-----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, U+Mzx/cWAMCwf60673mE/blNJUWX0zjR8RB8mBuJOhlkGShJdr9zgHBLkGD75qgn DTFxiO4A+Lt6IzFt/eARDw== 0000907242-98-000006.txt : 19980331 0000907242-98-000006.hdr.sgml : 19980331 ACCESSION NUMBER: 0000907242-98-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONARCH CASINO & RESORT INC CENTRAL INDEX KEY: 0000907242 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880300760 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22088 FILM NUMBER: 98578519 BUSINESS ADDRESS: STREET 1: 1175 W MOANA LANE STREET 2: STE 200 CITY: RENO STATE: NV ZIP: 89509 BUSINESS PHONE: 7028253355 MAIL ADDRESS: STREET 1: 1175 W MOANA LANE STREET 2: STE 200 CITY: RENO STATE: NV ZIP: 89509 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO______ Commission File No. 0-22088 Monarch Casino & Resort, Inc. (Exact name of registrant as specified in its charter) ------------------------- NEVADA 88-0300760 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1175 W. MOANA LANE, SUITE 200 RENO, NEVADA 89509 (Address of principal (Zip code) executive offices) Registrant's telephone number, including area code: (702) 825-3355 ------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of each exchange Title of each class on which registered ------------------- ------------------- None None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by nonaffiliates of the Registrant as of February 27, 1998, based on the closing price as reported on The Nasdaq Stock Market(SM) of $5.75 per share, was approximately $13,403,681. As of February 27, 1998, Registrant had outstanding 9,436,275 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for Registrant's 1998 Annual Meeting of Stockholders, which Proxy Statement shall be filed with the Commission not later than 120 days after the end of the fiscal year covered by this report, are incorporated by reference into Part III. STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K WHICH EXPRESS THE "BELIEF", "ANTICIPATION", "INTENTION" OR "EXPECTATION", AS WELL AS OTHER STATEMENTS WHICH ARE NOT HISTORICAL FACT, AND STATEMENTS AS TO BUSINESS OPPORTUNITIES, MARKET CONDITIONS, COST ESTIMATIONS AND OPERATING PERFORMANCE INSOFAR AS THEY MAY APPLY PROSPECTIVELY, ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. -2- PART I ITEM 1. BUSINESS Monarch Casino & Resort, Inc., through its wholly-owned subsidiary Golden Road Motor Inn, Inc. ("Golden Road"), owns and operates the tropically-themed Atlantis Casino Resort in Reno, Nevada (the "Atlantis"). Unless otherwise indicated, "Monarch" or the "Company" refers to Monarch Casino & Resort, Inc. and its subsidiaries Golden Road, Dunes Marina Resort & Casino, Inc. ("Dunes Marina"), and Sea World Processors, Inc. ("Sea World"). Monarch was incorporated in 1993 under Nevada law for the purpose of acquiring all of the stock of Golden Road. The principal asset of Monarch is the stock of Golden Road, which holds substantially all of the assets of the Atlantis. The Company's principal executive offices are located at 1175 West Moana Lane, Suite 200, Reno, Nevada 89509, telephone (702) 825-3355. THE ATLANTIS CASINO RESORT Through Golden Road, the Company owns and operates the tropically-themed Atlantis, which is located approximately three miles south of downtown Reno in the generally more affluent southwest area of Reno. The Atlantis features a 32,000 square-foot casino; a hotel and a motor lodge; five restaurants; six bars; a nightclub; a swimming pool and health club; a gift shop; an 8,000 square-foot family entertainment center; 10,500 square feet of banquet and meeting space; and surface parking spaces for approximately 1,440 vehicles. The Atlantis is the closest hotel casino to the 370,000 square-foot Reno Sparks Convention Center (the "Convention Center"), and the only hotel casino located within easy walking distance of the Convention Center. Casino. The Atlantis' casino features approximately 35 table games, including blackjack, craps, roulette, mini-baccarat, "Let it Ride(TM)", "Three Card Poker(TM)", "Caribbean Stud(TM)", "Fortune Pai Gow Poker(TM)", and "Royal Match(TM)"; approximately 1,000 slot and video poker machines; a race and sports book (which is operated by an independent third party pursuant to a lease arrangement with the Company); and keno. During the year ended December 31, 1997, 77% of the Atlantis' casino revenue was from slot and video poker machines, 20% was from table games, and the remaining 3% was from keno. The Atlantis offers what the Company believes to be higher-than-average payout rates on slot machines and has adopted liberal rules for its blackjack games which include using mostly single decks of cards at its tables and allowing the player to "double down" on the first two cards. The Company's present policy is to extend gaming credit only to a limited number of qualified customers. Lodging. The Atlantis features two contiguous high-rise hotel towers offering a total of 443 rooms, and a low-rise motor lodge offering another 149 rooms, for a total guest room count of 592. The first of the two hotel towers was completed in April 1991, and contains 150 standard rooms and 10 one- bedroom suites in 13 stories. The second hotel tower was completed in September 1994, and contains 234 standard rooms, 16 parlor suites, 32 one- bedroom suites and one two-bedroom suite in 19 stories. The rooms in both hotel towers feature fresh, colorful interior decorations and furnishings consistent with the Atlantis' tropical theme, as well as nine-foot ceilings (most standard hotel rooms feature eight-foot ceilings), which give the rooms an open and spacious feel. Other guest -3- amenities include a third-floor outdoor swimming pool and deck area with an adjoining indoor health club, and glass elevators which rise the full 19 stories of the taller hotel tower, providing a panoramic view of the northern Reno valley and the Sierra Nevada mountains. The two-story, 149-room motor lodge, which has been operated by the Company since 1973, is located on the back half of the Atlantis' 13-acre site. The motor lodge rooms, which are also decorated and furnished consistently with the Atlantis' tropical theme, contain less average square footage than the hotel rooms and have standard eight-foot ceilings. The Company believes the motor lodge rooms appeal to value conscious travelers who still want to enjoy the experience of and amenities associated with a stay at a first-class hotel casino resort. The Company renovated all of the motor lodge units in early 1996. The average occupancy rate at the Atlantis for fiscal years 1997, 1996, and 1995 was 85.9%, 88.7%, and 91.2%, respectively. Capital expenditures (including those financed with debt and capitalized lease obligations) at the Atlantis totaled approximately $2.3 million, $2.8 million, and $2.2 million in fiscal years 1997, 1996, and 1995, respectively. Capital expenditures during each of these years were primarily directed toward ongoing refurbishments and enhancements to the Atlantis, including equipment replacements. During 1996, the Company also renovated all of the Atlantis' motor lodge rooms at a total cost of approximately $690 thousand. Operations at the Atlantis are conducted 24 hours a day, every day of the year. The Atlantis' business is moderately seasonal in nature, with its highest revenues typically occurring in the summer months and lower amounts generally in the winter months. ATLANTIS EXPANSION PROJECT In September 1995, the Company announced that it had submitted plans for review and approval of a major expansion of the Atlantis (the "Expansion Project") to the City of Reno. Those plans, which were subsequently approved by the City of Reno substantially as submitted, featured a new 27-story hotel tower with up to 921 rooms, 25,000 square feet of additional casino space, a four-story, 1,831-space parking garage, and approximately 78,000 square feet of additional public space including a 50,000 square foot special events plaza, three new restaurants, and expanded seating in the Atlantis' Purple Parrot and Toucan Charlie's Buffet and Grille restaurants. The plans also included two pedestrian overhead walkways; one of the walkways would connect the Atlantis with the 370,000 square foot Reno Sparks Convention Center, and the other would connect the Atlantis with the Company's 16-acre site adjacent to and across Virginia Street from the Atlantis (see Item 2, "PROPERTIES"). Under the terms of the approvals obtained for the Expansion Project, the Company has the right to scale back the Expansion Project, to build it in phases, or to not construct the Expansion Project at all. On December 30, 1997, the Company announced it had completed the refinancing of its long-term debt through a new $80 million bank construction and reducing revolving credit facility (the "Credit Facility"). The Credit Facility replaced approximately $33 million in long-term debt, and provided additional funds which the Company may use as a source of funding for the Expansion Project. With this source of funding in place, the Company's present intention is to construct the Expansion Project in two phases. The -4- Company is in the final stages of planning and design for the first phase, which the Company presently anticipates will feature a new 28-story hotel tower containing approximately 390 rooms, approximately 16,000 square feet of additional casino space, additional restaurant capacity, and additional banquet and meeting space. The first phase might also include the pedestrian overhead walkway connecting the Atlantis with the Company's 16-acre site adjacent to and across Virginia Street from the Atlantis. The Company currently estimates that the cost of the first phase would be $55 to $65 million. Following completion of planning and design for the first phase, the Company intends to seek bids from qualified general contractors for the first phase. The Company's decision to move forward with the first phase will largely depend on obtaining favorable bids during this process. Should the Company decide to move forward with the first phase, it is likely that construction would begin in the Company's fiscal quarter ending June 30, 1998. The Company estimates that the first phase would take approximately 12 to 15 months to complete. MARKETING The Company's revenues and operating income are largely dependent on the level of gaming activity at the Atlantis' casino; therefore, the Company's predominant marketing goal