager and to delegate to such persons such duties and responsibilities as the Manager shall deem to be in the best interests of the Company (except that the Manager shall not be permitted to delegate the essential management and supervisory functions of the General Manager). All such appointments and delegations may be revocable at will by the Manager. Notwithstanding the foregoing, the Company shall engage a Construction Manager approved by the Executive Committee at all times during the Pre-Opening Period and a General Manager approved by the Executive Committee at all times during the Operating Period. Either member of the Executive Committee may require the Manager to discharge the Construction Manager or the General Manager in the event that, after notice from the Manager and a 60-day opportunity to cure, such Person's performance is unsatisfactory to such Member. The second request by the same member of the Executive Committee to discharge either the Construction Manager or the General Manager shall result in termination of such Person by the Manager without further notice or opportunity to cure. If any Person elected to serve as an officer of the Company is found to be an Unsuitable Person, the Manager shall immediately remove such person as an officer and such Person shall thereupon automatically cease to be an officer. 1.13 CONFLICTS OF INTEREST. (1) Until the fifth anniversary of the date of the Opening, none of the Manager, the Members, Fertitta Family Members, Greenspun Family Members, or any Affiliate of any of the foregoing (excluding, however, an Exempt Affiliate), whether alone or with other Persons, shall (i) directly or indirectly own, manage or operate any hotel and/or casino (other than an Exempt Property) within three miles of the Resort Property or (ii) allow the operation of a hotel and/or casino (other than an Exempt Property) on property within three miles of the Resort Property that is owned, in whole or in part, directly or indirectly, by such Manager, such Member, Fertitta Family Members, Greenspun Family Members, or Affiliate of any of the foregoing (excluding, however, an Exempt Affiliate) (either of the foregoing (i) or (ii) referred to below as a "RESTRICTED ACTIVITY"); provided 30 that this restriction does not prohibit GCR, the Greenspun Family Members and their Affiliates from collectively and in aggregate owning less than 5% of the publicly traded Voting Stock of a company involved in a Restricted Activity, or prohibit Parent, Station, the Fertitta Family Members and their Affiliates from collectively and in aggregate owning less than 5% of the publicly traded Voting Stock of a company involved in a Restricted Activity, in both cases only so long as such investment is passive and without any ability or intent to exercise influence or control over the management or direction of the entity in which the Voting Stock is owned; and provided, further that this restriction shall not prohibit GCR or the Greenspun Family Members and their Affiliates from allowing, owning or operating a non-gaming hotel property within three miles of the Resort Property. (2) Except for a Restricted Activity, each of the Members, the Manager, Fertitta Family Members, Greenspun Family Members, and their respective Affiliates shall be entitled to enter into any transaction that may be considered to be competitive with, or a business opportunity that may be beneficial to, the Company. Any transactions or agreements (other than transactions or agreements expressly contemplated by this Agreement, including reimbursement of Shared Expenses, as long as such transactions are otherwise in compliance with this Agreement) between the Manager, the Parent, any Member, Fertitta Family Members, Greenspun Family Members, or their respective Affiliates (on the one hand) and the Company (on the other) (any such transaction referred to herein as an "AFFILIATE TRANSACTION") shall be disclosed to the Members in advance and shall be on commercially reasonable, arms-length terms that are no less favorable to the Company than could be obtained from an independent third party. No transaction with the Company shall be voidable solely because a Member has a direct or indirect interest in the transaction if either (i) the transaction is fair to the Company or (ii) the disinterested Manager or disinterested Member(s), in either case knowing the material facts of the transaction and the Member's interest, authorize, approve or ratify the transaction. Notwithstanding the foregoing, any loans to the Company by any Member or Affiliate of a Member shall require the approval of the Executive Committee. (3) Station and the Company acknowledge that an Affiliate of GCR shall be the "declarant" under the declaration of covenants, conditions and restrictions affecting the Resort Property, and that the "declarant" may take actions that are inconsistent with this Agreement, or not in the best interest of the Company, and GCR shall not be in breach hereof by reason of such actions and "declarant" shall not have any duty under this Agreement to Station, Parent, or the Company; provided, however, that nothing in this SECTION 3.8(c) shall permit such Affiliate "declarant" to engage in a Restricted Activity under SECTION 3.8(a) hereof. (4) The provisions of SECTION 3.8(a) related to prohibitions on Restricted Activities shall survive the withdrawal, expulsion, buy-out or other termination of GCR or Station as a Member, for the lesser of five years after the date of the Opening or three years after the withdrawal, expulsion, buy-out or termination. 1.14 TAX MATTERS PARTNER. The Manager is hereby designated as the "tax matters partner" of the Company under Code Section 6231(a)(7) (the "TAX MATTERS MEMBER"). The Tax Matters Member shall give prompt notice to the Members of (i) the receipt by the Tax Matters Member of written notice that a federal, state or local taxing authority intends to examine the Company's income tax returns for any year; (ii) receipt by the Tax Matters Member of written notice of a final partnership administrative adjustment under Code Section 6223; and (iii) receipt by the Tax Matters Member of any request from the Internal Revenue Service for waiver of any applicable statute of 31 limitations with respect to any tax return of the Company. The Tax Matters Member may not extend or waive the statute of limitations or take any other action that would compromise any tax position of the Company without the approval of GCR and Station. 1.15 LIABILITY OF MEMBERS AND MANAGER. Except as otherwise provided by the Act, none of the Members or the Manager shall be obligated personally for any debt, obligation or liability of the Company or of any Member solely by reason of being a Member or the Manager of the Company. Except as otherwise provided in this Agreement or by applicable law, none of the Members or the Manager shall have any fiduciary or other duty to the Company or any Member with respect to the business and affairs of the Company. The Company shall indemnify each Member and hold each Member harmless from and against any and all debts, obligations, and liabilities of the Company, if any, to which such Member becomes subject solely by reason of being a Member, whether arising in contract, tort or otherwise; provided, however, that the indemnification obligation of the Company under this SECTION 3.10 shall be paid only from the assets of the Company, and no Member shall have any personal obligation, or any obligation to make any Capital Contribution, with respect thereto. 1.16 PROHIBITION AGAINST PUBLICLY TRADED PARTNERSHIP. The Manager shall take all action necessary to prevent the Company from qualifying as a publicly-traded partnership within the meaning of Section 7704 of the Code. 1.17 THE EXECUTIVE COMMITTEE. There shall be an executive committee (the "EXECUTIVE COMMITTEE") of the Company comprised of one representative of each of Station and GCR, so long as such Persons remain as Members of the Company. The member of the Executive Committee designated by Station shall be Frank Fertitta, III and the member designated by GCR shall be Brian L. Greenspun so long as they are alive and not disabled and are not found to be Unsuitable Persons. Station and GCR shall designate their respective replacement appointees to the Executive Committee in writing to the other Member and, except as set forth in the prior sentence, may remove their respective appointees at any time by written notice to the other. Subject to the provisions of SECTION 4.3(c), at all times the GCR representative of the Executive Committee shall be a Greenspun Family Member and the Station representative of the Executive Committee shall be a Fertitta Family Member. Subject to the provisions of SECTION 4.3(c), at any time a vacancy is created on the Executive Committee by death, removal (with or without cause) or resignation, no action shall be taken by the Executive Committee until the Executive Committee is reconstituted in accordance with the provisions of this SECTION 3.12, unless each Member that is entitled to nominate such replacement member of the Executive Committee shall consent to the taking of such action. In the event of a Transfer permitted pursuant to SECTION 5.2(a) of the entire Membership Interest, the transferee shall have the power to appoint the Executive Committee member previously granted to its transferor. If any Person appointed to serve as a member of the Executive Committee is found to be an Unsuitable Person, such Person shall immediately be removed as a member of the Executive Committee by the Members and shall thereupon automatically cease to be a member of the Executive Committee. 1.18 DECISIONS SUBJECT TO EXECUTIVE COMMITTEE APPROVAL. Notwithstanding the powers of the Manager pursuant to SECTION 3.1, and subject to the provisions of SECTION 4.3(c), the following matters shall require the prior unanimous approval of the Executive Committee: 32 (1) Any contracts, agreements (whether written or oral) or commitments (including leases of Furniture, Fixtures and Equipment) which (i) obligate the Company for a period of more than one (1) year, and (ii) subject to the Company to potential liability or payments of $250,000 or more (including any extensions thereof); (1) (2) Any sale of any portion of the assets of the Company having a fair market value of $500,000 or more; (3) Any financing for the improvement, construction or operation of the Project (including lease/purchase or similar financing transactions), other than the Construction Financing or Permanent Financing, which subjects the Company to principal and interest payment obligations equaling or exceeding $1,000,000 in any Fiscal Year; and (4) Any other decision reserved to, or approval required by, the Executive Committee pursuant to this Agreement. 1.19 PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of the Executive Committee may be held at any place that has been designated from time to time by resolution of the Executive Committee. In the absence of such a designation, regular meetings shall be held at the principal place of business of the Company. Any meeting, regular or special, may be held by conference telephone or similar communications equipment so long as all members of the Executive Committee participating in the meeting can hear one another, and all members of the Executive Committee participating by telephone or similar communications equipment shall be deemed to be present in person at the meeting. 1.20 REGULAR MEETINGS. The Executive Committee shall not be required to have regular meetings, except as otherwise determined by the Executive Committee. 1.21 SPECIAL MEETINGS. Special meetings of the Executive Committee for any purpose or purposes may be called at any time by one member of the Executive Committee. Notice of the time and place of a special meeting shall be given and deemed received pursuant to SECTION 8.1. 1.22 QUORUM. All of the members of the Executive Committee shall constitute a quorum for the transaction of business, except to adjourn as provided in SECTION 3.20. 1.23 MANNER OF ACTING. Every act or decision of the Executive Committee shall require the affirmative unanimous approval of all of the members of the Executive Committee. 1.24 WAIVER OF NOTICE. Notice of any meeting need not be given to any member of the Executive Committee who either before or after the meeting signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the records of the Company or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any member of the Executive Committee who attends the meeting without protesting before or at its commencement the lack of notice to that member of the Executive Committee. 33 1.25 ADJOURNMENT. If a quorum is not present, any member of the Executive Committee present (including all members of the Executive Committee participating as permitted by SECTION 3.14), whether or not constituting a quorum, may adjourn any meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than forty-eight (48) hours, in which case notice of the time and place shall be given before the time of the adjourned meeting in the manner specified in SECTION 3.16. 1.26 ACTION WITHOUT A MEETING. Any action to be taken by the Executive Committee at a meeting may be taken without such meeting by the written consent of all of the members of the Executive Committee. Any such written consent may be executed and given by telecopy or similar electronic means. 1.27 RESIGNATION. Subject to the restrictions of SECTION 3.12, any member of the Executive Committee may resign at any time by giving written notice to the Members of the Company. The resignation of any members of the Executive Committee shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 1.28 REMOVAL. A member of the Executive Committee may only be removed pursuant to SECTION 3.12 or SECTION 4.3(c). 1.29 VACANCIES. A vacancy on the Executive Committee may only be filled in accordance with SECTION 3.12. 1.30 COMPENSATION TO EXECUTIVE COMMITTEE MEMBERS. The members of the Executive Committee shall receive no compensation but shall be reimbursed for their reasonable and customary expenses incurred in attending meetings of the Executive Committee. 1.31 LIABILITY TO THIRD PARTIES. The debts, obligations, and liabilities of the Company, whether arising in contract, tort, or otherwise, shall be solely the debts, obligations, and liabilities of the Company, and no member of the Executive Committee or the Manager shall be obligated personally for any such debt, obligation, or liability by reason of his or her acting as a member of the Executive Committee or, except as otherwise provided in this Agreement, as the Manager. 1.32 NO GUARANTEE OF RETURN BY MEMBERS OF THE EXECUTIVE COMMITTEE. The members of the Executive Committee and the Manager do not, in any way, guarantee the return of the Members' Capital Contributions or a profit for the Members from the operations of the Company. Except as set forth in SECTION 3.8, the members of the Executive Committee shall incur no liability to the Company or to any of the Members as a result of engaging in any other business or venture. The members of the Executive Committee shall be entitled to any other protection afforded to such members of the Executive Committee under the Act. 1.33 TRANSACTIONS WITH COMPANY OR OTHERWISE. Subject to SECTION 3.8, the members of the Executive Committee, or any agent, servant, or employee of the members of the Executive Committee, may engage in and possess any interest in other businesses or ventures of every nature and description, independently or with other Persons, and neither the Company nor any of the Members shall have any rights, by virtue of this Agreement or otherwise, in and to such independent 34 ventures or the income or profits derived therefrom, or any rights, duties, or obligations in respect thereof. 1.34 INDEMNIFICATION. To the fullest extent permitted by the Act: (1) The Company (and any receiver, liquidator, or trustee of, or successor to, the Company) shall indemnify and hold harmless the Manager and each member of the Executive Committee, as well as each Affiliate of the Manager and the members of the Executive Committee and their respective officers, partners, shareholders, directors, managers, members and employees (each an "INDEMNITEE"), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, proceedings, costs, expenses and disbursements of any kind or nature whatsoever ("CLAIMS") (including, without limitation, all reasonable costs and expenses of defense, appeal and settlement of any and all suits, actions and proceedings involving an Indemnitee, and all costs of investigation in connection therewith) that may be imposed on, incurred by, or asserted against an Indemnitee, in any way relating to or arising out of, or alleged to relate to or arise out of the performance of any duties or services by or on behalf of the Company or any action, inaction or omission on the part of an Indemnitee in connection with managing the Company's business and affairs or otherwise acting as Manager or the members of the Executive Committee pursuant hereto; provided that the indemnification obligations in this SECTION 3.29 shall not apply to Claims brought by the Members, the Manager or Guarantors; provided, further that the indemnification obligations in this SECTION 3.29 shall not apply to the portion of any liability, obligation, loss, damage, penalty, cost, expense or disbursement that has been finally adjudged in a non-appealable order of court of competent jurisdiction to have resulted from (i) the gross negligence of the Manager, (ii) the intentional misconduct or actual fraud by the proposed Indemnitee, or (iii) any action for which indemnification is prohibited under the Act. (2) The Company shall pay expenses as they are incurred by an Indemnitee in connection with any action, claim or proceeding that such Indemnitee asserts in good faith to be subject to the indemnification obligations set forth herein, upon receipt of an undertaking from such Indemnitee to repay all amounts so paid by the Company to the extent that it is finally determined that the Indemnitee is not entitled to be indemnified therefor under the terms hereof. (3) The indemnification and expense payments to be provided by the Company hereunder shall be paid only from the assets of the Company, and no Member shall have any personal obligation, or any obligation to make any Capital Contribution, with respect thereto. ARTICLE IV FINANCIAL MATTERS 1.35 INITIAL CAPITAL CONTRIBUTIONS. 