is to attract gaming customers to its casino. The Company's primary objective for its hotel, food and beverage outlets, and other amenities is to utilize those facilities to generate additional casino play, although as a secondary goal the Company also seeks to maximize revenues from those areas. The Company's marketing efforts are directed toward three broad consumer groups: Reno area residents, non-conventioneer visitors to the Reno area, and conventioneers. The Company believes that the Atlantis' location outside the downtown area and near the Convention Center makes the property appealing to all three groups. Reno area residents. The Atlantis' proximity to rapidly growing, generally more affluent southwestern Reno residential areas provides a significant source of middle to upper-middle income gaming customers. The Company markets to Reno area residents ("Locals") primarily on the basis of the Atlantis' location and accessibility, the quality and ambiance of the Atlantis facility, friendly efficient service, the quality and relative value of its food and beverage offerings, entertainment offerings, promotions, and gaming values. The Company believes that Locals as a group tend to prefer slot and video poker machines over table games, and tend to prefer video poker machines over reel-spinning (or electronically simulated reel-spinning) slot machines. Accordingly, the Atlantis provides a large, diverse selection of video poker machines. Moreover, the Company believes that Locals tend to seek out and frequent those casinos with higher-than-average payout rates on slot and video poker machines and liberal rules on table games. The Company believes that the Atlantis offers higher-than-average payout rates on slot machines, and has adopted liberal rules for its blackjack games which include using mostly single decks of cards at its tables and allowing players to "double down" on the first two cards. Non-conventioneer Visitors. Reno is a popular gaming and vacation destination which enjoys direct freeway access to nearly all major northern California population centers, and non-stop air service from most large cities in the western United States as well as many midwest and southern population centers such as Chicago, Detroit, Dallas, Atlanta and St. Louis. The -5- principal segments of Reno's non-conventioneer visitor market are leisure travelers, package tour and travel customers, and higher-level wagerers. The Company attempts to maximize its gaming revenues and hotel occupancy through a balanced marketing approach addressing each market segment. Leisure travelers are not affiliated with groups and make their reservations directly with hotels of their choice or through independent travel agents. The Company believes that this segment is largely comprised of individuals driving, and to a lesser extent, flying to Reno from a regional market, primarily California and to a lesser extent, the Pacific Northwest. The Company strives to attract the middle to upper-middle income strata of this segment through advertising and direct marketing in select markets. This segment represents a significant portion of the Atlantis' customers, especially those customers visiting on weekends. The package tour and travel segment consists of visitors who utilize travel "packages" produced by wholesale operators. The Company markets to this segment through relationships with select wholesalers, primarily to generate customer visits and supplement occupancy mid-week. The Company selectively markets to higher-level wagerers through direct sales. The Company utilizes complimentary rooms, food and beverage, special events and the extension of gaming credit to attract higher-level wagerers. Conventioneers. Convention business, like package tour and travel, generates mid-week customer visits and supplements occupancy during low-demand periods. Conventioneers typically also pay higher average room rates than non-conventioneers. The Company seeks those convention and meeting groups which it believes will materially enhance the Atlantis' average occupancy rate and average daily room rates, as well as those the Company believes will be more likely to gamble. As the only hotel casino within easy walking distance of the Convention Center, the Company believes the Atlantis is uniquely well positioned to capitalize on this segment. The Company believes that this market segment is presently underserved in the Reno area, and that the additional rooms and amenities proposed with the Expansion Project at the Atlantis would significantly enhance the Company's ability to realize the potential of this market segment. The Company markets to all customer segments, including conventioneers, on the basis of the quality and ambiance of the Atlantis facility, friendly efficient service, the quality and relative value of its rooms and food and beverage offerings, entertainment offerings, promotions, and gaming values. The Company has instituted a frequent player club, "Club Paradise", which allows the Atlantis' customers to earn rewards and special privileges based on the amount of their play, while at the same time allowing the Company to track the play of those customers utilizing a computerized player tracking system. The Company uses this information to determine appropriate levels of complimentary awards, and also in its direct marketing efforts. The Company believes that Club Paradise significantly enhances the Company's ability to build customer loyalty and generate repeat customer visits. COMPETITION Competition in the Reno area gaming market is intense. The Company estimates that there are approximately 16 casinos in the Reno area which -6- generate more than $12 million each annually in gaming revenues, approximately ten of which are located in downtown Reno. The Company believes that the Atlantis' competition for Locals comes primarily from other large-scale casinos located outside of downtown Reno that offer amenities that appeal to middle to upper-middle income customers, and secondarily with those casinos located in downtown Reno which offer similar amenities. The Company competes for Locals primarily on the basis of the desirability of its location, the quality and ambiance of the Atlantis facility, friendly efficient service, the quality and relative value of its food and beverage offerings, entertainment offerings, promotions, and gaming values. The Company believes its proximity to residential areas in southwest and southeast Reno and its abundant surface parking afford it an advantage over the casinos located in downtown Reno in attracting Locals. The Company believes that the Atlantis' primary competition for non- conventioneer visitors comes from other large-scale casinos, including those located in downtown Reno and those located away from downtown Reno, that offer amenities that appeal to middle to upper-middle income customers. The Company competes for non-conventioneer visitors on the basis of the desirability of its location, the quality and ambiance of the Atlantis facility, friendly efficient service, the quality and relative value of its rooms and food and beverage offerings, entertainment offerings, promotions, and gaming values. The Company believes that its location away from downtown Reno is appealing to many customers who prefer to avoid the more congested downtown Reno area; however, the Atlantis' location is a disadvantage in that it does not afford the Company the ability to generate walk-in traffic, which is a significant source of customers for some casinos located in downtown Reno. The Company believes that the Atlantis' primary competition for conventioneers comes from other large-scale hotel casinos in the Reno area that actively target the convention market segment, and secondarily from other cities on the U.S. west coast with large convention facilities and substantial hotel capacity, including Las Vegas. The Company competes for conventioneers based on the desirability of its location, the quality and ambiance of the Atlantis facility, meeting and banquet rooms designed to appeal to conventions and groups, friendly efficient service, and the quality and relative value of its rooms and food and beverage offerings. The Company believes that the Atlantis' proximity to the Convention Center affords it a distinct competitive advantage in attracting conventioneers. The Atlantis also competes for gaming customers with hotel casino operations located in other parts of Nevada, especially Las Vegas and Lake Tahoe, and with hotel casinos, Indian casinos, and riverboat casinos located elsewhere throughout the United States and the world. The Company believes that the Atlantis also competes to a lesser extent with state-sponsored lotteries, off-track wagering, card parlors, and other forms of legalized gaming, particularly in California and the Pacific Northwest. The Company believes that the legalization of unlimited land-based casino gaming in or near any major metropolitan area in the Atlantis' key marketing areas, such as San Francisco or Sacramento, could have a material adverse effect on its business. -7- REGULATION AND LICENSING Nevada Gaming Regulation The ownership and operation of casino gaming facilities in Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, "Nevada Act"); and (ii) various local regulation. The Company's gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming Control Board ("Nevada Board"), and the Reno City Council ("Reno Board"). (The Nevada Commission, the Nevada State Gaming Control Board, and the Reno Board are collectively hereinafter referred to as the "Nevada Gaming Authorities.") The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) to provide a source of state and local revenues through taxation and licensing fees. Changes in such laws, regulations and procedures could have an adverse effect on the Company's gaming operations. Golden Road, which operates the Atlantis, is required to be licensed by the Nevada Gaming Authorities. The gaming license requires the periodic payment of fees and taxes and is not transferable. The Company is registered by the Nevada Commission as a publicly traded corporation ("Registered Corporation") and as such, it is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. No person may become a stockholder of, or receive any percentage of profits from, Golden Road without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company and Golden Road have obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required in order to engage in gaming activities in Nevada. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company or Golden Road in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and key employees of Golden Road must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company who are actively and directly involved in gaming activities of Golden Road may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming -8- Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position. If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company or Golden Road, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company or Golden Road to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company and Golden Road are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by Golden Road must be reported to, or approved by, the Nevada Commission. If it were determined that the Nevada Act was violated by Golden Road, the gaming licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, Golden Road, the Company, and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Company's gaming properties and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the Company's gaming properties) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Company's gaming operations. Any beneficial holder of the Company's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Company's voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Gaming Act requires any person who acquires more than 5% of the Company's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of the Company's voting securities apply to the Nevada Commission for a finding of suitability within 30 days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of the Company's voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Company, any change in the Company's corporate charter, bylaws, management, policies or operations of -9- the Company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a Registered Corporation beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with such Company or Golden Road, the Company (i) pays that person any dividend or interest upon voting securities of the Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities for cash at fair market value. The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction. The Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to require the Company's stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. -10- The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. Such approval does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful. Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Company can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Company's Board of Directors in response to a tender offer made directly to the Registered Corporation's stockholders for the purposes of acquiring control of the Registered Corporation. Licensee fees and taxes computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the Nevada licensee's respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the selling of food or refreshments. Nevada licensees that hold a license as an operator of a slot route, a manufacturer or a distributor also pay certain fees and taxes to the State of Nevada. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada Board of their participation in such foreign -11- gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada Act. A licensee is also subject to disciplinary action by the Nevada Commission if it knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engages in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employs a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability. EMPLOYEES As of February 27, 1998, the Company had approximately 1,256 employees. None of the Company's employees are covered by collective bargaining agreements. The Company believes that its relationship with its employees is good. ITEM 2. PROPERTIES The Company's properties consist of: (a) The approximately 13 acre site in Reno, Nevada on which the Atlantis is situated, including the hotel towers, casino, restaurant facilities and surrounding parking. These 13 acres are, in part or in whole, held subject to trust deed encumbrances in favor of financial institutions and seller financing totaling approximately $35.3 million as of February 27, 1998. (b) An approximately 16 acre site in Reno, Nevada adjacent to the Atlantis, approximately four acres of which is paved and used for employee, valet and overflow customer parking and the remainder of which is undeveloped. This site is suitable and available for future expansion of the Atlantis facilities, parking, or complimentary resort and/or entertainment amenities. The Company has not determined what the ultimate use of this site will be. These 16 acres are held subject to a trust deed encumbrance in the approximate amount of $33.4 million as of February 27, 1998, which amount is also secured by the 13 acre site. ITEM 3. LEGAL PROCEEDINGS On April 26, 1994 and May 10, 1994, complaints in purported class action lawsuits (William Poulos v. Caesars World, Inc. et al., Case No. 94-478-Civ- Orl-22, and William H. Ahern v. Caesars World, Inc. et al., Case No. 94-532- Civ-Orl-22, respectively) were filed in the United States District Court for the Middle District of Florida (the "Florida Complaints"). The Florida Complaints were subsequently transferred to the United States District Court for the District of Nevada, Southern Division (the "Nevada District Court"). On September 26, 1995, a complaint in a purported class action lawsuit (Larry Schrier v. Caesars World, Inc. et al., Case No. 95-923-LDG (RJJ)) was filed in Nevada District Court (along with the Florida Complaints, the "Complaints"). The Complaints allege that manufacturers, distributors and casino operators of video poker and electronic slot machines, including the Company, have engaged in a course of conduct intended to induce persons to play such games based on a false belief concerning how the gaming machines operate, as well as the extent to which there is an opportunity to win on a given play. The Complaints charge Defendants with violations of the Racketeer Influenced and -12- Corrupt Organizations Act, as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seek damages in excess of $1 billion without any substantiation of that amount. The Company filed motions to dismiss the Complaints. The Nevada District Court dismissed the Complaints, granting leave to Plaintiffs to re-file, and denying as moot all other pending motions, including those of the Company. Plaintiffs filed an amended complaint on or about May 31, 1996. Subsequently, the Nevada District Court consolidated the actions (and one other action styled William Poulos v. American Family Cruise Line, N.V. et al., Case No. CV -S-95-936-LDG (RLH), in which the Company is not a named defendant), ordered Plaintiffs to file a consolidated amended complaint on or before February 14, 1997, and ordered all defense motions, including those of the Company, withdrawn without prejudice. The parties have established a steering committee to address motion practice, scheduling and discovery matters. Plaintiffs filed their consolidated amended complaint on February 14, 1997. The Company renewed its motions to dismiss and joined in motions to dismiss filed by other defendants. In late December 1997, the Court granted in part and denied in part Defendants' Motions to Dismiss for Failure to Plead Fraud with Particularity and for Failure to State a Claim; granted in part and denied in part Defendants' Motion to Strike Changes Made in Plaintiffs' Consolidated Amended Complaint; denied Cruise Ship Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction; denied Defendant Princess Hotel's Motion to Dismiss Under the Act of State Doctrine; and denied Defendants' Motion for a Stay on Primary Jurisdiction and Abstention Grounds. In addition, the Nevada District Court requested additional briefing from the parties with respect to Defendants' Motion to Dismiss for Lack of Personal Jurisdiction. Plaintiffs filed their Second Consolidated Amended Complaint on or about January 8, 1998. The Answer to the Second Consolidated Amended Complaint was filed on February 11, 1998. Management believes that the substantive allegations in the Complaints are without merit and intends vigorously to defend the allegations. On April 10, 1996, Choice Hotels International, Inc. ("Choice") filed an action (Choice Hotels International, Inc. v. Golden Road Motor Inn, Inc., Case No. PJM 96-1091) in the United States District Court for the District of Maryland (the "Choice Action"). Choice was seeking a declaratory judgment regarding the agreement under which the Company, until April 28, 1996, operated the Atlantis as a Clarion(TM) hotel (the "Choice Agreement"). Specifically, Choice sought a declaratory judgment as to (i) the effectiveness of a proposed 1993 modification to the Choice Agreement, (ii) the term of the Choice Agreement, (iii) the expansion fee provided under the Choice Agreement, and (iv) the date on which the Choice Agreement was terminable. Subsequently, Choice amended the Choice Action to include a claim for damages. On December 29, 1997, the Company and Choice entered into an agreement in which the parties agreed, inter alia, to mutually release each other from matters arising out of or based upon the Choice Agreement and the Choice Action. Pursuant to the same agreement, Choice agreed to file a stipulation dismissing the Choice Action with prejudice to all claims. On March 16, 1998, in the United States District Court for the Southern District of California, Dunes Marina entered a plea of guilty to one count of knowingly discharging plastic and garbage mixed with plastic from the Muskegon Clipper into ocean waters in violation of 33 U.S.C. Section 1908(a)(2) and 18 U.S.C. Section 2. The violation occurred in 1994 when the Muskegon Clipper was being towed from Seattle, Washington, to Mobile, Alabama, for refurbishing. Dunes Marina was fined $250,000. -13- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the Company's security holders during the fourth quarter of fiscal 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The Company's common stock trades on The Nasdaq Stock Market(SM) under the symbol MCRI. The following table sets forth the high and low sales prices of the Company's common stock, as reported by The Nasdaq Stock Market(SM), during the periods indicated.