35 (1) GCR CAPITAL CONTRIBUTION. As its initial Capital Contribution, subject to Force Majeure and Parent providing an Available Funds Letter immediately prior to GCR's transfer of the Resort Property, on or prior to such time as necessary to commence construction of the Infrastructure Improvements by April 15, 2000, GCR shall convey to the Company, by grant, bargain and sale deed attached as EXHIBIT K (the "GRANT, BARGAIN AND SALE DEED") (joined by GCR's transferor or containing an assignment of rights under the grant, bargain and sale deed from GCR's transferor), title to the Resort Property, free and clear of any liens, encumbrances, assessments, parties in possession or delinquent real property taxes, but subject to the Permitted Exceptions and the deed restrictions set forth in the form of the Grant, Bargain and Sale Deed. Prior to or concurrently with such conveyance, GCR shall, at its sole cost and expense, (i) take all steps necessary to transfer all land use permits and approvals with respect to the Resort Property to the Company, (ii) prepare and have filed and recorded in the Office of the County Recorder of Clark County, Nevada such subdivision map and records of survey as shall permit the Resort Property to be conveyed to the Company as a single, separate legal parcel, and (iii) provide the Company with a commitment for an 1970 ALTA extended coverage owner's policy of title insurance from Nevada Title in the amount of $24,500,000 to insure the Company's title to in the Resort Property subject only to the Permitted Exceptions and those subsequently approved by the Executive Committee or caused by Station or the Company. GCR shall, in a timely manner, that will not materially interfere with or delay the construction of the Vertical Improvements, subject to Force Majeure, and at its sole cost and expense, cause the relocation of the existing power lines to a strip of land primarily adjacent to the northern boundary of the Resort Property. The Company shall grant such easements as reasonably necessary for the location and maintenance of such power lines. Upon conveyance of the Resort Property pursuant to this SECTION 4.1(a), GCR shall be entitled to a credit to its Capital Account in the amount of $24,500,000.00. In addition, GCR's initial Capital Contribution shall be increased by an amount equal to $552,136.00 (it being acknowledged and agreed that such amount has been contributed by GCR prior to the date hereof). (The $24,500,000.00 plus $552,136.00 hereinafter may be referred to as "GCR'S INITIAL CAPITAL CONTRIBUTION"). At the time of conveyance of the Resort Property by GCR, GCR Gaming Guarantor, LLC, shall provide an Available Funds Letter. Real estate taxes, assessments, and other taxes, fees, and costs customarily prorated in commercial real estate transactions in the Las Vegas, Nevada area, shall be prorated between GCR and the Company as on the date the Resort Property is contributed; provided that, pursuant to this subparagraph, GCR shall be entitled to an increase in its Initial Capital Contribution by the amount of such prorations (other than the cost of the owner's title policy and any transfer taxes) for which GCR is responsible as the party conveying the Resort Property. As of the Effective Date, GCR hereby makes the representations and warranties set forth on EXHIBIT L in favor of the Company. Concurrently with the transfer of the Resort Property to the Company, GCR shall make such representations and warranties in favor of the Company, subject to Force Majeure changes and changes with respect to matters about which it did not have knowledge at the Effective Date (unless such representation and warranty is not qualified by "knowledge"). If GCR does not make any such representations or warranties at the time transfer of the Resort Property is required to be made (other than because of Force Majeure changes or matters of which it did not have knowledge at the Effective Date (unless such representation and warranty is not qualified by "knowledge")) and such failure would have a material adverse effect on the ability to utilize the Resort Property for the Project as contemplated by this Agreement, then GCR shall have 60 days from the date that transfer is required of such Resort Property to cure the breach. If GCR cannot cure such matter within such 60 days, Station shall have the following options: (i) terminate this Agreement and seek its actual damages from GCR, or (ii) require the 36 transfer of the Resort Property and seek actual damages from GCR, in either case (i) or (ii), GCR shall not be deemed to have defaulted on its obligation to contribute the Resort Property or make its Initial Capital Contribution for purposes of SECTION 4.3(a). If GCR cannot make any of such representations or warranties at the time transfer of the Resort Property is required because of Force Majeure changes or because of a matter about which it did not have knowledge at the Effective Date (unless such representation and warranty is not qualified by "knowledge"), then GCR shall have 90 days to cure such problem which causes it not to make such representation or warranty using commercially reasonable efforts to do so. If, after 90 days, GCR cannot so cure the problem, Station may either terminate this Agreement (and GCR and Station agree that they will split equally (50/50) all costs incurred by GCR, Station and Parent which can reasonably be documented and which relate directly to this Agreement or the Project, excluding in the case of GCR, that portion of costs not related exclusively to this Agreement or the development of the Resort Property on which the Project is to be located or for any purpose other than the Project) or agree to accept the conveyance of the Resort Property with the representations and warranties as can be made by GCR (in which case the Company shall be solely responsible for the cost of the cure of any item(s) related to the representations and warranties GCR is unable to make); provided that in either case GCR shall not be deemed to be in default on its obligation to contribute the Resort Property or make its Initial Capital Contribution for purposes of SECTION 4.3(a). Except for the express representations and warranties set forth on EXHIBIT L, Station, Parent, the Manager and the Company acknowledge that they have not relied on any representations or warranties from GCR with respect to the Resort Property and they have had the opportunity to conduct such due diligence of the Resort Property as they deem appropriate, including, but not limited to, liens and encumbrances, feasibility and suitability for development, environmental matters, existing zoning and use permits, availability of utilities and access, soils and topography, and are relying solely on their own investigation of the Resort Property, and accept the Resort Property as GCR's Initial Capital Contribution "AS-IS," with all faults and without any warranties (express or implied) whatsoever. Notwithstanding anything in this Agreement to the contrary, GCR is hereby authorized for and on behalf of the Company, and at the sole expense of the Company, to pursue as it deems reasonably appropriate an extension of any and all land use entitlements affecting the Resort Property; provided, that, if GCR fails to pursue such extensions, the Manager may do so for and on behalf of the Company, at the sole and expense of the Company. (2) STATION CAPITAL CONTRIBUTION. As its initial Capital Contribution, Station shall pay (or shall have paid on Station's behalf) to or for the benefit of the Company, when and as required by the Company an amount equal to $25,052,136.00 (it being acknowledged and agreed that $1,531,754.00 has been contributed by Station prior to the date hereof), which shall be utilized as needed to pay the obligations of the Company, including, without limitation, with respect to the Infrastructure Improvements as set forth in SECTION 3.2, when and as due ("STATION'S INITIAL CAPITAL CONTRIBUTION," and, together with GCR's Initial Capital Contribution, referred to herein collectively as the "INITIAL CAPITAL CONTRIBUTIONS"). All such funds advanced by Station or on Station's behalf shall constitute Capital Contributions of Station; provided, however, that funds paid by or on behalf of Station for general overhead of Station (or any Affiliate of Station, Parent or Manager or their Subsidiaries) shall not be deemed a Capital Contribution of Station. If not previously advanced or if not earlier required by any lender to the Company, the remaining Station's Initial Capital Contribution shall be contributed in full on the later to occur of October 1, 2000 or when GCR makes GCR's Initial Capital Contribution. Station agrees that it shall continue to make Station's Initial Capital Contribution at such times and in such amounts as shall be necessary to enable the 37 Company to pay expenses as set forth in the first sentence of this Subsection 4.1(b), whether or not GCR has made its Initial Capital Contribution, but subject to the limitation set forth in the prior sentence. On a monthly basis, the Company shall render to the Executive Committee a written accounting of Station's Initial Capital Contributions to date. 1.36 ADDITIONAL CAPITAL CONTRIBUTIONS. Except as set forth in this SECTION 4.2, as determined by the Executive Committee (after using commercially reasonable efforts to obtain third party loans) or as set forth in any "make-well," completion guaranty or similar obligation to which the Members become subject pursuant to the terms of the Construction Financing or Permanent Financing, no Member shall be required to make any Capital Contribution other than those set forth in SECTION 4.1. Any additional Capital Contributions pursuant to this SECTION 4.2 shall be made by the Members pro rata in accordance with their Membership Interests as of the date that such Capital Contribution is required to be made pursuant to the terms of this Agreement, in such forms and amounts as may be determined by the Executive Committee, and shall be made only after the Initial Capital Contributions have been made in full. In connection with any such additional Capital Contributions, the Company shall revalue the Members' Capital Accounts in accordance with Section 1.704-(b)(2)(iv)(f) of the Regulations. Except as expressly provided in this Agreement, no Member shall be entitled to withdraw as a Member or to demand or receive a return of its Capital Contribution. No obligation of a Member to make any Capital Contribution hereunder may be enforced by a creditor of the Company unless the Member expressly consents to such enforcement or to the assignment of such obligation to such creditor. (1) Unless, otherwise determined by the Executive Committee, GCR and Station shall contribute, pro rata in accordance with their Membership Interests as of the date that such Capital Contribution is required to be made pursuant to the terms of this Agreement, upon 30 days prior written notice from any member of the Executive Committee specifying the amount of such Capital Contribution and the date on which such Capital Contribution is to be made, all amounts necessary to commence construction of the Project by July 1, 2000, and to diligently pursue completion of construction in accordance with the Master Development Plan. (2) If any Executive Committee member determines that reasonable financing is unavailable to meet the requirements of the current approved Annual Plan and Operating Budget, then any member of the Executive Committee, upon 30-days' prior written notice specifying the amount of such Capital Contribution and the date on which such Capital Contribution is to be made, may demand an additional Capital Contribution from the Members to fund such current requirements, which shall be made by the Members pro rata in accordance with their Membership Interests as of the date that such Capital Contribution is required to be made pursuant to the terms of this Agreement; provided, however, the aggregate amount of such additional Capital Contributions pursuant to this SECTION 4.2(b) shall not exceed $10,000,000 for each of GCR and Station (or their respective successors or assigns, in aggregate) over the term of this Agreement. (3) If the revenues of the Project are insufficient to fund the Reserve Fund during any Fiscal Month, then any member of the Executive Committee, upon 30-days' prior written notice specifying the amount of such Capital Contribution and the date on which such Capital Contribution is required to be made, may demand an additional Capital Contribution from the Members (which shall be made by the Members pro rata in accordance with their Membership Interests as of the date that such Capital Contribution is required to be made pursuant to the terms of this Agreement in an amount not to exceed in any Fiscal Year the difference between 3% of Gross Revenues for such 38 Fiscal Year (or partial Fiscal Year to date) less the Reserve Fund previously funded in such Fiscal Year. Within 120 days after the end of the applicable Fiscal Year, if any additional Capital Contributions were made pursuant to this SECTION 4.2(c) in such Fiscal Year, the Company shall distribute to the Members the positive amount, if any, equal to the difference between (x) the sum of (I) the amounts reserved from revenues by the Company for the Reserve Fund plus (II) all additional Capital Contributions made pursuant to this SECTION 4.2(c) in such Fiscal Year, less (y) an amount equal to 3% of Gross Revenues for such Fiscal Year; provided, however that any such distribution shall be in proportion to the contributions made. (1) (4) If an Initial Dilution has occurred under Section 4.3(b)(i) during the one-year period immediately preceding the date on which any additional Capital Contributions required to be made pursuant to this SECTION 4.2 or any of its Subsections (a) through (c), and the defaulting Member has not paid the Dilution Interest Payment Amount with respect to such Additional Contribution Default, then the additional contribution required by the non-defaulting Member as a result of the difference between the Membership Interest of the non-defaulting Member immediately prior to the Initial Dilution and the Membership Interest of the non-defaulting Member immediately after the Initial Dilution shall be deemed a "DISPROPORTIONATE CONTRIBUTION" for all purposes hereunder. 1.37 DEFAULT. (1) DEFAULT IN MAKING INITIAL CAPITAL CONTRIBUTION. In the event either GCR or Station defaults in making their Initial Capital Contributions (subject to Force Majeure or as otherwise set forth in SECTION 4.1(a) in the case of GCR, and any delays in Station in making its final payment of the Station's Initial Capital Contribution because of delays by GCR in making its Initial Capital Contribution or Force Majeure (other than the inability to pay money) in the case of Station), then if such default is not cured within 30-days' following receipt of written notice from the non-defaulting Member, as the sole and exclusive remedy for such default: (i) the defaulting Member shall be deemed expelled from the Company, (ii) if the defaulting Member is GCR, Station may sue for specific performance of GCR's obligations under SECTION 4.1(a), and (iii) if the defaulting Member is Station, GCR may sue Station and Parent under this Agreement and the Station Guaranty for the amount equal to $25,052,136.00 less the amount of Station's Initial Capital Contribution actually contributed. GCR and Station acknowledge and agree that the failure of either to make their respective Initial Capital Contributions shall result in damage to the other and the Company, the exact amount of which is impractical or extremely difficult to calculate, and that the remedies set forth in this SECTION 4.3(a) are a fair and reasonable calculation of damages under the circumstances, and not a penalty or forfeiture. (2) DEFAULT IN MAKING ADDITIONAL CAPITAL CONTRIBUTION. (1) If any Member fails to timely make all or part of any additional Capital Contribution (an "ADDITIONAL CONTRIBUTION DEFAULT") required to be made by such Member pursuant to SECTION 4.2 (including the failure to pay under any "make-well" or completion guaranty) (the amount of such failed payment referred to herein as a "DEFAULT AMOUNT"), the non-defaulting Member may elect to contribute to the Company all or a part of the Default Amount (a "DEFAULT CONTRIBUTION"). The Default Contribution shall be deemed contributed as an additional Capital Contribution by the non-defaulting Member and the percentage of Membership Interests of the non-defaulting Member shall then be adjusted (an "INITIAL DILUTION") such that the percentage of such 39 Membership Interests shall be increased to a fraction, the numerator of which equals the aggregate Capital Contributions of the non-defaulting Member immediately prior to the payment of the Default Contribution plus 100% of the Default Contribution, and the denominator of which is the aggregate Capital Contributions of all Members (the resulting increase in the percentage of the non-defaulting Member's Membership Interest is referred to herein as the "DILUTION INTEREST"). The percentage of the Membership Interest of the defaulting Member shall be reduced accordingly. Until the Dilution Interest is acquired by the defaulting Member in accordance with the provisions of this Subsection 4.3(b) by paying the Dilution Interest Payment Amount (as hereinafter defined), or until all amounts due and owing under the GCR Guaranty or Station Guaranty (including the Twenty-Five Percent Payment), as applicable, have been paid in full, the non-defaulting Member shall be entitled to all distributions to which the defaulting Member would have been entitled in respect of its Membership Interests (each such distribution paid to the non-defaulting Member in respect of the defaulting Member's Membership Interest is referred to herein as a "DEFAULT DISTRIBUTION"). Default Distributions shall be credited first against the Twenty Five Percent Payment, second against the Default Contribution itself, and third against the amount of any Disproportionate Contribution. For a period of one year following the non-defaulting Member's contribution of the Default Contribution, the defaulting Member shall have the option of acquiring the Dilution Interest by paying the non-defaulting Member an amount (the "DILUTION INTEREST PAYMENT AMOUNT") equal to (w) 100% of the amount of the Default Contribution, plus (x) the Twenty Five Percent Payment, plus (y) the amount of all Disproportionate Contributions, minus (z) the amount of any Default Distributions, in which case the Default Contribution will be canceled, the dilution of the defaulting Member's Membership Interests shall be reversed, and an amount equal to 100% of the Default Contribution will be added to the Capital Account balance of the defaulting Member. If the Dilution Interest is not acquired in full by the defaulting Member within the foregoing one-year period, the percentage of Membership Interests of the non-defaulting Member shall then be further adjusted (a "SECONDARY DILUTION") such that the non-defaulting Member's percentage of the Membership Interests shall be increased to a fraction, the numerator of which equals (I) the aggregate Capital Contribution of the non-defaulting Member to date (including the Default Contribution), plus (II) the Twenty Five Percent Payment which is deemed contributed as an additional