1997 1996 ------------- ------------- High Low High Low ------ ------ ------ ------ First quarter........... 2 1/2 2 4 1/2 3 1/4 Second quarter.......... 4 3/8 2 1/4 4 1/8 3 5/16 Third quarter........... 8 3/8 3 5/8 4 3/8 2 3/4 Fourth quarter.......... 7 3/8 4 1/2 3 1/4 2
(b) As of February 27, 1998, there were approximately 160 holders of record of the Company's common stock, and approximately 1,300 beneficial stockholders. (c) The Company paid no dividends in 1997 or 1996. The Company presently intends to retain earnings to finance the operation and expansion of its business and does not anticipate declaring cash dividends in the foreseeable future. The Company's bank loan agreement also contains provisions which limit Monarch's ability to pay dividends to its stockholders. See Item 8, "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, Notes to Consolidated Financial Statements." -14- ITEM 6. SELECTED FINANCIAL DATA
Years ended December 31, -------------------------------------------- (In thousands except per share amounts) 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------- OPERATING RESULTS Casino revenues $37,254 $31,836 $30,072 $20,306 $15,856 Other revenues 30,365 29,476 30,099 21,482 15,330 -------------------------------------------- Gross revenues 67,619 61,312 60,171 41,788 31,186 Promotional allowances (8,504) (7,676) (6,772) (5,348) (3,974) -------------------------------------------- Net revenues 59,115 53,636 53,399 36,440 27,212 Income from operations 8,975 6,049 6,351 636 3,985 Income (loss) before income taxes and extraordinary item 5,722 1,298 2,323 (1,393) 1,961 Income (loss) before extraordinary item 3,710 830 1,564 (722) 970 Net income (loss) 3,526 830 1,564 (722) 970 Pro forma net income (unaudited) - - - - 508 - ---------------------------------------------------------------------------------------- INCOME PER SHARE OF COMMON STOCK Income (loss) before extraordinary item; pro forma in 1993 Basic $ 0.39 $ 0.09 $ 0.16 $ (0.08) $ 0.06 Diluted $ 0.39 $ 0.09 $ 0.16 $ (0.08) $ 0.06 Net income (loss); Pro forma in 1993 Basic $ 0.37 $ 0.09 $ 0.16 $ (0.08) $ 0.06 Diluted $ 0.37 $ 0.09 $ 0.16 $ (0.08) $ 0.06 Weighted average number of common shares and potential common shares outstanding Basic 9,444 9,502 9,536 9,536 8,070 Diluted 9,479 9,502 9,536 9,536 8,070 - ---------------------------------------------------------------------------------------- OTHER DATA EBITDA 13,284 10,191 10,370 3,372 5,657 Depreciation and amortization 4,309 4,142 4,020 2,736 1,672 Interest expense 3,253 3,627 4,087 2,330 2,024 Capital expenditures 2,270 2,838 2,148 31,384 7,338 - ---------------------------------------------------------------------------------------- BALANCE SHEET DATA Total assets $67,828 $67,379 $69,269 $69,344 $37,946 Current maturities of long-term debt 2,244 3,487 3,993 5,387 844 Long-term debt, less current maturities 32,908 37,602 39,069 41,357 15,547 Stockholders' equity 22,694 19,001 18,435 16,871 17,593 1997 includes a $185 thousand non-cash extraordinary loss on early retirement of debt, net of applicable income tax benefit. 1996 includes non-cash fixed asset impairment charges of $1.3 million (before minority interests). 1995 includes a $433 thousand provision for litigation expenses related to two unfavorable judgments rendered in unrelated cases, and a $459 thousand charge for asset impairment associated with changing the name of the Company's hotel casino to the Atlantis Casino Resort. "EBITDA" consists of income from operations plus depreciation and amortization. EBITDA should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of the Company's operating performance, or as an alternative to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. This item enables comparison of the Company's performance with the performance of other companies that report EBITDA. Includes amounts financed with debt or capitalized lease obligations. The Company paid no dividends during the five year period ended December 31, 1997.
-15- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENT ON FORWARD-LOOKING INFORMATION Certain information included herein contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as statements relating to anticipated expenses, capital spending and financing sources. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include, but are not limited to, those relating to competitive industry conditions, Reno-area tourism conditions, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), the regulation of the gaming industry (including actions affecting licensing), outcome of litigation, domestic or global economic conditions and changes in federal or state tax laws or the administration of such laws. RESULTS OF OPERATIONS 1997 Compared with 1996 For the year ended December 31, 1997, the Company generated record earnings before extraordinary items of $3.7 million, or $.39 per share, compared to $830 thousand, or $.09 per share, for the year ended December 31, 1996. After giving effect to a non-cash extraordinary loss on the early retirement of debt (net of an applicable income tax benefit) of $(185) thousand, or $(.02) per share, the Company reported net income of $3.5 million or $.37 per share for the fiscal year ended December 31, 1997, compared to $830 thousand, or $.09 per share for the fiscal year ended December 31, 1996. The 1997 figures represent the best results reported during any year in the Company's history, with reported net income more than doubling the previous record of $1.6 million, or $.16 per share, set in 1995. Net revenues for 1997 totaled $59.1 million, up 10.2% from $53.6 million in 1996, while operating costs and expenses rose 5.3% to $50.1 million in 1997 from $47.6 million in 1996. The Company's operating expense margin (operating expenses as a percentage of net revenues) for 1997 was 84.8%, compared to 88.7% for 1996, resulting in a 48.4% increase in income from operations to $9.0 million in 1997 from $6.0 million in 1996. The Company believes the increases in revenue and profitability in 1997 resulted from the increasing popularity of the Atlantis and its south Reno location with patrons from the rapidly growing residential and business communities south of the Atlantis in Reno, as well as with visitors to the Reno area. The Company also credits effective casino marketing programs, and a continued emphasis on cost control. Casino revenues increased 17.0% in 1997 compared to 1996, driven by growth in both slot and table game win. Revenue from slot and video poker machines ("slot machines") increased approximately 20.4% in 1997 compared to 1996, due to an increase in the average daily win per slot machine, and contributed approximately 77% of casino revenue in 1997, compared to 75% in 1996. Table game win increased approximately 5.6% in 1997 compared to 1996, due to an approximately 17.5% increase in table game drop, which was partially offset by a moderate decline in table game hold. It has been the Company's experience that table game win is reasonably predictable over time, but can -16- vary considerably over shorter periods, especially with respect to play from higher-level wagerers. The dominance held by slot machines in the Company's casino revenue mix is largely by design, as the Company has traditionally found slot machines to be more profitable than table games, and subject to less volatility. Nonetheless, table games remain a very important product offering for the Company, and the Company actively markets to table game customers. Casino operating expenses amounted to 43.1% of casino revenues during 1997, compared to 45.3% in 1996, with the higher expense levels during 1996 due primarily to higher levels of promotional allowance costs (relative to gaming revenues) during 1996. Hotel revenues increased 4.0% in 1997 compared to 1996, with a 7.2% increase in the Atlantis' average daily room rate ("ADR") more than offsetting a 2.8 point decline in the Atlantis' average occupancy rate. The Atlantis' average daily room rate in 1997 was $53.50, compared to $49.90 in 1996. The average occupancy rate at Atlantis was 85.9% in 1997 compared to 88.7% in 1996. During 1996, the Atlantis' hotel revenues were adversely impacted by unusually severe price competition in the Reno area lodging market, which the Company believes also negatively impacted the hotel revenues of the Atlantis' primary competitors. The Company believes that the decline in the Atlantis' average occupancy in 1997 was partly due to the approximately 26% increase in hotel room capacity added to the Reno market during 1995 and 1996 which the Company believes has not yet been fully absorbed, and partly due to a concerted effort by the Company to increase the Atlantis' ADR. Hotel operating expenses in 1997 equaled 36.4% of hotel revenues, essentially unchanged from 36.6% in 1996. Food and beverage revenues increased 2.3% in 1997, rising to $17.8 million from $17.4 in 1996, due primarily to higher average tickets at the Atlantis' food and beverage outlets. Food and beverage operating expenses during 1997 amounted to 54.3% of food and beverage revenues, compared to 55.8% in 1996, with the improvement due to lower food costs and improved operating efficiency. Selling, general and administrative ("SG&A") expenses amounted to 27.0% of net revenues in 1997, compared to 28.6% in 1996. The improvement primarily reflects the higher net revenues generated in 1997, which more than offset the incremental increase in actual SG&A outlays. The Company's 1996 SG&A expenses were also adversely affected by name change costs and increased marketing costs necessitated by the name change and an intensified competitive environment. Interest expense declined by 10.3% in 1997 compared to 1996, falling to $3.3 million from $3.6 million. The decrease reflects lower average outstanding debt during 1997. In 1997, the Company incurred a non-cash extraordinary loss on the early retirement of debt, net of an applicable income tax benefit, of $(185) thousand, or $(.02) per share. The extraordinary charge was incurred in the 1997 fourth quarter when the Company refinanced its long-term debt with the Credit Facility, resulting in the write-off of approximately $280 thousand in unamortized loan origination costs. In 1996, the Company recorded non-cash fixed asset impairment loss charges totaling $(1.3) million, which were offset by a minority interest in the net loss of a consolidated subsidiary of $206 -17- thousand. The impairment losses were recognized on a marine vessel owned by a subsidiary of the Company, which the Company had intended to use as a riverboat gaming vessel. 1996 Compared with 1995 For the year ended December 31, 1996, after non-cash fixed asset impairment charges of $1.3 million (before minority interests), the Company earned $830 thousand, or $.09 per share, compared to $1.6 million, or $.16 per share, for the year ended December 31, 1995. Without the non-cash impairment charges, Monarch's earnings in 1996 would have been approximately $.17 per share. The impairment losses were recognized on a marine vessel owned by a subsidiary of the Company, which the Company had intended to use as a riverboat gaming vessel. Net revenues for 1996 totaled $53.6 million, virtually unchanged from $53.4 million for 1995, while operating costs and expenses rose to $47.6 million in 1996 from $47.0 million in 1995. The Company's operating expense margin for 1996 was 88.7%, compared to 88.1% for 1995, resulting in a drop in income from operations to $6.0 million in 1996 from $6.4 million in 1995. The Company's 1996 results reflect intensified competitive conditions in the Reno area market brought about by substantial increases in the market's hotel room capacity during the last half of 1995 and the first quarter of 1996, as well as the name change at the Atlantis completed in the 1996 second quarter. The Company's results were most acutely impacted by room rate pressures and increased marketing expenditures necessitated by the name change and the heightened competitive environment. The Company's results were also adversely impacted during the 1996 fourth quarter by unusually harsh winter weather conditions in the Reno area during the period between Christmas and New Year's eve, which is typically one of the busiest periods of the year at the Atlantis. Casino revenues increased 5.9% in 1996 compared to 1995, driven by improvements in both slot and table game win. Slot machines contributed approximately 75% of casino revenue in both 1996 and 1995. Slot win increased approximately 4.0% in 1996 compared to 1995, due to an increase in the average daily win per slot machine. Table game win increased approximately 15.2% in 1996 compared to 1995, primarily due to a higher table game hold percentage during 1996. Casino operating expenses amounted to 45.3% of casino revenues during 1996, compared to 43.1% in 1995, with the higher expense levels during 1996 due primarily to higher levels of promotional allowance costs during 1996. Hotel revenues declined 10.4% in 1996 compared to 1995, due to a 2.5 point decline in the Atlantis' average occupancy rate and a 8.9% decline in the average daily room rate. During 1996, the Atlantis had an average occupancy rate of 88.7%, compared to 91.2% in 1995. The Atlantis' average daily room rate in 1996 was $49.90, compared to $54.78 in 1995. The drop in hotel revenues in 1996 was the result of room rate pressures in the Reno area market, lower levels of convention activity in 1996 than in 1995, and high levels of activity at the National Bowling Stadium in downtown Reno during 1995, which the Company believes positively impacted its average hotel occupancy and average daily room rate during 1995. The National Bowling Stadium did not hold any tournaments similar in scale or duration in 1996. -18- Hotel operating expenses in 1996 equaled 36.6% of hotel revenues, compared to 39.7% in 1995, with the decrease primarily due to lower levels of licensing fees paid to Choice in 1996. Included in hotel operating expenses are fees paid to Choice of $213 thousand and $617 thousand in 1996 and 1995, respectively, under the Company's licensing agreement with Choice. The Company exercised its option to terminate its licensing agreement with Choice on April 28, 1996. Food and beverage revenues totaled $17.4 million in 1996, compared to $17.3 million in 1995. Food and beverage operating expenses during 1996 amounted to 55.8% of food and beverage revenues, compared to 61.4% in 1995, with the improvement due primarily to lower food costs and improved operating efficiency. Other revenues increased to $2.3 million in 1996, compared to $1.9 million in 1995. The increase primarily reflects the inclusion in the 1996 second quarter of non-recurring income items totaling approximately $300 thousand. Other expenses for 1996 amounted to 17.5% of other revenues, compared to 19.2% in 1995, primarily reflecting the non-recurring items, for which there were no corresponding expenses. SG&A expenses amounted to 28.6% of net revenues in 1996, compared to 26.8% in 1995. The increase primarily reflects increased marketing costs incurred in response to heightened competitive conditions in the Reno area market during the 1996 period, as well as name change costs incurred in the 1996 period. Included in the 1995 figure is approximately $433 thousand in one-time litigation costs related to two unfavorable judgments rendered in unrelated cases. The Company also recorded a one-time charge in the fourth quarter of 1995 in the amount of $459 thousand for asset impairment associated with changing the name of the Atlantis. Gaming development costs decreased to $87 thousand in 1996, down from $298 thousand in 1995, due to decreased levels of development activity. Interest expense for 1996 totaled $3.6 million, compared to $4.1 million in 1995, reflecting lower average outstanding debt and lower average interest costs during 1996. The Company recorded non-cash fixed asset impairment loss charges totaling $1.3 million in 1996, which were offset by a minority interest in the net loss of a consolidated subsidiary of $206 thousand. The impairment losses were recognized on a marine vessel owned by a subsidiary of the Company, which the Company had intended to use as a riverboat gaming vessel. OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS The Company is in the final stages of planning and designing the first phase of the Expansion Project (see Item 1, "BUSINESS, Atlantis Expansion Project"), and expects to decide whether or not to proceed with the Expansion Project in the 1998 second quarter. If the Company proceeds with the Expansion Project, it will involve major construction activity at the Atlantis, which could impede access to the property and result in business disruptions while the construction is underway. The Company believes it can mitigate the disruptive effects of construction by redirecting traffic flows, creating alternative access points at the Atlantis, and restricting construction crews, materials and vehicles to specified areas; however, the Company believes it is unlikely that such steps would completely alleviate the disruptive impact of such a large-scale construction project. -19- Moreover, if the Company proceeds with the Expansion Project, it will be subject to certain risks typically associated with large-scale construction projects including the risks of delay, shortages of materials or skilled labor, unforeseen engineering, environmental and/or geological problems, work stoppages, weather interference and unanticipated cost increases. LIQUIDITY AND CAPITAL RESOURCES The Company has historically funded its daily hotel and casino activities with net cash provided by operating activities. For the years 1997, 1996, and 1995, net cash provided by operating activities totaled $9.6 million, $5.3 million, and $7.1 million, respectively. During each of the three years, net cash provided by operating activities was sufficient to fund the day to day operating expenses of the Company. Net cash used in investing activities, which consisted entirely of acquisitions of property and equipment, totaled $1.7 million, $1.5 million, and $1.7 million in 1997, 1996, and 1995, respectively. Total capital expenditures, including amounts financed, were $2.3 million, $2.8 million, and $2.1 million in 1997, 1996, and 1995, respectively. Capital expenditures during each of these years were primarily directed toward ongoing refurbishments and enhancements to the Atlantis, including equipment replacements. Of particular note, during 1996 the Company renovated substantially all 149 motor lodge rooms at the Atlantis, and during 1995, the Company purchased a computerized slot data system at the Atlantis used primarily for improved marketing to slot machine players. Net cash used in financing activities totaled $6.3 million, $3.5 million, and $4.1 million in 1997, 1996, and 1995, respectively. During 1997, the Company reduced its overall long-term debt by approximately $5.9 million, following reductions of approximately $2.0 million and $3.7 million in 