Capital Contribution solely for purposes of calculating a Member's percentage of Percentage Interests, minus (III) the amount of any Default Distributions, and the denominator of which is the aggregate Capital Contribution of all Members. The percentage of the Membership Interest of the defaulting Member shall be reduced accordingly. (2) In the event of an Additional Contribution Default, the non-defaulting Member also may elect either to (A) withdraw, no later than five (5) days after such additional Capital Contribution was made by the non-defaulting Member, its additional Capital Contribution which was made timely (and upon such withdrawal, the defaulting Member no longer shall be in default, and the requirement to make an additional Capital Contribution shall be deemed to have been canceled and neither Member shall have been deemed to have made an additional Capital Contribution), or (B) not make a Default Contribution at all. In the event that the non-defaulting Member elects the foregoing option (B), the Company shall not pay any distribution to the defaulting Member from the date on which such additional Capital Contribution was required to be made by the defaulting Member, and such amounts that otherwise would be distributed to the defaulting Member shall be retained by the Company and deemed to be a Capital Contribution of the defaulting Member ("RETAINED DISTRIBUTIONS"), until the earliest of (a) the date on which the defaulting Member has contributed such Default Amount to the Company (reduced by any Retained Distributions), there are no other unpaid delinquent Capital Contributions required to be made by such Member, and the 40 defaulting Member has paid the non-defaulting Member the Twenty Five Percent Payment on the Default Amount and all subsequent delinquent Capital Contributions, (b) the date on which all amounts due and owing with respect to all delinquent Capital Contributions (including the Default Amount) under the GCR Guaranty or Station Guaranty (including the Twenty Five Percent Payment), as applicable, have been paid in full, or (c) the date on which the aggregate amount of all such Retained Distributions equals the sum of (X) the Default Amount, (Y) all other subsequent delinquent Capital Contributions that remain unpaid as of the date of determination, and (Z) the Twenty Five Percent Payment on the Default Amount and all subsequent delinquent Capital Contributions. In the event that any of the foregoing (a), (b) or (c) occurs (a "DEFAULT REPAYMENT EVENT"), an amount equal to 100% of the Default Amount shall be deemed to be contributed to the capital of the Company on behalf of the defaulting Member and the defaulting Member's Capital Account shall be adjusted to reflect such Capital Contribution and the Company shall pay the non-defaulting Member the Twenty Five Percent Payment (to the extent such Twenty Five Percent Payment has not been paid previously to the non-defaulting Member). (3) DISENFRANCHISEMENT At any time after an Additional Contribution Default (except if the non-defaulting Member withdraws its additional Capital Contribution pursuant to SUBSECTION 4.3(b)(ii)(A)), the defaulting Member shall have no representatives on the Executive Committee and no vote on any matter coming before the Members, except that such defaulting Member's consent still shall be required with respect to the items set forth in SECTION 5.4 hereof. The disenfranchisement pursuant to this SECTION 4.3(c) shall end either as provided in SECTION 4.3(e) below or at such time as the defaulting Member has paid the Dilution Interest Payment Amount or a Default Repayment Event has occurred. (4) DEFAULT CALL AND PUT. (1) Within thirty (30) days after the day after a Secondary Dilution occurs (a "DILUTION DATE") pursuant to SECTION 4.3(b), and within thirty (30) days after each of the first five annual anniversaries of a Dilution Date, and on the tenth and fifteenth annual anniversaries of a Dilution Date, the non-defaulting Member may give written notice to the defaulting Member that it is considering exercising the right to purchase the defaulting Member's Membership Interest (the "DEFAULT CALL") and that the Appraised Value should be determined as of the date of such notice. Within 30 days after the determination of the Appraised Value, the non-defaulting Member shall notify the defaulting Member if it desires to exercise the Default Call. The purchase and sale thereafter shall occur within 10 days following receipt of all necessary third-party consents and approvals for such transfer. At the Closing, the Membership Interests shall be conveyed free and clear of all liens and encumbrances (except this Agreement), and the selling Member and its Affiliates shall be released from all indebtedness or guaranties incurred on behalf of the Company. The acquisition price shall be the Appraised Value and, unless the defaulting Member otherwise agrees, be paid in cash. (2) No later than one year prior to the fifth, tenth and fifteenth annual anniversaries of a Dilution Date, the defaulting Member may give written notice to the non-defaulting Member that it is considering exercising the right to sell its Membership Interest to the non-defaulting Member (the "DEFAULT PUT") and that the Appraised Value should be calculated as of 30 days prior to the applicable anniversary of a Dilution Date. Within 30 days after the determination of the Appraised Value, the defaulting Member shall notify the non-defaulting Member if it desires to exercise the Default Put (the "DEFAULT PUT EXERCISE DATE"). The purchase and 41 sale shall occur on the later of within 30 days prior to the fifth, tenth and fifteenth annual anniversaries of a Dilution Date, as applicable, or 10 days following receipt of all necessary third-party consents and approvals for such transfer. At the closing, the Membership Interest shall be conveyed free and clear of all liens and encumbrances (except this Agreement), and the selling Member and its Affiliates shall be released from all indebtedness or guaranties incurred on behalf of the Company. The acquisition price shall be the Appraised Value, and, unless the defaulting Member otherwise agrees, be paid in cash. In the event a Member defaults on acquiring a Member's Membership Interest pursuant to a Default Put, or the requisite consents and approvals to transfer have not (or cannot be) obtained with respect to a Default Put within one year after the Default Put Exercise Date, or the selling Member and its Affiliates cannot be released from all indebtedness or guaranties with respect to a Default Put (including the applicable Guarantee attached to this Agreement) within one year after the Default Put Exercise Date, then the selling Member can require the Company or its assets to be sold pursuant to actions taken by an investment banker (selected by the selling Member from the list on EXHIBIT A) in a commercially reasonable time period. (5) GUARANTIES. If a Member defaults on making any additional Capital Contribution set forth in SECTION 4.2, then the non-defaulting Member or the Company may sue on the Station Guaranty or GCR Guaranty, as the case may be, to the extent permitted pursuant to the terms thereof. At such time as the non-defaulting Member or the Company collects on the applicable Guaranty an amount equal to the full amount of the Default Amount (plus the Twenty Five Percent Payment related thereto, as well as all costs, reasonable attorneys fees and other amounts owing under the applicable Guaranty) from the applicable Guarantor, then the defaulting Member shall no longer be disenfranchised pursuant to SECTION 4.3(c) and: (1) if the non-defaulting Member has made a Default Contribution pursuant to SECTION 4.3(b)(i) with respect to such Default Amount, the non-defaulting Member shall be entitled to the full amount collected on the applicable Guaranty (except that the entity enforcing the Guaranty shall be entitled to retain any costs or attorneys fees collected on such Guaranty) and any dilution set forth in SECTION 4.3(b) shall be reversed as if such dilution had not occurred; provided that if (A) the Default Put or Default Call actually has closed prior to the payment on the applicable Guaranty, it shall not be reversed, but there shall be no further right to collect on the applicable Guaranty, or (B) there has been collection in full on the applicable Guaranty prior to the closing on a Default Put or Default Call, there shall be no right to pursue a Default Put or Default Call with respect to such default; (2) if no Default Contribution was made with respect to such Default Amount, 100% of the amount of such Default Amount recovered on the applicable Guaranty shall be contributed to the capital of the Company on behalf of the defaulting Member (but the entity enforcing the Guaranty shall be entitled to retain any costs or attorneys' fees collected on such Guaranty) and the Membership Interest of the defaulting Member shall be adjusted to reflect such Capital Contribution; and (3) in the event of either SECTIONS 4.3(e)(i) or (ii), the non-defaulting Member shall be paid from the amount collected on the Guaranty or by the defaulting Member if such collection is insufficient, the Twenty Five Percent Payment. 42 GCR and Station acknowledge and agree that the failure of either to make their respective additional Capital Contributions shall result in damage to the other and the Company, the exact amount of which is impractical or extremely difficult to calculate, and that the remedies set forth in SECTION 4.3(b-e) are a fair and reasonable calculation of damages under the circumstances, and not a penalty or forfeiture. (6) RESIGNATION AS MANAGER. In the event of a default by Station in providing Station's Initial Capital Contribution pursuant to SECTION 4.1(b) and the expulsion of Station as a Member, or a dilution of Station under SECTION 4.3(b), Station may give written notice to GCR that it desires to resign as Manager; provided, however, Station shall, if requested by GCR, be obligated to serve as the Manager for a period of up to 36 months (the "TRANSITION PERIOD") after the expulsion or Dilution Date, during which time Station shall continue to perform its obligations hereunder and continue to receive compensation and expense reimbursement pursuant to SECTION 3.5, and will cooperate with GCR in its efforts to engage a successor Manager of the Project. 1.38 ALLOCATION OF PROFITS AND LOSSES. For purposes of determining Capital Accounts under this SECTION 4.4: (i) Capital Accounts shall first be reduced by distributions with respect to such Fiscal Year, and (ii) a Member's Capital Account shall be increased by such Member's share of Minimum Gain and Minimum Gain Attributable to Member Nonrecourse Debt determined as of the end of such Fiscal Year. (1) PROFITS. After giving effect to the special allocations set forth in SECTION 4.4(c), Profits shall be allocated as follows: (i) first, to those Members with negative Capital Account balances, that portion of Profits which is equal in amount to, and in proportion to, such Members' respective negative Capital Accounts in the Company, provided that no such Profits shall be allocated under this paragraph to a Member once such Member's Capital Account is brought to zero; and (ii) the balance, to those Members in the amount and to the extent necessary to increase the Members' respective Capital Accounts so that if the proceeds were distributed under SECTION 6.2(c) at the end of the Fiscal Year, such proceeds would be distributed in accordance with the Members' respective Capital Account balances. (2) LOSSES. After giving effect to paragraph 4.4(c) of this Agreement, Losses shall be allocated to each Member as follows: (i) first, to those Members to the extent and in such proportions necessary to decrease the respective positive balances in all Members' Capital Accounts so that the proceeds distributed under SECTION 6.2(c) will be distributed in accordance with the Members' respective Adjusted Capital Accounts; and (ii) the balance, to the Members in accordance with the manner in which they bear the economic risk of loss associated with such loss. (3) SPECIAL ALLOCATIONS. Notwithstanding any provisions of SECTION 4.4(a) or SECTION 4.4(b), the following special allocations shall be made in the following order: (1) MINIMUM GAIN CHARGEBACK (NONRECOURSE LIABILITIES). If there is a net decrease in Minimum Gain for any Fiscal Year (except as a result of certain conversions or refinancings of Company indebtedness, certain capital contributions or certain revaluations of property as further outlined in Regulation Sections 1.704-2(d)(4), (f)(2), or (f)(3)), each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to that Member's share of the net decrease in Minimum Gain. 43 The items to be so allocated shall be determined in accordance with Regulation Section 1.704-2(f) and (j)(2). This SECTION 4.4(c)(i) is intended to comply with the minimum gain chargeback requirement in said section of the Regulations and shall be interpreted consistently therewith. Allocations pursuant to this SECTION 4.4(c)(i) shall be made in proportion to the respective amounts required to be allocated to each Member pursuant hereto. (2) MINIMUM GAIN ATTRIBUTABLE TO MEMBER NONRECOURSE DEBT. If there is a net decrease in Minimum Gain Attributable to Member Nonrecourse Debt during any Fiscal Year (other than due to the conversion, refinancing or other change in the debt instrument causing it to become partially or wholly nonrecourse, certain capital contributions, or certain revaluations of property as Further outlined in Regulation Section 1.704-2(i)(4)), each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to that Member's share of the net decrease in the Minimum Gain Attributable to Member Nonrecourse Debt. The items to be so allocated shall be determined in accordance with Regulation Sections 1.704-2(i)(4) and (j)(2). This SECTION 4.4(c)(ii) is intended to comply with the minimum gain chargeback requirement with respect to Member Nonrecourse Debt contained in said sections of the Regulations and shall be interpreted consistently therewith. Allocations pursuant to this SECTION 4.4(c)(ii) shall be made in proportion to the respective amounts required to be allocated to each Member pursuant hereto. (3) QUALIFIED INCOME OFFSET. In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), and such Member has an Adjusted Capital Account Deficit, items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly as possible. This SECTION 4.4(c)(iii) is intended to constitute a "qualified income offset" under Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. (4) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any Fiscal Year or other applicable period shall be allocated to the Members in proportion to their respective Capital Account balances. (5) MEMBER NONRECOURSE DEDUCTIONS. Member Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Member that bears the economic risk of loss for the debt in respect of which such Member Nonrecourse Deductions are attributable (as determined under Regulation Sections 1.704-2(b)(4) and (i)(1)). (6) CURATIVE ALLOCATIONS. The Regulatory Allocations (as hereinafter defined) shall be taken into account in allocating other items of income, gain, loss and deduction among the Members so that, to the extent possible, the cumulative net amount of allocations of Company items under SECTION 4.4(a), (b) AND (c) hereof shall be equal to the net amount that would have been allocated to each Member if the Regulatory Allocations had not occurred. This Paragraph (vi) is intended to minimize to the extent possible and to the extent necessary any economic distortions that may result from application of the Regulatory Allocations and shall be interpreted in a manner consistent therewith. For purposes hereof, "REGULATORY ALLOCATIONS" shall mean all the allocations provided under this SECTION 4.4(c) other than this Paragraph (vi). 44 (4) TAX ALLOCATIONS. (1) GENERALLY. Subject to Paragraph (ii) of this Subsection (d), items of income, gain, loss, deduction and credit to be allocated for income tax purposes (collectively, "TAX ITEMS") shall be allocated among the Members on the same basis as their respective book items. (2) ALLOCATIONS RESPECTING SECTION 704(c) AND REVALUATIONS. Notwithstanding Paragraph (i) of this Subsection (d), Tax Items with respect to Company property that is subject to Code Section 704(c) and/or Regulation Section 1.704-1(b)(2)(iv)(f) shall be allocated in accordance with said Code section and/or Regulation Section 1.704-1(b)(4)(i), as the case may be, using the "traditional method" or, upon unanimous approval of the Members, any other reasonable method permitted in Regulations Section 1.704-3. 1.39 DISTRIBUTIONS. (1) DISTRIBUTIONS PRIOR TO LIQUIDATION. Distributable Cash shall be disbursed or distributed to the Members only at such times and in such amounts as shall be determined by the Executive Committee in the following manner and order of priority: (1) First, to the Members pro rata in accordance with the accrued but undistributed Twenty-Five Percent Payment Amount on Default Amounts until each Member who is entitled to the Twenty-Five Percent Payment Amount shall have received (giving effect to all distributions pursuant to this SECTION 4.5(a)(i) in the current and all prior Fiscal Years) an amount equal to the Twenty-Five Percent Payment Amount. (2) Second, to the Members, pro rata in accordance with each Member's share of unreturned Default Contributions until each Member shall have received (giving effect to all distributions pursuant to this SECTION 4.5(a)(ii) in the current and previous Fiscal Years) an amount equal to such Member's Default Contributions. (3) Third, to the Members pro rata in accordance with each Member's share of unreturned Capital Contributions (other than Default Contributions) until each Member shall have received (giving effect to all distributions pursuant to this SECTION 4.5(a)(iii) in the current and previous Fiscal Years) an amount equal to such Member's Capital Contributions (other than Default Contributions). (4) Fourth, to the Members, pro rata in accordance with each Member's percentage of Membership Interests. Any such distributions shall be made to the Members on a pro rata basis in proportion to the respective percentage Membership Interests held by them at the time of such distributions. Notwithstanding the foregoing, as an advance against distributions pursuant to the preceding sentence, the Company shall distribute to each Member on an annual basis not later than 120 days following the end of each Fiscal Year an amount equal to 40% of the Profits allocated to such Member for such Fiscal Year pursuant to SECTION 4.4(a). (2) WITHHOLDING. The Company shall withhold and pay over to the Internal Revenue Service or other applicable taxing authority all taxes or withholdings, and all interest, 45 penalties, additions to tax, and similar liabilities in connection therewith or attributable thereto (hereinafter "WITHHELD TAXES") to the extent that the Manager reasonably determines that such withholding and/or payment is required by the Code or any other law, rule or regulation. The Manager shall determine to which Member such Withheld Taxes are attributable in accordance with applicable law. All amounts withheld pursuant to this SECTION 4.5(b) with respect to any allocation, payment or distribution to any Member shall be treated as amounts distributed to such Member pursuant to SECTION 4.5(a) hereof for all purposes of this Agreement. (3) CERTAIN ADJUSTMENTS. If an amount payable to the Company is reduced because the Person paying that amount withholds and/or pays over to the Internal Revenue Service or other applicable taxing authority any amount as a result of the status of a Member, the Manager shall make such adjustments to amounts distributed and allocated among Members as the Manager reasonably determines to be appropriate. ARTICLE V MEMBERS; TRANSFER OF INTERESTS 1.40 ADMISSION. The initial Members became Members of the Company at the Effective Date. Notwithstanding any contrary provision of the Act, the Company may admit new Members to the Company only with the prior consent of the Executive Committee on such terms as Station and GCR mutually agree. No Person shall be admitted as a Member until all approvals required by the Gaming Laws are obtained. 