1996 and 1995. The Company also repurchased 17,000 shares of its common stock on the open market during 1997 at a total cost of approximately $66 thousand. On December 30, 1997, the Company completed the refinancing of its long- term debt with the $80 million Credit Facility. The Credit Facility replaced approximately $33 million in existing long-term debt, and provides additional funds which the Company may use as a source of funding for the first phase of the Expansion Project. Under the terms of the Credit Facility, the Company has until August 1, 1998 to determine whether or not it will proceed with the Expansion Project. If the Company elects to proceed with the Expansion Project, the maximum available borrowings under the Credit Facility will be $80 million. If the Company elects not to proceed with the Expansion Project, the maximum available borrowings under the Credit Facility will be reduced to $37.5 million, and the construction provisions of the Credit Facility will be nullified. At December 31, 1997, the outstanding balance of the Credit Facility was $32.8 million. The principal terms of the Credit Facility are summarized at Note 4 of the Notes to Consolidated Financial Statements (see Item 8, "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, Notes to Consolidated Financial Statements"). The Company is in the final stages of planning and designing the first phase of the Expansion Project, which the Company currently estimates would cost $55 to $65 million (see Item 1, "BUSINESS, Atlantis Expansion Project"). Following completion of planning and design for this expansion, the Company intends to seek bids from qualified contractors for a fixed-price contract covering a majority of the hard construction costs. The Company's decision -20- to move forward with the Expansion Project will largely depend on obtaining favorable results from this process. Assuming that a fixed-price contract can be negotiated with a qualified general contractor within the Company's range of expectations, and assuming that no major unexpected costs emerge for the Expansion Project, the Company believes it will have adequate resources available through cash on hand, cash flow from operations, and borrowings allowed under the Credit Facility to construct the first phase of the Expansion Project. However, the Company has not made any commitments to proceed with the Expansion Project, and presently has the option of scaling back the project, delaying it or abandoning it altogether should it choose to do so. In addition to the potential funding requirements associated with the Company's proposed expansion of the Atlantis, the Company continues to monitor expansion opportunities at its other Reno site and elsewhere in Nevada and in other jurisdictions. The decision by the Company to proceed with any substantial project will require the Company to secure adequate financing on acceptable terms. No assurances can be made that if such projects are pursued that adequate financing would be available on acceptable terms, if at all. The Company believes that its existing cash balances, cash flow from operations and borrowings allowed under the Credit Facility will provide the Company with sufficient resources to fund its operations, meet its existing debt obligations and fund its capital expenditure requirements; however, the Company's operations are subject to financial, economic, competitive, regulatory, and other factors, many of which are beyond its control. If the Company is unable to generate sufficient cash flow, it could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or obtaining additional equity capital. On April 10, 1995, the Company announced that its Board of Directors authorized the open market repurchase of up to 200,000 shares of the Company's common stock. As of February 27, 1998, the Company had repurchased 100,000 shares on the open market at a total cost of approximately $330 thousand. The Company has funded the purchases made to date and intends to fund any future repurchases from cash on hand. The approach of the year 2000 has become a potential problem for businesses utilizing computers in their operations since many computer programs are date sensitive and will only recognize the last two digits of the year, thereby recognizing the year 2000 as the year 1900 or not at all (the "Year 2000 Issue"). Management has made a comprehensive assessment of the Company's exposure to the Year 2000 Issue and what will be required to ensure that the Company is year 2000 compliant. The primary computer programs utilized in the Company's operations and financial reporting systems have been acquired from independent software vendors. All of these vendors have been formally contacted to determine whether their systems are year 2000 compliant, and, if not, timelines have been or will be established as to when the Company will receive the required upgrades that assure that these systems will be year 2000 compliant. Maintenance or modification costs associated with the Year 2000 Issue will be expensed as incurred, while the costs of any new software will be capitalized and amortized over the software's useful life. The Company does not expect to incur costs in connection with the Year 2000 Issue that would have a material impact on operations. Although the Company presently believes that all of its software programs will be year 2000 -21- compliant, there can be no assurances that the Company will not be adversely affected by the Year 2000 Issue. -22- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS BOARD OF DIRECTORS MONARCH CASINO & RESORT, INC. We have audited the accompanying consolidated balance sheets of Monarch Casino & Resort, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Monarch Casino & Resort, Inc. as of December 31, 1997 and 1996, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/Grant Thornton LLP Reno, Nevada January 30, 1998 -23- MONARCH CASINO & RESORT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, ------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Revenues Casino................................ $ 37,254,033 $ 31,836,177 $ 30,071,556 Food and beverage..................... 17,841,009 17,410,800 17,254,440 Hotel................................. 10,199,911 9,811,353 10,955,326 Other................................. 2,323,885 2,253,393 1,889,858 ------------ ------------ ------------ Gross revenues..................... 67,618,838 61,311,723 60,171,180 Less promotional allowances........... (8,504,072) (7,675,567) (6,772,428) ------------ ------------ ------------ Net revenues....................... 59,114,766 53,636,156 53,398,752 ------------ ------------ ------------ Operating expenses Casino................................ 16,043,256 14,422,670 12,956,305 Food and beverage..................... 9,682,253 9,714,389 10,597,878 Hotel................................. 3,710,462 3,595,239 4,349,072 Other................................. 430,471 394,256 363,496 Selling, general and administrative... 15,964,188 15,318,911 14,302,522 Depreciation and amortization......... 4,308,991 4,141,528 4,019,602 Impairment of assets.................. - - 459,323 ------------ ------------ ------------ Total.............................. 50,139,621 47,586,993 47,048,198 ------------ ------------ ------------ Income from operations............. 8,975,145 6,049,163 6,350,554 ------------ ------------ ------------ Other income (expense) Interest expense...................... (3,253,067) (3,626,980) (4,087,093) Impairment loss on fixed assets....... - (1,330,592) - Minority interests in net loss of consolidated subsidiaries............ - 206,456 59,662 ------------ ------------ ------------ Total.............................. (3,253,067) (4,751,116) (4,027,431) ------------ ------------ ------------ Income before income taxes and extraordinary item...... 5,722,078 1,298,047 2,323,123 Provision for income taxes.............. 2,011,930 468,179 758,900 ------------ ------------ ------------ Income before extraordinary item... 3,710,148 829,868 1,564,223 Extraordinary item - loss on early retirement of debt, net of applicable income tax benefit of $95,057..................... (184,524) - - ------------ ------------ ------------ Net income......................... $ 3,525,624 $ 829,868 $ 1,564,223 ============ ============ ============ INCOME PER SHARE OF COMMON STOCK Income before extraordinary item Basic.............................. $ 0.39 $ 0.09 $ 0.16 Diluted............................ $ 0.39 $ 0.09 $ 0.16 Net income Basic.............................. $ 0.37 $ 0.09 $ 0.16 Diluted............................ $ 0.37 $ 0.09 $ 0.16 Weighted average number of common shares and potential common shares outstanding Basic.............................. 9,444,333 9,501,658 9,536,275 Diluted............................ 9,479,359 9,501,658 9,536,367
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. -24- MONARCH CASINO & RESORT, INC. CONSOLIDATED BALANCE SHEETS
December 31, ---------------------------- 1997 1996 ------------ ------------ ASSETS Current assets Cash........................................ $ 5,527,839 $ 4,021,952 Receivables, net............................ 837,420 519,215 Inventories................................. 570,367 362,193 Prepaid expenses............................ 1,333,176 1,188,650 Deferred income taxes....................... 1,055,000 1,351,000 ------------ ------------ Total current assets..................... 9,323,802 7,443,010 ------------ ------------ Property and equipment Land........................................ 10,339,530 10,339,530 Buildings................................... 36,955,345 36,428,415 Furniture and equipment..................... 22,304,919 22,563,156 Improvements................................ 5,040,033 4,855,481 ------------ ------------ 74,639,827 74,186,582 Less accumulated depreciation and amortization.............. (17,868,111) (15,267,331) ------------ ------------ Net property and equipment............... 56,771,716 58,919,251 ------------ ------------ Other assets.................................. 1,732,569 1,016,711 ------------ ------------ $ 67,828,087 $ 67,378,972 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt........ $ 2,243,611 $ 3,487,169 Accounts payable............................ 4,111,457 2,817,766 Accrued expenses............................ 3,383,855 2,644,056 Federal income taxes payable................ 240,970 - ------------ ------------ Total current liabilities................ 9,979,893 8,948,991 Long-term debt, less current maturities....... 32,907,530 37,602,075 Deferred income taxes......................... 2,247,000 1,827,000 Minority interests............................ - - Commitments and contingencies................. - - Stockholders' equity Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued............. - - Common stock, $.01 par value, 30,000,000 shares authorized; 9,536,275 issued; 9,436,275 and 9,453,275 outstanding........ 95,363 95,363 Additional paid-in capital.................. 17,241,788 17,008,779 Treasury stock.............................. (329,875) (264,000) Retained earnings........................... 5,686,388 2,160,764 ------------ ------------ Total stockholders' equity............... 22,693,664 19,000,906 ------------ ------------ $ 67,828,087 $ 67,378,972 ============ ============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. -25- MONARCH CASINO & RESORT, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock -------------------- Additional Retained Shares Paid-in Earnings Treasury Outstanding Amount Capital (Deficit) Stock Total ----------- -------- ------------ ----------- -------- ------------ Balance, January 1, 1995 9,536,275 $ 95,363 $ 17,008,779 $ (233,327)$ - $ 16,870,815 Net income - - - 1,564,223 - 1,564,223 ----------- -------- ------------ ----------- --------- ------------ Balance, December 31, 1995 9,536,275 95,363 17,008,779 1,330,896 - 18,435,038 Net income - - - 829,868 - 829,868 Treasury stock acquired, at cost (83,000) - - - (264,000) (264,000) ----------- -------- ------------ ----------- --------- ------------ Balance, December 31, 1996 9,453,275 95,363 17,008,779 2,160,764 (264,000) 19,000,906 Net income - - - 3,525,624 - 3,525,624 Treasury stock acquired, at cost (17,000) - - - (65,875) (65,875) Other - - 233,009 - - 233,009 ----------- -------- ------------ ----------- --------- ------------ Balance, December 31, 1997 9,436,275 $ 95,363 $ 17,241,788 $ 5,686,388 $(329,875) $ 22,693,664 =========== ======== ============ =========== ========= ============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. -26- MONARCH CASINO & RESORT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, ------------------------------------------ 1997 1996 1995 ------------ ------------ ------------ Cash flows from operating activities: Net income................................... $ 3,525,624 $ 829,868 $ 1,564,223 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............. 4,308,991 4,141,528 4,019,602 Gain on disposal of assets................. (4,589) (22,862) - Impairment of assets....................... - 1,330,592 459,323 (Increase) decrease in receivables, net.... (318,205) (15,932) 78,895 Increase in inventories.................... (208,174) (46,637) (825) (Increase) decrease in prepaid expenses.... (144,526) 26,196 (21,271) (Increase) decrease in deferred income tax asset................ 529,009 (514,000) (679,000) (Increase) decrease in other assets........ 394,241 63,649 (313,084) Decrease in due to related parties......... - - (404,603) Increase (decrease) in accounts payable.... 108,691 (763,703) 1,110,392 Increase in accrued expenses............... 980,769 247,794 318,838 Increase in deferred income tax liability.. 420,000 240,000 1,077,000 Decrease in minority interests............. - (206,456) (59,662) ------------ ------------ ------------ Net cash provided by operating activities..................... 9,591,831 5,310,037 7,149,828 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from sale of assets................. 188,040 142,569 - Acquisition of property and equipment........ (1,933,080) (1,593,865) (1,707,028) ------------ ------------ ------------ Net cash used in investing activities..... (1,745,040) (1,451,296) (1,707,028) ------------ ------------ ------------ Cash flows from financing activities: Proceeds from long-term borrowings........... 32,810,000 500,000 11,395,899 Principal payments on long-term debt......... (39,085,029) (3,717,152) (15,518,419) Acquisition of treasury stock................ (65,875) (264,000) - ------------ ------------ ------------ Net cash used in financing activities..... (6,340,904) (3,481,152) (4,122,520) ------------ ------------ ------------ Net increase in cash...................... 1,505,887 377,589 1,320,282 Cash at beginning of period.................... 4,021,952 3,644,363 2,324,081 ------------ ------------ ------------ Cash at end of period.......................... $ 5,527,839 $ 4,021,952 $ 3,644,363 ============ ============ ============ Supplemental disclosure of cash flow information: Cash paid for interest, net of capitalized interest....................... $ 3,406,740 $ 3,773,617 $ 4,073,153 Cash paid for income taxes................... 610,000 587,542 326,153 Supplemental schedule of non-cash investing and financing activities: The Company financed the purchase of property and equipment in the following amounts...... 336,926 1,243,878 441,065 Capitalized loan costs included in accounts payable......................... 1,185,000 - -
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. -27- MONARCH CASINO & RESORT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 1997, 1996, and 1995 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Monarch Casino & Resort, Inc. ("Monarch") was incorporated in 1993. Golden Road Motor Inn, Inc. ("Golden Road") operates the Atlantis Casino Resort (the "Atlantis") in Reno, Nevada. Unless stated otherwise, the "Company" refers collectively to Monarch, its wholly owned subsidiary Golden Road, and majority owned subsidiaries, Dunes Marina Resort and Casino, Inc. ("Dunes Marina"), formed in December 1993, and Sea World Processors, Inc. ("Sea World"), purchased in February 1994. The consolidated financial statements include the accounts of Monarch, Golden Road, Dunes Marina and Sea World, and eliminate intercompany balances and transactions. Use of Estimates In preparing these financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the year. Actual results could differ from those estimates. Reclassifications Certain amounts in the 1996 and 1995 consolidated financial statements have been reclassified to conform with the 1997 presentation. These reclassifications had no effect on the Company's net income. Inventories Inventories, consisting primarily of food and beverages, are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Since inception, property and equipment have been depreciated principally on an accelerated basis over the estimated service lives as follows: Buildings..........30-40 years Furniture..........5-10 years Equipment..........5-20 years Improvements.......15-40 years -28- Casino Revenues Casino revenues represent the net win from gaming activity, which is the difference between wins and losses. Additionally, net win is reduced by a provision for anticipated payouts on progressive jackpots. Promotional Allowances The retail value of hotel, food and beverage services provided to customers without charge is included in gross revenue and deducted as promotional allowances. The estimated departmental costs of providing such promotional allowances are included in casino costs and expenses as follows:
Years ended December 31, --------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Hotel.............. $ 401,000 $ 476,000 $ 321,000 Food and beverage.. 5,393,000 5,043,000 4,155,000 ----------- ----------- ----------- $ 5,794,000 $ 5,519,000 $ 4,476,000 =========== =========== ===========
Advertising Costs All advertising costs are expensed as incurred. Advertising expense reported was $1,940,628, $1,558,895, and $1,808,386 for 1997, 1996, and 1995, respectively. Gaming Development Costs The Company's policy is to expense gaming development costs in current periods rather than capitalizing these costs and amortizing them over future periods. The Company expensed $67,572, $86,966, and $298,310 for gaming development in 1997, 1996 and 1995, respectively. Income Taxes Income taxes are recorded in accordance with the liability method specified by Statement of Financial Accounting Standards ("SFAS") No. 109. Under the asset and liability approach for financial accounting and reporting for income taxes, the following basic principles are applied in accounting for income taxes at the date of the financial statements: (a) a current liability or asset is recognized for the estimated taxes payable or refundable on taxes for the current year; (b) a deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards; (c) the measurement of current and deferred tax liabilities and assets is based on the provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated; and (d) the measurement of deferred taxes is reduced, if necessary, by the amount of any tax benefits that, based upon available evidence, are not expected to be realized. -29- Earnings Per Share In 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per Share. Earnings per share for all periods presented have been restated to reflect the adoption of SFAS No. 128. SFAS No. 128 requires companies to present basic earnings per share, and, if applicable, diluted earnings per share. Basic earnings per share excludes dilution and is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if options to issue common stock were exercised into common stock. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (Shares in thousands):