1.41 TRANSFER OF INTERESTS. (1) NO TRANSFER WITHOUT EXECUTIVE COMMITTEE CONSENT. No Member may Transfer all or any part of its Membership Interest in the Company (other than a Transfer (i) pursuant to SECTION 4.3(d), SECTION 5.2(b) or SECTION 5.3) or (ii) subject to SECTION 5.2(b), to one or more Greenspun Family Members (or an entity wholly owned by one or more Greenspun Family Members) in the case of GCR and a wholly owned subsidiary of Parent in the case of Station which expressly assumes in writing the obligations of the transferor under this Agreement (as long as such Transfer would not adversely affect the classification of the Company as a partnership for federal or state income tax purposes)) or otherwise assign or delegate any of such Member's rights and obligations as a Member without the consent of Station and GCR. In the event of a Transfer permitted by Clause (ii) of the preceding sentence, the transferor and transferee(s) shall be treated as a single Member for all purposes of this Agreement. For purposes of this Section, there shall be a Transfer of GCR's Membership Interest in the Company if one or more Greenspun Family Members do not own 100% of GCR; provided, however, that the pledge or other hypothecation of GCR's or Station's Membership Interest to secure Construction Financing or Permanent Financing, or the subsequent foreclosure or transfer in lieu thereof, to the construction or permanent lender or bona fide purchaser or transferee of such lender, shall not be deemed a Transfer. Notwithstanding anything in this Agreement to the contrary, in the event of any Transfer by GCR or Station of any or all of its Membership Interest in contravention of this SECTION 5.2(a), such as, but not limited to, by operation of law, bankruptcy or the like, the transferee shall have no rights to vote any matters coming before the Members and the other Member shall have the sole right to vote and appoint members to the Executive Committee. 46 (2) TRANSFER UPON CHANGE IN CONTROL. Station shall give written notice to GCR no later than 30 days following a Change in Control, which notice shall describe the events or circumstances which constitute such Change in Control in reasonable detail. GCR may, within 30 days after its receipt of such notice, give written notice to Station that it is considering selling its Membership Interest to Station (a "CHANGE IN CONTROL PUT") or purchasing Station's Membership Interest (a "CHANGE IN CONTROL CALL") and that the Appraised Value should be determined as of the date of such notice from GCR. Within 30 days after the determination of the Appraised Value, GCR shall notify Station if it elects to exercise the Change in Control Put (the "CHANGE IN CONTROL PUT EXERCISE NOTICE") or the Change in Control Call, in either case at the Appraised Value as determined pursuant to the immediately preceding sentence. The purchase of Station's Membership Interest or GCR's Membership Interest, as the case may be, pursuant to the exercise of a Change in Control Call or a Change in Control Put shall occur within 10 days following receipt of all necessary third-party consents and approvals for such transfer, with the purchase price payable in cash at such closing, unless otherwise agreed by the party selling the Membership Interest. The Membership Interests shall be conveyed free and clear of all liens and encumbrances (except this Agreement), and the selling Member and its Affiliates shall be released from all indebtedness and guaranties incurred on behalf of the Company. In the event Station defaults on acquiring GCR's Membership Interest pursuant to a change in Control Put, or the requisite consents and approvals to transfer have not (or cannot be) obtained with respect to a Change in Control Put within one year after the Change in Control Put Exercise Notice, or GCR and its Affiliates cannot be released from all indebtedness or guaranties with respect to a Change in Control Put (including the GCR Guaranty attached to this Agreement) within one year after the Change in Control Put Exercise Notice, then GCR can require the Company or its assets to be sold pursuant to actions taken by an investment banker (selected by GCR from the list on EXHIBIT A) in a commercially reasonable time frame. (3) SPECIAL PROVISIONS APPLICABLE TO CHANGE IN CONTROL PUT OR CALL OR DEFAULT PUT OR CALL. In the event that Station's Membership Interest is the subject of a Change in Control Put or Call or Default Put or Call, Station shall, at the option of GCR, be obligated to continue to serve as the Manager for a period of up to the Transition Period after the consummation of the purchase of Station's Membership Interest, during which time Station shall continue to perform its obligations hereunder and receive the Incentive Management Fee and the Base Management Fee and will cooperate with GCR in its efforts to engage a successor manager for the Project. (4) ATTEMPTED TRANSFERS IN CONTRAVENTION. Any attempted Transfer in contravention of this Article 5 shall be void and of no effect and shall not bind or be recognized by the Company. In the case of an attempted Transfer not permitted hereby, the parties attempting to engage in such Transfer shall indemnify and hold harmless (and hereby agree to indemnify and hold harmless), the Company and the other Members from all costs, liabilities and damages that any of such indemnified Persons may incur (including, without limitation, incremental tax liability and attorneys' fees and expenses) as a result of such attempted Transfer and efforts to enforce the indemnity granted hereby. (5) DISTRIBUTIONS AND ALLOCATIONS UPON TRANSFERS. If during any Fiscal Year there is a Transfer of an interest in the Company in compliance with the provisions of this Article 5, Profits and Losses and all other items attributable to the transferred interest for such period shall be divided and allocated between the transferor and the transferee by taking into account their varying 47 interests during the period in accordance with Code Section 706(d), using the interim closing of books method or, upon the unanimous approval of the Members, any other conventions permitted by law and selected by the Manager. All distributions with respect to the transferred interest on or before the date of the Transfer shall be made to the Transferor, and all distributions thereafter with respect to the transferred interest shall be made to the Transferee. Neither the Company nor the Manager shall incur any liability for making allocations and distributions in accordance with the provisions of this Article 5. (6) COMPLIANCE WITH GAMING LAWS. Notwithstanding anything to the contrary set forth herein, no Membership Interest or other ownership interest in the Company shall be issued or transferred in any manner whatsoever except in compliance with all Gaming Laws and only after the receipt of all necessary Gaming Licenses. 1.42 GAMING LICENSING. Each Member agrees to promptly and diligently, at its own cost, file for and seek to obtain it and its Affiliates Gaming Licenses for the Project. (1) In the event that any Member (the "PROBLEM MEMBER") has not received its Gaming License for the Project by the time of the Opening or, by virtue of its pending gaming application, is substantially impairing or impeding the receipt by the Company of the Gaming Licenses necessary for the Opening, then the other Member shall acquire the Problem Member's Membership Interest, free and clear of all liens and encumbrances (other than this Agreement), for a purchase price equal to 100% of the Problem Member's unreturned Capital Contribution, payable in cash, and the Problem Member and its Affiliates shall be released from all indebtedness and guaranties incurred on behalf of the Company. For a period of one year after such purchase, if the Problem Member obtains its Gaming License, it shall have the option, subject to the approval of the applicable Gaming Authorities, to repurchase its Membership Interest, free and clear of all liens and encumbrances (other than this Agreement), for a purchase price equal to the purchase price paid for such Membership Interest by the non-Problem Member, payable in cash, and assumption of one-half of all indebtedness or guaranties outstanding by the other Member or its Affiliates on behalf of the Company. For a period of one year after the purchase of the Problem Member's Membership Interest or such time as the Problem Member repurchases its Membership Interest, whichever is shorter, the Company shall not make any distributions to its Members (other than the payment of fees and reimbursement of costs in the ordinary course of business). (2) If, subsequent to Opening and the initial licensing of a Member, a Member (also, a "PROBLEM MEMBER") is substantially impeding or impairing the ability of the Company to maintain its Gaming License for the Project, or is resulting in the imposition of significantly burdensome terms and conditions on any such Gaming Licenses (a "LICENSING PROBLEM"), then the other Member may give written notice to the Problem Member and the Problem Member shall have the lesser of that time required by the Gaming Authorities or ninety (90) days to correct such Gaming Problem. If such Gaming Problem is not corrected within the shorter of the above time periods, then the non-Problem Member may give written notice that it shall acquire the Problem Member's Membership Interest, free and clear of all liens and encumbrances (other than imposed by this Agreement) for an amount equal to the Problem Member's unreturned Capital Contributions, and the Problem Member shall be released from all indebtedness and guaranties incurred on behalf of the Company. The closing on such acquisition shall occur upon the lesser of the time required by applicable Gaming Authority or 90 days after the notice of intent to acquire the Problem Member's Membership Interest. The purchase price shall be paid in cash. 48 1.43 REQUIRED MEMBER APPROVALS. Notwithstanding any other provision herein to the contrary, the prior unanimous affirmative approval of the Members of the Company shall be required with respect to each of the following: (1) Approval of a Restricted Activity by a Member; (2) Approval of an Affiliate Transaction by a Member which is not an arms-length bona fide fair market value transaction; (3) Amendments to the Articles and, except as set forth in SECTION 7.2, any amendment of this Agreement; (4) Any sale of the business or substantially all of the assets of the Company, or merger of the Company in which the Company is not the surviving entity and the Members of the Company immediately prior to such transaction do not hold a majority of the Voting Stock of the entity surviving such merger, which sale or merger is not an arms-length bona fide fair market value transaction; (5) Approval of the resignation of the Manager pursuant to SECTION 3.1; (6) Admission of new Member(s) pursuant to SECTION 5.1 or Transfers pursuant to SECTION 5.2(a) (other than under Sections 5.2(a)(i) or (ii)); (7) Dissolution of the Company pursuant to SECTION 6.1(a); or (8) Approval by GCR of any of the matters set forth in SECTION 3.3 (c). 1.44 PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Meetings of Members shall be held at any place designated by the Executive Committee. In the absence of any such designation, meetings of Members shall be held at the principal place of business of the Company. Any meeting of the Members may be held by conference telephone or similar communications equipment so long as all Members participating in the meeting can hear one another, and all Members participating by telephone or similar communications equipment shall be deemed to be present in person at the meeting. 1.45 ANNUAL MEETING. (1) No annual meeting of the Members shall be required. (2) The Members shall designate in writing one representative (a "MEMBER'S REPRESENTATIVE") to attend a regular monthly informational meeting of the Members at which time the Manager shall review the financial statements set forth in SECTION 3.4(i) and shall present such other information with respect to the Project as reasonably requested by any Member's Representative. A member may change its Member's Representative by written notice to the Executive Committee. 49 1.46 SPECIAL CALL OF MEETINGS. Special meetings of the Members may be called at any time by any Member owning 25% or more of the Membership Interests of the Company or by the Executive Committee for the purpose of taking action upon any matter requiring the vote or authority of the Members as provided in this Agreement or the Act or upon any other matter as to which such vote or authority is deemed by the Members or the Executive Committee to be necessary or desirable; provided, however, in no event may any Member call a special meeting of the Members more than once in any four week period. 1.47 NOTICE OF MEETINGS OF MEMBERS. All notices of meetings of Members shall be sent or otherwise given in accordance with SECTION 8.1 not less then five (5) nor more than ninety (90) days before the date of the meeting. The notice shall specify (i) the place, date, and hour of the meeting, and (ii) the general nature of the business to be transacted. 1.48 MANNER OF GIVING NOTICE. Notice of any meeting of the Members shall be given pursuant to SECTION 8.1 1.49 ADJOURNED MEETING; NOTICE. Any meeting of Members whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the Membership Interests represented at that meeting, either in person or by proxy. When any meeting of Members is adjourned to another time or place, notice need not be given of the adjourned meeting, unless a new record date of the adjourned meeting is fixed or unless the adjournment is for more than sixty (60) days from the date set for the original meeting, in which case the Executive Committee shall set a new record date and shall give notice in accordance with the provisions of SECTIONS 5.8 AND 5.9. At any adjourned meeting, the Company may transact any business that might have been transacted at the original meeting. 1.50 QUORUM; VOTING. At any meeting of the Members, a majority of the Membership Interests of the Company, present in person or by proxy, shall constitute a quorum for all purposes. Except as otherwise required by this Agreement (including, without limitation, SECTION 5.4 above) or the Act, all matters shall be determined by an affirmative vote of Members holding at least a majority of the Membership's Interests of the Company when a quorum is present. 1.51 WAIVER OF NOTICE BY CONSENT OF ABSENT MEMBERS. The transactions of a meeting of Members however called and noticed and wherever held, shall be as valid as though taken at a meeting duly held after regular call and notice if a quorum is present either in person or by proxy and if either before or after the meeting, each person entitled to vote who was not present in person or by proxy signs a written waiver of notice or a consent to a holding of the meeting or an approval of the minutes. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any meeting of Members. Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the beginning of the meeting. 1.52 MEMBER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Except as provided in this Agreement or the Act, any action that may be taken at any meeting of Members, may be taken without a meeting and without prior notice if a consent in writing setting forth the action so taken 50 is signed by Members holding at least a majority of the Membership Interests of the Company, or such greater number as is required by this Agreement or the Act with respect to a particular issue. Any such written consent may be executed and given by telecopy or similar electronic means. Such consents shall be filed with the Company and shall be maintained in the Company's records. 1.53 RECORD DATE FOR MEMBER NOTICE, VOTING, AND GIVING CONSENTS. (1) For purposes of determining the Members entitled to vote or act at any meeting or adjournment thereof, the record date for determining Members entitled to notice of or to vote at a meeting of Members shall be at the close of business on the business day immediately preceding the day on which notice is given, or if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (2) The record date for determining Members entitled to give consent to action in writing without a meeting, (i) when no prior action of the Executive Committee has been taken, shall be the day on which the first written consent is given or (ii) when prior action of the Executive Committee has been taken, shall be (x) such date as determined for that purpose by the Executive Committee, which record date shall not precede the date upon which the resolution fixing it is adopted by the Executive Committee and shall not be more than 20 days after the date of such resolution or (y) if no record date is fixed by the Executive Committee the record date shall be the close of business on the day on which the Executive Committee adopts the resolution relating to that action. (3) Only Members of record on the record date as herein determined shall have any right to vote or to act at any meeting or give consent to any action relating to such record date, provided that no Member who Transfers all or part of such Member's Membership Interest after a record date (and no transferee of such Membership Interest) shall have the right to vote or act with respect to the transferred Membership Interest as regards the matter for which the record date was set. 1.54 IN GENERAL. As of the date of its execution of this Agreement, each of the Members and the Manager (other than the Manager with respect to SECTIONS 5.15(e) AND (f)), hereby makes each of the representations and warranties applicable to such Member or Manager as set forth in this SECTION 5.15 hereof, and such warranties and representations shall survive the execution of this Agreement, and be for the benefit of the Company and other Members: (1) DUE INCORPORATION OR FORMATION; AUTHORIZATION OF AGREEMENT. If such Member or Manager is a corporation, limited liability company, or a partnership, it is duly organized or duly formed, validly existing, and in good standing under the laws of the jurisdiction of its incorporation or formation and has the corporate, limited liability company, or partnership power and authority to own its property and carry on its business as owned and carried on at the date hereof and as contemplated hereby. Such Member or Manager is duly licensed or qualified to do business and in good standing in each of the jurisdictions in which the failure to be so licensed or qualified would have a material adverse effect on its financial condition or its ability to perform its obligations hereunder. Such Member or Manager has the individual, corporate, limited liability company, or partnership power and authority to execute and deliver this Agreement and to perform its obligations hereunder and, if such Member or Manager is a corporation, limited liability company, or partnership, the execution, delivery, and performance of this Agreement has been duly authorized 51 by all necessary corporate, limited liability company, or partnership action. This Agreement constitutes the legal, valid, and binding obligation of such Member or Manager enforceable in accordance with its respective terms (except as enforceability may be limited by applicable bankruptcy, insolvency or other similar laws affecting creditor's rights generally, and except that the availability of equitable remedies is subject to judicial discretion). (2) NO CONFLICT WITH RESTRICTIONS; NO DEFAULT. Neither the execution, delivery, and performance of this Agreement nor the consummation by such Member or Manager of the transactions contemplated hereby (i) will conflict with, violate, or result in a breach of any of the terms, conditions, or provisions of any law, regulation, order, writ, injunction, decree, determination, or award of any court, any governmental department, board, agency, or instrumentality, domestic or foreign, or any arbitrator, applicable to such Member or Manager, (ii) will conflict with, violate, result in a breach of, or constitute a default under any of the terms, conditions, or provisions of the articles of incorporation or organization, bylaws, operating agreement, or partnership agreement of such Member or Manager, if such Member or Manager is a corporation, limited liability company or partnership, or, except as set forth in the next sentence with respect to Station and Parent, of any material agreement or instrument to which such Member or Manager is a party or by which such Member or Manager is or may be bound or to which any of its material properties or assets is subject, (iii) will, except as set forth in the next sentence with respect to Station and Parent, conflict with, violate, result in a breach of, constitute a default under (whether with notice or lapse of time or both), accelerate or permit the acceleration of the performance required by, give to others any material interests or rights, or require any consent, authorization, or approval under any indenture, mortgage, lease agreement, or instrument to which such Member or Manager is a party or by which such Member or Manager is or may be bound, or (iv) will result in the creation or imposition of any lien upon any of the material properties or assets of such Member or Manager. With respect to Station and Parent, certain provisions of this Agreement may conflict with other agreements, or require the consent of unrelated parties. Notwithstanding such conflict or necessity of consent, Station agrees that it is absolutely bound by the terms of this Agreement, and Station further acknowledges and agrees that its failure to perform an obligation under the terms of this Agreement (even if such obligations may cause a breach of another agreement or require the consent of a third party) shall entitle GCR to its remedies available pursuant to the terms of this Agreement. (3) GOVERNMENTAL AUTHORIZATIONS. Any registration, declaration or filing with or consent, approval, license, permit or other authorization or order by, any governmental or regulatory authority, domestic or foreign, that is required in connection with the valid execution, delivery, acceptance, and performance by such Member or Manager under this Agreement or the consummation by such Member or Manager of any transaction contemplated hereby has been completed, made, or obtained on or before the Effective Date of this Agreement, except as set forth in this Agreement. (4) LITIGATION. There are no actions, suits, proceedings, or investigations pending or, to the knowledge of such Member or Manager, threatened against or affecting such Member or Manager or any of their properties, assets, or businesses in any court or before or by any governmental department, board, agency, or instrumentality, domestic or foreign, or any arbitrator which could, if adversely determined (or, in the case of an investigation could lead to any action, suit, or proceeding, which if adversely determined could) reasonably be expected to materially impair such Member's or Manager's ability to perform its obligations under this Agreement or to have a material adverse effect on the consolidated financial condition of 52 such Member or Manager; and such Member or Manager has not received any currently effective notice of any default, and such Member is not in default, under any applicable order, writ, injunction, decree, permit, determination, or award of any court, any governmental department, board, agency, or instrumentality, domestic or foreign, or any arbitrator which could reasonably be expected to materially impair such Member's or Manager's ability to perform its obligations under this Agreement or to have a material adverse effect on the consolidated financial condition of such Member or Manager. (5) INVESTIGATION. Such Member is acquiring its Membership Interest based upon its own investigation, and the exercise by such Member of its rights and the performance of its obligations under this Agreement will be based upon its own investigation, analysis, and expertise. Such Member's acquisition of its Membership Interest is being made for its own account for investment, and not with a view to the sale or distribution thereof. (6) ACCREDITED INVESTOR. Such Member is an "accredited investor" within the meaning of applicable state and federal securities laws. The Member's overall commitment to investments that are not readily marketable is not disproportionate to its net worth, and the purchase of the Membership Interest will not cause such overall commitment to become excessive. ARTICLE VI DISSOLUTION, LIQUIDATION AND TERMINATION 1.55 DISSOLUTION. The Company shall dissolve and its affairs shall be wound up upon the occurrence of any of the following: (1) the mutual consent of all Members at any time; or (2) the occurrence of any other event that effects a dissolution of the Company under the Act. 1.56 LIQUIDATION AND TERMINATION. On dissolution of the Company, the Manager shall act as liquidating trustee or may appoint one or more Members as liquidating trustee. The liquidating trustee shall proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Act. The costs of liquidation shall be borne by the Company. Until final distribution, the liquidating trustee shall continue to operate the Company properties with all of the power and authority of the Manager. The steps to be accomplished by the liquidating trustee are as follows: (1) as promptly as possible after dissolution and again after final liquidation, the liquidating trustee shall cause an accounting to be made by a firm of independent public accountants of the Company's assets, liabilities and operations through the last day of the calendar month in which the dissolution occurs or the final liquidation is completed, as applicable; (2) the liquidating trustee shall pay, satisfy or discharge from Company funds all of the debts, liabilities and obligations of the Company (including, without limitation, all expenses incurred in liquidation) or otherwise make adequate provision for payment and discharge thereof (including, without limitation, the establishment of a cash escrow fund for contingent liabilities in such amount and for such term as the liquidating trustee may reasonably determine); and 53 (3) all remaining assets of the Company shall be distributed to the Members in accordance with SECTION 4.5(a). 1.57 ARTICLES OF DISSOLUTION. On completion of the distribution of Company assets as provided herein, the Company's existence shall be terminated, and the Manager (or such other person or persons as the Act may require or permit) shall file Articles of Dissolution with the Secretary of State of Nevada under the Act and take such other actions as may be necessary to terminate the existence of the Company. 1.58 NEGATIVE CAPITAL ACCOUNTS. No Member with a deficit balance in its Capital Account shall have any obligation to make any contribution to the capital of the Company with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever. 1.59 DEEMED DISTRIBUTION AND RECONTRIBUTION. Notwithstanding any other provision of this Article 6, in the event the Company is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no event described in SECTION 6.1 has occurred, such liquidation shall not cause a dissolution of the Company for purposes of the Act and the Company's assets shall not be liquidated, the Company's liabilities shall not be paid or discharged, and the Company's affairs shall not be wound up. Instead, the assets and liabilities of the Company shall be deemed to have been contributed to a new company and the interests in the new company shall be deemed distributed to members of the former Company, which shall be operated and governed by this Agreement 1.60 LIMITATIONS ON RIGHTS OF MEMBERS. Each Member shall look solely to the assets of the Company for the return of its Capital Contribution, and except as expressly provided herein no Member shall have priority over any other Member as to the return of its Capital Contribution or as to any distributions or allocations. ARTICLE VII AMENDMENTS 1.61 AMENDMENTS GENERALLY. Except as otherwise provided in this Article 7, and notwithstanding any contrary provision of the Act, any amendments to this Agreement and to the Articles may be adopted with the unanimous written consent of all the Members; provided, however, that in no event may the provisions of SECTIONS 3.1 THROUGH 3.8, 3.10, 3.13, 3.26 THROUGH 3.29 or this Article VII regarding amendments to such provisions be amended without the approval of the Manager as long as Station is the Manager. 1.62 AMENDMENTS BY THE EXECUTIVE COMMITTEE. Without limiting the power to amend this Agreement granted by SECTION 7.1 hereof, this Agreement may be amended by the Executive Committee, by executing an instrument of amendment and giving each Member notice thereof, without the consent of any of the Members, (i) to effect changes of a ministerial nature that do not adversely affect the rights, duties or obligations of the Members; (ii) to give effect to the admission of Members in accordance with the terms hereof; (iii) to conform the terms of this Agreement with any Regulations issued under Code Section 704; or (iv) with respect to the Company's status as a partnership (and not as an association taxable as a corporation) for federal or state income tax 54 purposes (x) to comply with the requirements of the Regulations, or (y) to ensure the continuation of partnership status; provided, however, that in the opinion of counsel of the Company any of such amendments do not adversely affect the rights or interests of any of the Members. Notwithstanding the foregoing, no amendment shall be adopted pursuant to this SECTION 7.2 if such amendment would adversely affect the limited liability of the Members or the status of the Company as a partnership for federal or state income tax purposes. 1.1 ARTICLE VIII MISCELLANEOUS 1.63 NOTICES. All notices, requests, consents and other formal communication between the Members, the Manager, the members of the Executive Committee and the Company that are required or permitted under this Agreement ("NOTICES") shall be in writing and shall be sent to the address for the respective addressee provided on EXHIBIT M attached hereto or, in this case of the Company, at its registered address under SECTION 2.4 (each a "NOTICE ADDRESS"). Notices shall be (i) delivered personally with a written receipt of delivery, (ii) sent by a recognized overnight courier requiring a written acknowledgment of receipt or providing a certification of delivery or attempted deliver (E.G., Federal Express, Airborne, UPS), (iii) sent by certified or registered mail, postage prepaid, return receipt requested, or (iv) transmitted by facsimile machine provided that the facsimile transmission is received between 8:00 a.m. and 5:00 p.m. (as determined by the time zone of the addressee), Monday through Friday but excluding holidays on which the primary office of the addressee is closed, and provided further that a duplicate copy of the Notice is delivered to the respective Notice Address on the first regular business day following the date of facsimile transmission. Notices shall be deemed delivered when actually received by the addressee at the respective Notice Address; provided, however, that if the Notice was sent by overnight courier or mail as aforesaid and is affirmatively refused or cannot be delivered during customary business hours by reason of the absence of a signatory to acknowledge receipt, or by reason of a change of address with respect to which the addressor did not have either knowledge or written notice delivered in accordance with this paragraph, then the first attempted delivery shall be deemed to constitute delivery. Each Member, the Manager, the members of the Executive Committee and the Company shall be entitled to change its Notice Address from time to time, and to add up to two additional notice addressees, by delivering to all Members, the Manager, the members of the Executive Committee and the Company notice thereof in the manner herein provided for the delivery of Notices. 1.64 BINDING EFFECT. Except as otherwise provided in this Agreement, every covenant, term and provision of this Agreement shall be binding upon and inure to the benefit of the Members and their respective successors, transferees and (subject to the limitations in Article 5 hereof) assigns. 1.65 HEADINGS. Section and (except for the definitions in SECTION 1.1) other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. 55 1.66 SEVERABILITY. Every provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity or legality of the remainder of this Agreement. 1.67 FURTHER ACTION. Each Member, upon the request of the Manager, agrees to perform all further acts and execute, acknowledge and deliver any documents which may be reasonably necessary, appropriate or desirable to carry out the provisions of this Agreement. 1.68 GOVERNING LAW. The laws of the State of Nevada shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties of the Members. 1.69 WAIVER OF ACTION FOR PARTITION. Each of the Members irrevocably waives any right that it may have to maintain any action for partition with respect to any of the Company's assets. 1.70 COUNTERPART EXECUTION. This Agreement may be executed in any number of counterparts with the same effect as if all of the Members had signed the same document. All counterparts shall be construed together and shall constitute one agreement. 1.71 CPI ADJUSTMENT. Each of the dollar thresholds specified in this Agreement shall be subject to adjustment (the "CPI ADJUSTMENT") in each year of the term of this Agreement as set forth in this SECTION 8.9 based upon the difference, if positive, between the United States Department of Labor Bureau of Labor Statistics Consumer Price Index - All Urban Consumers (U.S. City Average, All Items, Base Period 1982-84=100) (the "INDEX") as of the date of determination and the Index as of the Effective Date. If the Index is discontinued or revised during the term of this Agreement, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result that would be obtained if such index had not been discontinued or revised. The first CPI Adjustment shall be proposed by the Manager in the Annual Plan and Operating Budget presented to the Executive Committee for approval for the second full year after Opening, based on the change from the prior year, and shall be proposed to the Executive Committee annually thereafter for approval with the Annual Plan and Operating Budget. 1.72 PUBLICITY. Neither GCR nor Station shall make any formal public statement(s) or announcements regarding the Project or this Agreement without the prior consent of the other, which consent shall not be unreasonably withheld; provided that if either party is unable to obtain the prior consent of the other with respect to a formal announcement that is, on the advice of legal counsel, believed to be required by law, then such party may make or issue such legally required statement or announcement and promptly furnish the other party with a copy thereof. 1.73 TRANSITION AS MANAGER. During the Transition Period, Station shall reasonably cooperate with Company and GCR to make a transition in the management of the Project, including transferring all of the property of the Project, including books and records, customer lists, employee and services records and manuals, supplier lists and other similar documents or information, which shall remain the sole property of the Company. After Station no longer is Manager, it shall make itself reasonably available for reasonable and customary compensation to advise and consult in any transition for a reasonable period of time. 56 1.74 BROKER FEES. Station represents and warrants that upon the formation of the Company or transfer of the Resort Property to the Company, there will be no brokerage fees or commissions or other compensation due or payable on an absolute or contingent basis to any person, firm, corporation, or other entity, with respect to or on account of the formation of the Company or transfer of Resort Property, arising by, through or under Station. * * * * * * 57 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement under seal as of the Effective Date. GREEN VALLEY RANCH GAMING, LLC By: GV Ranch Station, Inc. Its Manager By: /s/ SCOTT M NIELSON ------------------------------------ Title: Secretary GCR GAMING, LLC By: /s/ BRIAN GREENSPUN ------------------------------------ Title: Manager GV RANCH STATION, INC. By: /s/ SCOTT M NIELSON ------------------------------------ Title: Secretary AS MANAGER: GV RANCH STATION, INC. By: /s/ SCOTT M NIELSON ------------------------------------ Title: Secretary 58 EXHIBIT A List of Investment Banking Firms 1. Credit Suisse First Boston 2. Bear, Stearns & Co., Inc. 3. CIBC Oppenheimer 4. Lehman Brothers 5. Merrill Lynch & Co., Inc. 6. Wasserstein Perella & Co., Inc. 7. Banc of America Securities LLC 8. Donaldson, Lufkin & Jenrette, Inc. 9. Jefferies & Company, Inc. 10. The Goldman Sachs Group, Inc. 11. BT Alex Brown (Macquarie Bank Limited) 12. BancBoston Robertson Stephens A-1 EXHIBIT B Fertitta Family Members 1. Frank J. Fertitta III 2. Blake L. Sartini 3. Lorenzo J. Fertitta B-1 EXHIBIT C GCR Gaming Guarantor, LLC Guaranty GUARANTY The undersigned GCR Gaming Guarantor, LLC, a Nevada limited liability company (the "GUARANTOR"), and an Affiliate of GCR Gaming, LLC ("GCR"), hereby irrevocably and unconditionally guarantees the payment and performance by GCR pursuant to SECTIONS 4.1(a) AND 4.2 of the Operating Agreement ( the "AGREEMENT") of Green Valley Ranch Gaming, LLC (the "COMPANY") to the same extent that GCR is bound thereby. Such Guaranty is for the benefit of the Company and, to the extent that GCR fails to make any required contribution of capital under the Agreement and Station is not in default under the Agreement, for the benefit of Station, each independently and severally, and such Guaranty also is a guaranty of the Twenty-Five Percent Payment for the period commencing on the date on which GCR's payment obligation begins and ending on the earlier to occur of (a) one year from such date, and (b) the date on which such payment obligation which GCR fails to make in breach of the foregoing SECTIONS 4.1(a) AND 4.2 of the Agreement has been satisfied. Upon the earlier of the Company closing on the Construction Financing (as defined in the Agreement) or ninety (90) days after Opening of the Project to the public, the obligations guaranteed hereby shall be limited to those set forth in SECTIONS 4.2(b) AND 4.2(c) and the amount of payment and performance guaranteed hereby as required by such sections shall be limited to $15,000,000.00 in aggregate. The Guarantor hereby grants to the Company, which may be exercised solely by Station on behalf of the Company (and to which the Company consents by acceptance of this Guaranty), in Station's sole discretion and without notice to, or consent by, the Guarantor, but subject to the terms and conditions of the Agreement, the power and authority to modify, waive, renew, compromise, extend, accelerate or otherwise change the time or place of payment of or to otherwise change the terms of the payment of the amounts guaranteed hereby, the other obligations guaranteed hereby or the provisions of the Agreement related thereto. The liability of the Guarantor shall not be terminated, affected, impaired or reduced in any way by any action taken by Station under the foregoing provision or any other provision hereof or by any delay, failure or refusal of Station to exercise any right or remedy it may have against GCR, or any other person, including other guarantors, if any, liable for all or any part of the obligations guaranteed hereby. Satisfaction by the Guarantor of any liability hereunder incident to a particular default under the Agreement, if additional default(s) shall occur under the Agreement, shall not discharge the Guarantor except with respect to the default satisfied, it being the intent hereof that this Guaranty and the obligations of the Guarantor hereunder shall be continuing and irrevocable and shall survive until termination of the Agreement, and shall survive termination of the Agreement to the extent any defaults exist at the time of such termination. Notwithstanding the foregoing or anything else set forth herein, and in addition thereto, if at any time all or any part of any payment received by Station or the Company from the Guarantor under or with respect to this Guaranty is or must be rescinded or returned for any reason whatsoever (including, but not limited to, determination that said payment was a voidable preference under insolvency, bankruptcy or reorganization laws), then the Guarantor's obligations hereunder shall, to the extent of the payment rescinded or returned, be deemed to have continued in existence, notwithstanding such previous receipt of payment by Station or the Company, and Guarantor's obligations hereunder shall continue to be effective or be C-1 reinstated, as the case may be, as to such payment, all as though such previous payment to Station or the Company had never been made. The provisions of the foregoing sentence shall survive termination of this Guaranty and of the Agreement, and shall remain a valid and binding obligation of the Guarantor until satisfied. The Guarantor hereby waives notice of acceptance of this Guaranty by Station or the Company and this Guaranty shall immediately be binding upon the Guarantor. In addition, to the extent permitted by law, the undesigned hereby waives and agrees not to assert or take advantage of: (a) any right to require Station or the Company to proceed against GCR or the Company or any other person at any time or to pursue any other remedy in Station's or the Company's power before proceeding against the Guarantor hereunder; (b) the defense of the statute of limitations in any action hereunder or in any action for the collection of the payment of the amounts guaranteed or the performance of any other obligations guaranteed hereby; (c) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other person or persons or the failure of Station or the Company to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other person or persons; (d) demand, presentment for payment, notice of nonpayment, protest, notice of protest and all other notices of any kind; (e) any defense based upon an election of remedies by Station or the Company which destroys or otherwise impairs any or all of the subrogation rights of the Guarantor, the right of the Guarantor to proceed against GCR or the Company or any other person for reimbursement, or both; (f) any principle or provision of law, statutory or otherwise, which is or might be in conflict with the terms and provisions of this Guaranty; or (g) any duty on the part of Station or the Company to disclose to the Guarantor any facts Station or the Company may now or hereafter know about GCR or the Company, regardless of whether Station or the Company had reason to believe that any such facts materially increase the risk beyond that which the Guarantor intends to assume or has reason to believe that such facts are unknown to the Guarantor or has a reasonable opportunity to communicate such facts to the Guarantor, it being understood and agreed that the Guarantor is fully responsible for being and keeping informed of the financial condition of GCR or the Company and of any and all circumstances bearing on the risk that liability may be incurred by the Guarantor hereunder. The liability of the Guarantor under this Guaranty shall be an absolute, direct, immediate and unconditional guaranty of payment and performance and not of collectability, and is not conditioned or contingent upon the genuineness, validity, regularity or enforceability of the Agreement. The obligations of the Guarantor hereunder are independent of the obligations of GCR and, in the event of any default hereunder, a separate action or actions may be brought and prosecuted against the Guarantor whether or not GCR is joined therein or a separate action or actions are brought against GCR. Station or the Company may maintain successive actions for other defaults. Station's and the Company's rights hereunder shall not be exhausted by its exercise of any of their rights or remedies or by any such action or by any number of successive actions and the Guarantor hereby waives and covenants not to assert any defense in the nature of splitting of causes of action or merger of judgments. It is expressly understood that the obligations of the Guarantor hereunder are an additional and cumulative benefit given to Station and the Company for their security and as an inducement to execute the Agreement. The amount of the Guarantor's liability and all rights, powers and remedies of Station and the Company hereunder shall be cumulative and not alternative and such rights, powers and remedies shall be in addition to all rights, powers and remedies given to Station or the Company under the Agreement or otherwise by law (except as expressly set forth in the Agreement). C-2 All notices or other communications provided for or permitted hereunder shall be in writing and shall be given in the same manner as provided in SECTION 8.1 of the Agreement and be deemed given as set forth therein, when addressed to the Guarantor at: 901 North Green Valley Parkway, Suite 200, Henderson, Nevada 89104, Station as set forth in EXHIBIT M of the Agreement, and the Company at its registered offices. The Guarantor hereby agrees to pay to Station or the Company, as the case may be, upon demand, reasonable attorneys' fees and all costs and other expenses which either or both expends or incurs in enforcing the obligations guaranteed hereby or enforcing this Guaranty against the Guarantor whether or not suit is filed, including, without limitation, all reasonable attorneys' fees, costs and expenses incurred by either or both in connection with any insolvency, bankruptcy, reorganization, arrangement or other similar proceedings involving GCR or the Guarantor which in any way affect the exercise by Station or the Company, as the case may be, of its rights and remedies hereunder. Until paid to Station or the Company, as the case may be, such attorneys' fees, costs and expenses shall bear interest at the rate of twenty-five percent (25%) per annum. Should any one or more provisions of this Guaranty be determined to be illegal or unenforceable, all other provisions nevertheless shall be effective. No provision of this Guaranty or right of Station or the Company hereunder can be waived nor can the Guarantor be released from its obligations hereunder except by a writing duly executed by Station and the Company or unless this Guaranty terminates pursuant to the terms hereof. This Guaranty may not be modified, amended, revised, changed or varied in any way whatsoever except by the express terms of a writing duly executed by Station, the Company and the Guarantor. In the event that Station assigns its Membership Interest pursuant to SECTION 5.2(a) of the Agreement, this Guaranty shall automatically be assigned therewith in whole or in part, as applicable, without the need of any express assignment; provided, however, in the event that GCR assigns its Membership Interest to Station pursuant to a put or a call, this Guaranty shall terminate and be of no force or effect for any defaults arising after such assignment. This Guaranty is personal to the Guarantor and cannot be assigned without the prior written approval of Station, which approval shall be in its sole discretion, and any assignment in violation of this provision shall be null and void. Subject to the provisions of this paragraph, this Guaranty shall inure to the benefit of and bind the heirs, legal representatives, administrators, executors, successors and assigns of Station and the Guarantor. This Guaranty shall be governed by and construed in accordance with the laws of the State of Nevada. In any action brought under or arising out of this Guaranty, the Guarantor hereby consents to the jurisdiction of any competent court within the State of Nevada and consents to service of process by any means authorized by the law of the State of Nevada. The Guarantor hereby agrees that it will not and will not permit its directors, officers, stockholders, members, managers, partners and other Affiliates to take any action that could reasonably be expected to prevent, hinder or delay the performance of the undersigned of its obligations hereunder, including, without limitation, transferring any assets of the Guarantor outside the ordinary course of business that could reasonably be expected to prevent, hinder or delay the performance of the undersigned of its obligations hereunder. C-3 The undersigned represents and warrants that: (a) It is duly organized, validly existing and in good standing under the laws of the jurisdiction where it purports to be organized; (b) It has full corporate or limited liability company power and authority to enter into and perform this Guaranty; (c) The execution, delivery and performance of this Guaranty has been duly authorized by all necessary corporate or limited liability company action by such party and, if necessary, its equityholders; (d) This Guaranty has been duly executed and delivered by a duly authorized officer or other representative of such party and constitutes the legal, valid and binding obligation of such party enforceable in accordance with its respective terms (except as enforceability may be limited by applicable bankruptcy, insolvency or other similar laws affecting creditor's rights generally, and except that the availability of equitable remedies is subject to judicial discretion); (e) No consent, approval, order, license, authorization or validation of, or filing, recording or registration with, or exemption of or by any person or entity is required in connection with the execution, delivery and performance of this Guaranty by such party; and (f) Neither the execution, delivery or performance by such party of this Guaranty, nor compliance by such party with the terms and provisions hereof will: (i) contravene any applicable provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or governmental instrumentality, or (ii) conflict with or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any security interest or other lien upon any of the property or assets of such party pursuant to the terms of any indenture, mortgage, deed of trust or other instrument to which such party is a party or by which such party or any of its property or assets is bound or may be subject. Dated this ____ day of March, 2000. GCR GAMING GUARANTOR, LLC By: ------------------------------- Title: ---------------------------- C-4 EXHIBIT D Page 1 of 2 "Infrastructure Improvements" means the following: - - A 60" storm drain along the 4A and 4B road alignments. - - The first stage of a 10' by 10' box culvert (noted as 7A). - - Roads including utilities for road sections 1C, 3, 4A and 4B and temporary road sections 2A and 2B. - - Traffic signals at intersections 8, 9 and 10. - - "Entry Features" at the intersections of Paseo Verde Parkway and road sections 3 and 4B. - - Landscaping to include (i) at least 24' back of curb on all road sections (1C, 3, 4A, 4B,14A,14B and 14C); (ii) Nevada Power substation (noted as 15); (iii) "Central Amenity" to be located at the Northwest corner of the intersection of road sections 4A and 5B; and (iv) Beltway Buffer on the North side of the Resort Property. Note: All number references are to Exhibit "D" page 2 of 2. D-1 EXHIBIT D Page 2 of 2 [Attach Resort at Green Valley Ranch, Phasing Plan, 1/31/00] D-2 EXHIBIT E Initial Members and Membership Interests GCR Gaming, LLC, a Nevada limited liability company 50% G.V. Ranch Station, Inc., a Nevada corporation 50% E-1 EXHIBIT F Permitted Exceptions 1. The matters listed on Schedule B, Section II of that certain Title Commitment No. 863-043722, issued by Nevada Title Company, effective as of March 8, 2000, at 7:30 a.m. (the "TITLE COMMITMENT"), except (a) that GCR shall be required to obtain the vacation of Lake Mead Drive prior to the contribution of the Resort Property, (b) that GCR shall be required to file such records of survey as contemplated pursuant to Section 4.1(a)(ii) of the Operating Agreement to allow it to convey the Resort Property as a separate legal parcel, (c) that the Easement in favor of Nevada Power Company, recorded December 16, 1991, listed as Exception No. 7 to Schedule B, Section II of the Commitment shall be either vacated or terminated, and (d) the Resort Property shall not be responsible for more than $2,400,000 of principal debt in connection with the liens covered by Exception Nos. 4, 9, and 10 on Schedule B, Section II of the Title Commitment. 2. The matters identified on that certain survey of the Resort Property, by CVL Consultants, Inc., certified on February 29, 2000, consisting of three sheets, except for those matters set forth as exceptions (a) through (d) under paragraph no. 1 above with respect to the Title Commitment. 3. Facilities Relocation and Easement Agreement, dated January 14, 2000, by and between Nevada Power Company and Green Valley Development Limited Partnership, a Nevada limited partnership. 4. Declaration of Covenants, Conditions and Restrictions of Green Valley Ranch Commercial to be executed by Parcel 37/47, LLC, a Nevada limited liability company, pursuant and attached to the letter agreement dated March 10, 2000, executed by the Company, GCR, and Station. 5. The matters identified on that certain Vacation Map for the purpose of vacating a portion of Lake Mead Drive Easement Granted per Document recorded September 20, 1999, in Book 990920 as Instrument 00948, of Official Records in the Clark County Recorder's Office, Clark County, Nevada, prepared by HMH Engineering and Surveying, Inc., certified on February 28, 2000, consisting of two sheets. 6. Those matters affecting title created by, through or under the Company or the Manager, or with the prior written approval of the Company or the Manager. F-1 EXHIBIT G Legal Description of Resort Property A PORTION OF SECTION 19, TOWNSHIP 22 SOUTH, RANGE 62 EAST, M.D.M., CITY OF HENDERSON, CLARK COUNTY, NEVADA, MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE CENTERLINE INTERSECTION OF PASEO VERDE PARKWAY AND CARNEGIE ROAD, AS SHOWN IN FILE 88 OF PARCEL MAPS, PAGE 45, OFFICIAL RECORDS OF CLARK COUNTY, NEVADA; THENCE ALONG THE SAID CENTERLINE OF PASEO VERDE PARKWAY, SOUTH 87Deg.53'34" EAST, 243.11 FEET; THENCE LEAVING SAID CENTERLINE, NORTH 02Deg.06'26" EAST, 59.50 FEET TO THE POINT OF BEGINNING; THENCE PARALLEL SAID CENTERLINE, NORTH 87Deg.53'34" WEST, 156.10 FEET TO A CURVE CONCAVE NORTHEASTERLY; THENCE NORTHWESTERLY ALONG SAID CURVE, HAVING A RADIUS OF 54.00 FEET, THROUGH A CENTRAL ANGLE OF 52Deg.21'25", FOR AN ARC LENGTH OF 49.35 FEET TO A NON-TANGENT CURVE CONCAVE NORTHEASTERLY; THENCE NORTHERLY ALONG SAID CURVE, HAVING A RADIAL BEARING AT THIS POINT OF NORTH 69Deg.14'41" EAST, AND HAVING A RADIUS OF 54.00 FEET, THROUGH A CENTRAL ANGLE OF 22Deg.51'57", FOR AN ARC LENGTH OF 21.55 FEET; THENCE NORTH 87Deg.53'50" WEST, 5.65 FEET TO A NON-TANGENT CURVE CONCAVE EASTERLY; THENCE NORTHERLY ALONG SAID CURVE, HAVING A RADIAL BEARING AT THIS POINT OF NORTH 79Deg.16'14" EAST, AND HAVING A RADIUS OF 54.00 FEET, THROUGH A CENTRAL ANGLE OF 12Deg.50'24", FOR AN ARC LENGTH OF 12.10 FEET; THENCE NORTH 02Deg.06'38" EAST, 124.76 FEET TO A CURVE CONCAVE WESTERLY; THENCE NORTHERLY ALONG SAID CURVE, HAVING A RADIUS OF 1,533.00 FEET, THROUGH A CENTRAL ANGLE OF 09Deg.23'41", FOR AN ARC LENGTH OF 251.36 FEET TO A REVERSE CURVE CONCAVE EASTERLY; THENCE NORTHERLY ALONG SAID CURVE, HAVING A RADIAL BEARING AT THIS POINT OF NORTH 82Deg.42'57" EAST, AND HAVING A RADIUS OF 100.00 FEET, THROUGH A CENTRAL ANGLE OF 16Deg.15'32", FOR AN ARC LENGTH OF 28.38 FEET; THENCE NORTH 08Deg.58'29" EAST, 87.28 FEET TO A CURVE CONCAVE SOUTHWESTERLY; THENCE NORTHWESTERLY ALONG SAID CURVE, HAVING A RADIUS OF 70.00 FEET, THROUGH A CENTRAL ANGLE OF 57Deg.17'14", FOR AN ARC LENGTH OF 69.99 FEET; THENCE NORTH 48Deg.18'45" WEST, 28.67 FEET TO A CURVE CONCAVE NORTHEASTERLY; THENCE NORTHWESTERLY ALONG SAID CURVE, HAVING A RADIUS OF 50.00 FEET, THROUGH A CENTRAL ANGLE OF 32Deg.36'31", FOR AN ARC LENGTH OF 28.46 FEET TO A REVERSE CURVE CONCAVE SOUTHWESTERLY; THENCE NORTHWESTERLY ALONG SAID CURVE, HAVING A RADIAL BEARING AT THIS POINT OF SOUTH 74Deg.17'46" WEST, AND HAVING A RADIUS OF 1,533.00 FEET, THROUGH A CENTRAL ANGLE OF 13Deg.01'04", FOR AN ARC LENGTH OF 348.30 FEET TO A REVERSE CURVE CONCAVE NORTHEASTERLY; THENCE NORTHERLY ALONG SAID CURVE, HAVING A RADIAL BEARING AT THIS POINT OF NORTH 61Deg.16'42" EAST, AND HAVING A RADIUS OF 1,475.00 FEET, THROUGH A CENTRAL ANGLE OF 23Deg.43'18", FOR AN ARC LENGTH OF 610.68 FEET; G-1 THENCE NORTH 61Deg.12'01" EAST, 26.67 FEET TO THE EAST LINE OF CARNEGIE ROAD AS SHOWN IN BOOK 64 OF PLATS, PAGE 68, OFFICIAL RECORDS OF CLARK COUNTY, NEVADA, AND BEING A NON-TANGENT CURVE CONCAVE EASTERLY; THENCE NORTHERLY ALONG SAID EAST LINE AND CURVE, HAVING A RADIAL BEARING AT THIS POINT OF NORTH 85Deg.42'32" EAST, AND HAVING A RADIUS OF 1,450.00 FEET, THROUGH A CENTRAL ANGLE OF 04Deg.48'01", FOR AN ARC LENGTH OF 121.48 FEET TO A NON-TANGENT CURVE CONCAVE NORTHERLY; THENCE EASTERLY ALONG SAID CURVE, HAVING A RADIAL BEARING AT THIS POINT OF NORTH 02Deg.19'07" WEST, AND HAVING A RADIUS OF 6,242.00 FEET, THROUGH A CENTRAL ANGLE OF 04Deg.02'40", FOR AN ARC LENGTH OF 440.60 FEET; THENCE NORTH 84Deg.03'59" EAST, 82.95 FEET TO A CURVE CONCAVE SOUTHERLY; THENCE EASTERLY ALONG SAID CURVE, HAVING A RADIUS OF 179.00 FEET, THROUGH A CENTRAL ANGLE OF 02Deg.37'50", FOR AN ARC LENGTH OF 8.22 FEET; THENCE NORTH 86Deg.41'49" EAST, 122.27 FEET TO A CURVE CONCAVE SOUTHERLY; THENCE EASTERLY ALONG SAID CURVE, HAVING A RADIUS OF 25.00 FEET, THROUGH A CENTRAL ANGLE OF 08Deg.39'08", FOR AN ARC LENGTH OF 3.78 FEET; THENCE SOUTH 84Deg.39'03" EAST, 81.20 FEET; THENCE NORTH 86Deg.41'49" EAST, 2.41 FEET TO A CURVE CONCAVE NORTHERLY; THENCE EASTERLY ALONG SAID CURVE, HAVING A RADIUS OF 233.50 FEET, THROUGH A CENTRAL ANGLE OF 02Deg.37'50", FOR AN ARC LENGTH OF 10.72 FEET; THENCE NORTH 84Deg.03'59" EAST, 160.52 FEET TO A CURVE CONCAVE SOUTHWESTERLY; THENCE SOUTHEASTERLY ALONG SAID CURVE, HAVING A RADIUS OF 25.00 FEET, THROUGH A CENTRAL ANGLE OF 80Deg.23'54", FOR AN ARC LENGTH OF 35.08 FEET; THENCE SOUTH 15Deg.32'07" EAST, 235.93 FEET TO A CURVE CONCAVE NORTHEASTERLY; THENCE SOUTHEASTERLY ALONG SAID CURVE, HAVING A RADIUS OF 1,033.00 FEET, THROUGH A CENTRAL ANGLE OF 05Deg.26'15", FOR AN ARC LENGTH OF 98.03 FEET TO A REVERSE CURVE CONCAVE SOUTHWESTERLY; THENCE SOUTHEASTERLY ALONG SAID CURVE, HAVING A RADIAL BEARING AT THIS POINT OF SOUTH 69Deg.01'38" WEST, AND HAVING A RADIUS OF 967.00 FEET, THROUGH A CENTRAL ANGLE OF 05Deg.26'15", FOR AN ARC LENGTH OF 91.77 FEET; THENCE SOUTH 15Deg.32'07" EAST, 152.13 FEET TO A CURVE CONCAVE WESTERLY; THENCE SOUTHERLY ALONG SAID CURVE, HAVING A RADIUS OF 100.00 FEET, THROUGH A CENTRAL ANGLE OF 19Deg.03'57", FOR AN ARC LENGTH OF 33.28 FEET; THENCE SOUTH 03Deg.31'50" WEST, 84.72 FEET TO A CURVE CONCAVE NORTHEASTERLY; THENCE SOUTHEASTERLY ALONG SAID CURVE, HAVING A RADIUS OF 70.00 FEET, THROUGH A CENTRAL ANGLE OF 70Deg.10'35", FOR AN ARC LENGTH OF 85.74 FEET TO A REVERSE CURVE CONCAVE SOUTHWESTERLY; THENCE SOUTHEASTERLY ALONG SAID CURVE, HAVING A RADIAL BEARING AT THIS POINT OF SOUTH 23Deg.21'15" WEST, AND HAVING A RADIUS OF 30.00 FEET, THROUGH A CENTRAL ANGLE OF 52Deg.48'05", FOR AN ARC LENGTH OF 27.65 FEET TO A REVERSE CURVE CONCAVE NORTHEASTERLY; THENCE SOUTHEASTERLY ALONG SAID CURVE, HAVING A RADIAL BEARING AT THIS POINT OF NORTH 76Deg.09'20" EAST, AND HAVING A RADIUS OF 471.00 FEET, THROUGH A CENTRAL ANGLE OF 20Deg.13'43", FOR AN ARC LENGTH OF 166.29 FEET; THENCE SOUTH 34Deg.04'23" EAST, 91.73 FEET TO A CURVE CONCAVE NORTHEASTERLY; THENCE SOUTHEASTERLY ALONG SAID CURVE, HAVING A RADIUS OF 233.00 FEET, THROUGH A CENTRAL ANGLE OF 05Deg.43'01", FOR AN ARC LENGTH OF 23.25 FEET; THENCE SOUTH 39Deg.47'24" EAST, 416.71 FEET TO A CURVE CONCAVE WESTERLY; THENCE SOUTHERLY ALONG SAID CURVE, HAVING A RADIUS OF 54.00 FEET, THROUGH A CENTRAL ANGLE OF 89Deg.57'02", FOR AN ARC LENGTH OF 84.78 FEET TO THE NORTH LINE OF SAID PASEO VERDE PARKWAY; G-2 THENCE ALONG SAID NORTH LINE THE FOLLOWING TWO (2) COURSES: 1. SOUTH 50Deg.09'37" WEST, 52.38 FEET TO A CURVE CONCAVE NORTHWESTERLY; 2. SOUTHWESTERLY ALONG SAID CURVE, HAVING A RADIUS OF 1,352.50 FEET, THROUGH A CENTRAL ANGLE OF 40Deg.57'04", FOR AN ARC LENGTH OF 966.67 FEET TO A COMPOUND CURVE CONCAVE NORTHERLY; THENCE LEAVING SAID NORTH LINE, AND WESTERLY ALONG SAID CURVE, HAVING A RADIAL BEARING AT THIS POINT OF NORTH 01Deg.06'41" EAST, AND HAVING A RADIUS OF 100.00 FEET, THROUGH A CENTRAL ANGLE OF 20Deg.47'05", FOR AN ARC LENGTH OF 36.28 FEET TO A REVERSE CURVE CONCAVE SOUTHERLY; THENCE WESTERLY ALONG SAID CURVE, HAVING A RADIAL BEARING AT THIS POINT OF SOUTH 21Deg.53'46" WEST, AND HAVING A RADIUS OF 100.00 FEET, THROUGH A CENTRAL ANGLE OF 19Deg.47'20", FOR AN ARC LENGTH OF 34.54 FEET TO THE POINT OF BEGINNING. BASIS OF BEARINGS: NORTH 01Deg.01'26" EAST, BEING THE BEARING OF THE WEST LINE OF THE SOUTHWEST QUARTER (SW 1/4) OF SECTION 19, TOWNSHIP 22 SOUTH, RANGE 62 EAST, M.D.M., CITY OF HENDERSON, CLARK COUNTY, NEVADA, AS SHOWN IN FILE 88 OF PARCEL MAPS, PAGE 45, OFFICIAL RECORDS OF CLARK COUNTY, NEVADA. END OF DESCRIPTION. G-3 EXHIBIT H Example of Shared Expenses The following are examples of costs that are allocated between Parent's Subsidiaries that operate non-restricted gaming facilities (the "Hotel/Casinos"). ROOM RESERVATIONS- Room Reservations is a centralized function that is accounted for at the Parent level. This department books all rooms pre-sold at the Hotel/Casinos. The costs incurred by Room Reservations relate to payroll, telephone service fees, and reservation fees paid for reservations booked by outside vendors. These costs are allocated based on each Hotel/Casino's share of total room inventory controlled by Parent's Subsidiaries. STATION ADVERTISING- Parent's in-house advertising department performs various advertising functions for the Hotel/Casinos, including the following, the costs of which are allocated as follows: - Media purchases - billed directly to the Hotel/Casino which required the purchase at 100% of cost (Purchasing media in-house avoids paying a 15% media commission to an outside advertising agency). - Multi-Hotel/Casino media - allocated based upon a formula (generally). - Public relations--allocated equally between all Hotel/Casinos. - Special promotions - system-wide (allocated on a formula dependent upon participation). - Special promotions - single Hotel/Casino; billed to that Hotel/Casino. - In-house production - publications for human resources, video production, commercials, sign animation, web-site, etc. (allocated based upon the type of activity and the number of Hotel/Casinos participating). - General operations - allocated based on a total revenue formula. INFORMATION TECHNOLOGY (IT) - Parent runs its IT group centrally, allowing for specialists (programmers, help-desk, system administrators, etc.) to perform services at all Hotel/Casinos. This centralization and allocation eliminates the need for each Hotel/Casino to hire specialists and purchase related equipment. Direct costs, such as maintenance or service agreements for on-property equipment, are billed directly to the applicable Hotel/Casinos. Indirect costs (primarily payroll and related benefits costs) are allocated to the Hotel/Casinos based upon percentage of total revenue. CENTRAL MAIL - Parent processes all direct mail at a central location rather than outsourcing this function. The capital and operating costs of this function are allocated to each Hotel/Casino based upon the actual volume of mailings performed for that Hotel/Casino. FOOD & BEVERAGE MANAGEMENT - In order to ensure that the food and beverage operations at each of the Hotel/Casinos remains at the highest level of quality and consistency, Parent has centralized the supervision of food and beverage activities. This function is allocated equally between the Hotel/Casino. The costs allocated are primarily payroll and related benefit costs, as well as travel and entertainment, general supplies, and some consulting expenses. H-1 RELATIONSHIP MARKETING - Parent operates its relationship marketing (database marketing) function centrally and allocates all costs equally between the Hotel/Casinos. The costs allocated are primarily payroll and related benefit costs as well as travel and entertainment expenses. BANK CHARGES - Parent manages its banking relationships centrally and bills each Hotel/Casino for direct charges generated by that Hotel/Casino. These costs are specifically identifiable to the Hotel/Casino and relate to the transaction charges, primarily generated in the cage. No payroll is allocated for this item. Transactions include check cashing, purchasing and depositing currency, armored car services, etc. SPORTSBOOK - Parent manages its race and sportsbook operations centrally and allocates costs equally to each Hotel/Casino for the personnel required to administer this function. The costs allocated are primarily payroll and related benefit costs. PAYROLL DEPARTMENT - Parent processes all Nevada payroll from a central location and allocates the costs related to this function based on the number of employees at each Hotel/Casino. The costs allocated are primarily payroll and related benefits costs. H-2 EXHIBIT I Station Guaranty GUARANTY The undersigned Station Casinos, Inc. (the "GUARANTOR"), a Nevada corporation and the parent corporation of G.V. Ranch Station, Inc. ("STATION"), hereby irrevocably and unconditionally guarantees the payment and performance by Station pursuant to SECTIONS 4.1(b) AND 4.2 of the Operating Agreement (the "AGREEMENT") of Green Valley Ranch Gaming, LLC (the "COMPANY") to the same extent that Station is bound thereby. Such Guaranty is for the benefit of the Company and, to the extent that Station fails to make any required contribution of capital under the Agreement and GCR is not in default under the Agreement, for the benefit of GCR, each independently and severally, and such Guaranty also is a guaranty of the Twenty-Five Percent Payment for the period commencing on the date on which Station's payment obligation accrues and ending on the earlier to occur of (a) one year from such date and (b) the date on which such payment obligation which Station fails to make in breach of the foregoing SECTIONS 4.1(b) AND 4.2 of the Agreement has been satisfied. This Guaranty shall terminate upon the closing of the Construction Financing (as defined in the Agreement). Upon the earlier of the Company closing on the Construction Financing (as defined in the Agreement) or ninety (90) days after Opening of the Project to the public, the obligations guaranteed hereby shall be limited to those set forth in SECTIONS 4.2(b) AND 4.2(c) and the amount of payment and performance guaranteed hereby as required by such sections shall be limited to $15,000,000.00 in aggregate. The Guarantor hereby grants to the Company, which may be exercised solely by GCR on behalf of the Company (and to which the Company consents by acceptance of this Guaranty), in GCR's sole discretion and without notice to, or consent by, the Guarantor, but subject to the terms and conditions of the Agreement, the power and authority to modify, waive, renew, compromise, extend, accelerate or otherwise change the time or place of payment of or to otherwise change the terms of the payment of the amounts guaranteed hereby, the other obligations guaranteed hereby or the provisions of the Agreement related thereto. The liability of the Guarantor shall not be terminated, affected, impaired or reduced in any way by any action taken by GCR under the foregoing provision or any other provision hereof or by any delay, failure or refusal of GCR to exercise any right or remedy it may have against Station, or any other person, including other guarantors, if any, liable for all or any part of the obligations guaranteed hereby. Satisfaction by the Guarantor of any liability hereunder incident to a particular default under the Agreement, if additional default(s) shall occur under the Agreement, shall not discharge the Guarantor except with respect to the default satisfied, it being the intent hereof that this Guaranty and the obligations of the Guarantor hereunder shall be continuing and irrevocable and shall survive until termination of the Agreement, and shall survive termination of the Agreement to the extent any defaults exist at the time of such termination. Notwithstanding the foregoing or anything else set forth herein, and in addition thereto, if at any time all or any part of any payment received by GCR or the Company from the Guarantor under or with respect to this Guaranty is or must be rescinded or returned for any reason whatsoever (including, but not limited to, determination that said payment was a voidable preference under insolvency, bankruptcy or reorganization laws), then the Guarantor's obligations hereunder shall, to the extent of the payment rescinded or returned, be deemed to have continued in existence, notwithstanding such previous receipt of payment by GCR I-1 or the Company, and Guarantor's obligations hereunder shall continue to be effective or be reinstated, as the case may be, as to such payment, all as though such previous payment to GCR or the Company had never been made. The provisions of the foregoing sentence shall survive termination of this Guaranty and of the Agreement, and shall remain a valid and binding obligation of the Guarantor until satisfied. The Guarantor hereby waives notice of acceptance of this Guaranty by GCR or the Company and this Guaranty shall immediately be binding upon the Guarantor. In addition, to the extent permitted by law, the undesigned hereby waives and agrees not to assert or take advantage of: (a) any right to require GCR or the Company to proceed against Station or the Company or any other person at any time or to pursue any other remedy in GCR's or the Company's power before proceeding against the Guarantor hereunder; (b) the defense of the statute of limitations in any action hereunder or in any action for the collection of the payment of the amounts guaranteed or the performance of any other obligations guaranteed hereby; (c) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other person or persons or the failure of GCR or the Company to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other person or persons; (d) demand, presentment for payment, notice of nonpayment, protest, notice of protest and all other notices of any kind; (e) any defense based upon an election of remedies by GCR or the Company which destroys or otherwise impairs any or all of the subrogation rights of the Guarantor, the right of the Guarantor to proceed against Station or the Company or any other person for reimbursement, or both; (f) any principle or provision of law, statutory or otherwise, which is or might be in conflict with the terms and provisions of this Guaranty; or (g) any duty on the part of GCR or the Company to disclose to the Guarantor any facts GCR or the Company may now or hereafter know about Station or the Company, regardless of whether GCR or the Company had reason to believe that any such facts materially increase the risk beyond that which the Guarantor intends to assume or has reason to believe that such facts are unknown to the Guarantor or has a reasonable opportunity to communicate such facts to the Guarantor, it being understood and agreed that the Guarantor is fully responsible for being and keeping informed of the financial condition of Station or the Company and of any and all circumstances bearing on the risk that liability may be incurred by the Guarantor hereunder. The liability of the Guarantor under this Guaranty shall be an absolute, direct, immediate and unconditional guaranty of payment and performance and not of collectability, and is not conditioned or contingent upon the genuineness, validity, regularity or enforceability of the Agreement. The obligations of the Guarantor hereunder are independent of the obligations of Station and, in the event of any default hereunder, a separate action or actions may be brought and prosecuted against the Guarantor whether or not Station is joined therein or a separate action or actions are brought against Station. GCR or the Company may maintain successive actions for other defaults. GCR's and the Company's rights hereunder shall not be exhausted by its exercise of any of their rights or remedies or by any such action or by any number of successive actions and the Guarantor hereby waives and covenants not to assert any defense in the nature of splitting of causes of action or merger of judgments. It is expressly understood that the obligations of the Guarantor hereunder are an additional and cumulative benefit given to GCR and the Company for their security and as an inducement to execute the Agreement. The amount of the Guarantor's liability and all rights, powers and remedies of GCR and the Company hereunder shall be cumulative and not alternative and such rights, powers and remedies shall be in addition to all rights, powers and remedies given to GCR or the Company under the Agreement or otherwise by law (except as expressly set forth in the Agreement). I-2 All notices or other communications provided for or permitted hereunder shall be in writing and shall be given in the same manner as provided in SECTION 8.1 of the Agreement and be deemed given as set forth therein, when addressed to the Guarantor at: 2411 Sahara Avenue, Las Vegas, Nevada 89102, GCR as set forth in EXHIBIT M of the Agreement, and the Company at its registered offices. The Guarantor hereby agrees to pay to GCR or the Company, as the case may be, upon demand, reasonable attorneys' fees and all costs and other expenses which either or both expends or incurs in enforcing the obligations guaranteed hereby or enforcing this Guaranty against the Guarantor whether or not suit is filed, including, without limitation, all reasonable attorneys' fees, costs and expenses incurred by either or both in connection with any insolvency, bankruptcy, reorganization, arrangement or other similar proceedings involving Station or the Guarantor which in any way affect the exercise by GCR or the Company, as the case may be, of its rights and remedies hereunder. Until paid to GCR or the Company, as the case may be, such attorneys' fees, costs and expenses shall bear interest at the rate of twenty-five percent (25%) per annum. Should any one or more provisions of this Guaranty be determined to be illegal or unenforceable, all other provisions nevertheless shall be effective. No provision of this Guaranty or right of GCR or the Company hereunder can be waived nor can the Guarantor be released from its obligations hereunder except by a writing duly executed by GCR and the Company or unless this Guaranty terminates pursuant to the terms hereof. This Guaranty may not be modified, amended, revised, changed or varied in any way whatsoever except by the express terms of a writing duly executed by GCR, the Company and the Guarantor. In the event that GCR assigns its Membership Interest pursuant to SECTION 5.2(a) of the Agreement, this Guaranty shall automatically be assigned therewith in whole or in part, as applicable, without the need of any express assignment; provided, however, in the event that Station assigns its Membership Interest to GCR pursuant to a put or a call under the Agreement, this Guaranty shall terminate and be of no force or effect for any defaults arising after such assignment. This Guaranty is personal to the Guarantor and cannot be assigned without the prior written approval of GCR, which approval shall be in its sole discretion, and any assignment in violation of this provision shall be null and void. Subject to the provisions of this paragraph, this Guaranty shall inure to the benefit of and bind the heirs, legal representatives, administrators, executors, successors and assigns of GCR and the Guarantor. This Guaranty shall be governed by and construed in accordance with the laws of the State of Nevada. In any action brought under or arising out of this Guaranty, the Guarantor hereby consents to the jurisdiction of any competent court within the State of Nevada and consents to service of process by any means authorized by the law of the State of Nevada. The Guarantor hereby agrees that it will not and will not permit its directors, officers, stockholders, members, managers, partners and other Affiliates to take any action that could reasonably be expected to prevent, hinder or delay the performance of the undersigned of its obligations hereunder, including, without limitation, transferring any assets of the Guarantor outside the ordinary course of business that could reasonably be expected to prevent, hinder or delay the performance of the undersigned of its obligations hereunder. I-3 The undersigned represents and warrants that: (a) It is duly organized, validly existing and in good standing under the laws of the jurisdiction where it purports to be organized; (b) It has full corporate or limited liability company power and authority to enter into and perform this Guaranty; (c) The execution, delivery and performance of this Guaranty has been duly authorized by all necessary corporate or limited liability company action by such party and, if necessary, its equityholders; (d) This Guaranty has been duly executed and delivered by a duly authorized officer or other representative of such party and constitutes the legal, valid and binding obligation of such party enforceable in accordance with its respective terms (except as enforceability may be limited by applicable bankruptcy, insolvency or other similar laws affecting creditor's rights generally, and except that the availability of equitable remedies is subject to judicial discretion); (e) No consent, approval, order, license, authorization or validation of, or filing, recording or registration with, or exemption of or by any person or entity is required in connection with the execution, delivery and performance of this Guaranty by such party; and (f) Neither the execution, delivery or performance by such party of this Guaranty, nor compliance by such party with the terms and provisions hereof will: (i) contravene any applicable provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or governmental instrumentality, or (ii) conflict with or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any security interest or other lien upon any of the property or assets of such party pursuant to the terms of any indenture, mortgage, deed of trust or other instrument to which such party is a party or by which such party or any of its property or assets is bound or may be subject. Dated this ____ day of March, 2000. STATION CASINOS, INC. By: ---------------------------- Title: ------------------------- I-4 EXHIBIT J Articles of Organization J-1 EXHIBIT K Grant, Bargain and Sale Deed GRANT, BARGAIN, SALE DEED THIS INDENTURE WITNESSETH: That ______________________________________________ ________________________________________________________________________________ FOR A VALUABLE CONSIDERATION, the receipt of which is hereby acknowledged, do hereby Grant, Bargain, Sell and Convey to ______________________________________ ________________________________________________________________________________ all that real property situated in the _____________________ County of _____________________ State of Nevada, bounded and described as follows: See ANNEX 1 attached hereto and incorporated herein by this reference. [See Legal Description of Resort Property in Operating Agreement] Together with all and singular the tenements, hereditaments and appurtenances thereto belonging or in anywise appertaining, subject to the matters set forth on ANNEX 2 attached hereto and incorporated herein by this reference. [See "Permitted Exceptions in Operating Agreement"] Witness _______________ hand ________ this day of _____________________, 19____ STATE OF NEVADA } ___________________________________ } SS. ___________________________________ COUNTY OF ___________ } ___________________________________ On ___________________________________________ Before me, a Notary Public, personally appeared personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to this instrument and acknowledged that he (she or they) executed it. Signature _____________________________________ (Notary Public) (Notarial Seal) - -------------------------------------------------------------- ESCROW NO.: _______________ MAIL TAX STATEMENTS TO:_______________________________________ ______________________________________________________________ ______________________________________________________________ EXHIBIT L GCR Property Representations GCR represents and warrants to the Company and Station that the following matters are true and correct as of the execution of this Agreement and, subject to SECTION 4.1(a) of the Agreement, will also be true and correct as of the date of transfer of the Resort Property to the Company as if made on the date thereof: (1) With respect to the Resort Property, and except as contained in the Property Documents (defined below), GCR has received no written notice from any governmental authority advising GCR of (i) a violation of any laws or regulations (whether now existing or which will exist with the passage of time) or (ii) any action which must be taken to avoid a violation thereof. (2) Prior to the Effective Date, GCR has delivered to Station copies of all of the following (the "PROPERTY DOCUMENTS") which are in its or its Affiliates' possession and of which GCR has actual knowledge: (1) Copies of all surveys of the Resort Property and all plans and specifications for improvements to be constructed on the Resort Property, which surveys, plans and specifications first were created by GCR or its Affiliates or delivered to GCR or its Affiliates on or after January 1, 1998; (2) Copies of any inspection, engineering, environmental or architectural studies or reports which relate to the physical condition of the Resort Property or to the improvements contemplated to be constructed on the Resort Property pursuant to this Agreement, which studies or reports were first created by GCR or its Affiliates or delivered to GCR or its Affiliates on or after January 1, 1998. (3) A copy of the bill or bills issued for the most recent year for which bills have been issued for all real estate taxes or assessments currently applicable to the Resort Property and a copy of any and all real estate tax or assessment notices currently applicable to the Resort Property (collectively, the "TAX BILLS"). (4) A copy of all outstanding management, maintenance, repair, service and supply contracts (including, without limitation, grading, quarry and landscaping agreements), equipment rental agreements, all contracts for repair or capital replacement to be performed at the Resort Property, and any other contracts relating to or affecting the Resort Property (other than Leases), any of the foregoing of which has a remaining payment obligation in excess of $100,000 and which will be binding upon the Resort Property or the Company subsequent to the transfer to the Company (collectively, the "CONTRACTS"). (5) A copy of all leases and any other agreements which are in effect thereto with the tenants of the Resort Property (the "LEASES"). (6) Copies of all licenses, permits, authorizations and approvals obtained by GCR or its Affiliates that currently or will in the future apply to the Resort Property as they relate L-2 to the Project, or any portion thereof, occupancy thereof or any present use thereof (the "GOVERNMENTAL PERMITS"). (7) A copy of all outstanding guarantees and warranties covering the Resort Property. (8) Copies of pending insurance claims or litigation documents relating to the Resort Property. (3) Except as contained in the Property Documents, to GCR's actual knowledge, there are no leases, rental, tenancy or occupancy agreements binding all or any portion of the Resort Property. (4) Except as contained in the Property Documents, GCR has no actual knowledge of any documents, materials or studies not in GCR's or its Affiliates' possession that disclose material facts that would materially adversely affect the development of the Resort Property for the Project. (5) Upon the formation of the Company or transfer of the Resort Property to the Company, there will be no brokerage fees or commissions or other compensation due or payable on an absolute or contingent basis to any person, firm, corporation, or other entity, with respect to or on account of the formation of the Company or transfer of the Resort Property, arising by, through or under GCR or its Affiliates. (6) SCHEDULE I attached hereto is a schedule of all of the Contracts of which GCR has actual knowledge which have been or shall be delivered or made available to Station. To GCR's actual knowledge, except as disclosed to Station in writing, the Contracts are in full force and effect, without material default by any party and without any material claims made for the right of setoff, except as expressly provided by the terms of such Contracts or as disclosed to Station in writing at the time of such delivery. To GCR's actual knowledge, except as disclosed to Station in writing, the Contracts constitute the entire agreements with such vendors with respect to the specific scope of work set forth therein relating to the Resort Property, have not been amended, modified or supplemented, except for such amendments, modifications and supplements delivered to Station, and to GCR's actual knowledge, there are no other agreements with any third parties affecting the Resort Property with a remaining payment obligation in excess of $100,000, which will be binding on the Resort Property or the Company subsequent to the transfer to the Company. (7) Except as set forth in the Property Documents or disclosed in writing to Station, to GCR's actual knowledge, there are no condemnation, environmental, zoning or other land-use regulation proceedings with respect to the Resort Property, either instituted or overtly threatened, which would materially detrimentally affect the value of the Resort Property or the use and operation of the Resort Property for the Project. (8) Except as contained in the Property Documents, to GCR's actual knowledge, no "HAZARDOUS MATERIALS" are used, generated, transported, treated, constructed, deposited, stored, dispensed, placed or located in, on or under the Resort Property including, without limitation, the groundwater located thereunder, except for those quantities of Hazardous Materials which do violate applicable environmental laws. For the purpose of this Agreement, "Hazardous Materials" shall L-3 include, but not be limited to, (A) substances defined as "hazardous materials," "hazardous substances," "hazardous wastes," or "toxic substances" in the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, ET SEQ.; the Materials Transportation Act, 49 U.S.C. Section 1801, ET SEQ.; the Resource Conservation and Recovery Act 42 U.S.C. Section 6901 ET SEQ.; applicable state and local statutes and regulations; and in the regulations adopted and publications promulgated pursuant to said laws from time to time, and (B) any chemical, material, substance or other matter of any kind whatsoever which is prohibited, regulated or limited by any federal, state, local, county or regional authority or legislation, including, without limitation, that enumerated above in Clause (A). Except as set forth in the Property Documents, to GCR's actual knowledge, there is no asbestos or PCB contained in or stored on the Resort Property including, without limitation, the materials comprising the Improvements. Notwithstanding anything herein to the contrary, GCR discloses and modifies the foregoing representations, and Station and the Company acknowledge, that vacated Lake Mead Drive is situated near or on portions of the Resort Property, and that the Resort Property may contain such Hazardous Materials as may result from such a roadway or the use thereof, including, but not limited to, petroleum products and brake dust (e.g., asbestos), and agrees to accept the Resort Property subject to the same. (9) Except as set forth in the Property Documents or disclosed to Station, GCR has not received any written notice from any insurance carrier or any of the tenants under the Leases of any material defects in the Resort Property, or in any portion thereof, which would materially adversely affect the insurability thereof or the cost of such insurance. (10) Except as set forth in SCHEDULE II attached hereto or as set forth in the Property Documents, there are no pending, or, to GCR's actual knowledge, overtly threatened legal proceedings or actions of any kind or character with respect to the Resort Property which would materially adversely affect the Resort Property or GCR's interest therein. (11) GCR is not a "foreign person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986 (the "Code"), and GCR will furnish to the Company and Station, prior to the transfer of title to the Resort Property, an affidavit to that effect in form reasonably satisfactory to Station. The representations and warranties made in this Agreement by GCR shall be continuing and shall be deemed remade by GCR as of the transfer of the Resort Property to the Company with the same force and effect as if in fact made at that time, subject, however, to the provisions of SECTION 4.1(a) of the Agreement. None of the representations or warranties made in this Agreement shall merge into any instrument or conveyance delivered at the transfer of the Resort Property to the Company but shall survive the transfer of the Resort Property to the Company for a period of 12 months. Notwithstanding anything to the contrary herein, to the extent Scott Nielson, Bill Warner, Frank Fertitta, or Glenn Christenson have actual knowledge of any incorrect statement in any representation or warranty made by GCR, neither Station nor the Company can rely on such representation or warranty. As used herein, "GCR'S ACTUAL KNOWLEDGE" means the current, actual personal knowledge of only Phillip Peckman, Chris Philibbosian, Rob Solomon, Mitchell Mize and John Kilduff, without investigation and without imputation of any other person's knowledge. The fact that reference is made to the personal knowledge of named individuals shall not render such individuals personally liable for my breach of any of the foregoing representations and warranties. The Company and Station shall have those remedies set forth in the Agreement for the breach of any representation or warranty. L-4 EXHIBIT M Notice Addresses Company: Green Valley Ranch Gaming, LLC 2411 Sahara Avenue Las Vegas, NV 89102 Attention: Frank J. Fertitta III with copy to: Station Casinos, Inc. 2411 Sahara Avenue Las Vegas, NV 89102 Attn: Scott M. Nielson, Esq. GCR: GCR Gaming, LLC c/o The Greenspun Corporation 901 North Green Valley Parkway, Suite 210 Henderson, NV 89014 Attention: Brian Greenspun with copy to: GCR Gaming Guarantor, LLC c/o The Greenspun Corporation 901 North Green Valley Parkway, Suite 210 Henderson, NV 89014 Attention: Brian Greenspun with copy to: The Greenspun Corporation 901 North Green Valley Parkway Suite 210 Henderson, NV 89014 Attn: Phillip J. Peckman Station: G.V. Ranch Station, Inc. 2411 Sahara Avenue Las Vegas, NV 89102 Attention: Scott M. Nielson, Esq. Parent: Station Casinos, Inc. 2411 Sahara Avenue Las Vegas, NV 89102 Attention: Scott M. Nielson, Esq. Manager: G.V. Ranch Station, Inc. 2411 Sahara Avenue Las Vegas, NV 89102 Attention: Frank J. Fertitta III with copy to: Station Casinos, Inc. 2411 Sahara Avenue Las Vegas, NV 89102 Attn: Scott Nielson, Esq. M-1 SCHEDULE I Contracts 1. Martin & Martin, Phases II and III, dated 6/3/99, in the amount of $287,320.00. 2. Lifescapes International Inc., dated 6/29/99, in the amount of $530,200.00. 3. Martin & Martin, Resort Perimeter Roads, dated 12/21/99, in the amount of $109,900.00. SCHEDULE II LEGAL PROCEEDINGS None. EX-21.1 13 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF STATION CASINOS, INC. NEVADA CORPORATIONS Palace Station Hotel & Casino, Inc. Texas Station, Inc. Boulder Station, Inc. Sunset Station, Inc. Tropicana Station, Inc. Southwest Gaming Services, Inc. Town Center Amusements, Inc. d.b.a. Barley's Casino & Brewing Company (50% ownership) GV Ranch Station, Inc. MISSOURI CORPORATIONS Kansas City Station Corporation St. Charles Riverfront Station, Inc. EX-23.1 14 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed registration statements on Form S-8 (File No. 33-70342), Form S-8 (File No. 33-63752), Form S-8 (File No. 333-11975) and Form S-8 (File No. 333-80925). Arthur Andersen LLP Las Vegas, Nevada March 30, 2000 EX-27 15 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 35 AND 36 OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 73,072 0 15,305 (2,959) 6,013 120,204 1,277,303 (251,550) 1,276,273 117,689 933,833 0 0 424 216,377 1,276,273 0 942,469 0 491,739 70,664 0 84,618 (47,223) 14,929 (32,294) 0 (10,653) 0 (44,758) (1.14) (1.14)
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