Years ended December 31, ------------------------------------------------------ 1997 1996 1995 ---------------- ---------------- ---------------- Per Share Per Share Per Share Shares Amount Shares Amount Shares Amount ------ --------- ------ --------- ------ --------- Income before Extraordinary item Basic..................... 9,444 $0.39 9,502 $0.09 9,536 $0.16 Effect of dilutive stock options............ 35 - - - 0 - ------ --------- ------ --------- ------ --------- Diluted................... 9,479 $0.39 9,502 $0.09 9,536 $0.16 ====== ========= ====== ========= ====== ========= Net Income Basic..................... 9,444 $0.37 9,502 $0.09 9,536 $0.16 Effect of dilutive stock options............ 35 - - - 0 - ------ --------- ------ --------- ------ --------- Diluted................... 9,479 $0.37 9,502 $0.09 9,536 $0.16 ====== ========= ====== ========= ====== =========
The following options were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares:
1997 1996 1995 ----------- ----------- ----------- Options to purchase shares of common stock (in thousands)..... 26 32 21 Exercise prices.................. $4.88-$8.06 $3.50-$8.06 $7.25-$8.06 Expiration dates................. 9/98-6/00 9/98-6/00 9/98-6/99
Minority Interests For financial reporting purposes, the assets, liabilities and earnings of Dunes Marina and Sea World are consolidated with those of the Company, and the minority shareholder's interest (20%) in Dunes Marina and Sea World is -30- included in the Company's financial statements as minority interest. Dunes Marina was incorporated in December 1993 to pursue gaming opportunities in Gary, Indiana, and does not own any assets. Sea World was purchased in February 1994, also to pursue gaming opportunities in Gary, Indiana. Sea World's sole asset was a marine vessel, which the Company wrote off in 1996 and divested in 1997. Fair Value of Financial Instruments SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires the determination of fair value for certain of the Company's assets, liabilities and contingent liabilities. When practicable, the following methods and assumptions were used to estimate the fair value of those financial instruments included in the following categories: Long-Term Debt: The fair value of long-term debt is estimated based on the current borrowing rates offered to the Company for debt of the same remaining maturities. It is estimated that the carrying amounts of all of the Company's financial instruments approximate fair value at December 31, 1997. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of bank deposits and trade receivables. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. The Company believes it is not exposed to any significant credit risk on cash and accounts receivable. NOTE 2. ACCOUNTS RECEIVABLE Accounts receivable consist of the following:
December 31, ------------------------- 1997 1996 ----------- ----------- Casino....................... $ 644,426 $ 394,212 Hotel........................ 260,300 180,929 Other........................ 83,419 67,800 ----------- ----------- 988,145 642,941 Less allowance for doubtful accounts........... (150,725) (123,726) ----------- ----------- $ 837,420 $ 519,215 =========== ===========
-31- NOTE 3. ACCRUED EXPENSES Accrued expenses consist of the following:
December 31, ------------------------- 1997 1996 ----------- ----------- Accrued salaries, wages and related benefits........ $ 1,063,776 $ 950,173 Progressive slot machine and other gaming accruals... 1,426,365 764,396 Accrued gaming taxes......... 101,133 173,511 Accrued interest............. 6,843 160,516 Other accrued liabilities.... 785,738 595,460 ----------- ----------- $ 3,383,855 $ 2,644,056 =========== ===========
NOTE 4. LONG-TERM DEBT Long-term debt consists of the following:
December 31, --------------------------- 1997 1996 ------------ ------------ Amounts outstanding under bank construction and reducing revolving credit facility, collateralized by substantially all property and equipment of Golden Road and guaranteed by Monarch and it's three largest stockholders, with floating interest rates tied to a base rate approximately equal to the prime rate or LIBOR (at the Company's option) plus a margin which fluctuates according to the Company's ratio of funded debt to EBITDA. At December 31, 1997, the Company's average interest rate was approximately 7.5%. The loan matures in June, 2004 with all unpaid interest and principal due and payable at that time.................. $ 32,810,000 $ 38,120,000 Land purchase loan to seller, collateralized by real property, with interest fixed at 6%. Interest only payable monthly until September 1998, when all unpaid principal and interest is due............................... 1,897,597 1,897,597 Slot contracts, collateralized by equipment, maturing in 1998............................................ 215,668 722,200 Notes payable, collateralized by equipment, with principal and interest due monthly through 2000............. 227,876 349,447 ------------ ------------ $ 35,151,141 $ 41,089,244 Less current maturities...................................... (2,243,611) (3,487,169) ------------ ------------ $ 32,907,530 $ 37,602,075 ============ ============
REFINANCING OF LONG-TERM DEBT. On December 30, 1997, Monarch, through Golden Road, completed the refinancing of its long-term debt through a new $80 million construction and reducing revolving bank credit facility (the "Credit Facility") arranged and underwritten by Wells Fargo Bank, N.A. (the "Agent Bank"). The Credit Facility replaced approximately $33 million in existing -32- long-term debt, and provides additional funds which the Company may use as a source of funding for the first phase of the Expansion Project. THE CREDIT FACILITY. The Credit Facility is a direct obligation of Golden Road, and is guaranteed by Monarch. The Credit Facility is also guaranteed by John Farahi, Co-Chairman of the Board, Chief Executive Officer and Chief Operating Officer of Monarch and Golden Road and General Manager of the Atlantis; Behrouz Ben Farahi, Co-Chairman of the Board, Chief Financial Officer, Secretary and Treasurer of Monarch and Golden Road; and Bahram (Bob) Farahi, Co-Chairman of the Board and President of Monarch and Golden Road, individually. Under the terms of the Credit Facility, the Company has until August 1, 1998 to determine whether or not it will proceed with the first phase of the Expansion Project. The Company may elect to proceed at any time prior to August 1, 1998 by providing the Agent Bank with certain additional information and loan documentation; submitting certain construction plans, schedules and budgets to the Agent Bank for approval; and requesting a construction draw under the Credit Facility. If the Company elects to proceed, the maximum available borrowings under the Credit Facility will be $80 million, and once this election is made, additional draws under the Credit Facility may be used only for construction of the Expansion Project until the Expansion Project is completed. Draws for the first phase of the Expansion Project will be subject to the satisfaction of various conditions typically applicable to construction loans. Following completion of the first phase of the Expansion Project, the Company may utilize proceeds from the Credit Facility for working capital needs and general corporate purposes relating to the Atlantis and for ongoing capital expenditure requirements at the Atlantis. Also at any time prior to August 1, 1998, the Company may elect not to construct the first phase of the Expansion Project by providing an irrevocable written notice to the Agent Bank. The Company will also automatically be deemed to have elected not to construct the first phase of the Expansion Project if it fails to proceed as described above by August 1, 1998. If the Company elects not to proceed, the maximum available borrowings under the Credit Facility will be reduced to $37.5 million and the construction provisions of the Credit Facility will be nullified. At the Company's option, borrowings under the Credit Facility can accrue interest at a rate designated by the Agent Bank as its base rate (the "Base Rate") or at the London Interbank Offered Rate ("LIBOR") for one, two, three or six month periods. The rate of interest paid by the Company will include a margin added to either the Base Rate or to LIBOR that is tied to the Company's ratio of funded debt to EBITDA (the "Leverage Ratio"). Depending on the Company's Leverage Ratio, this margin can vary between 0.00 percent and 2.00 percent above the Base Rate, and between 1.50 percent and 3.50 percent above LIBOR. At December 31, 1997, the applicable margin was the Base Rate plus 0.00%, and the applicable LIBOR margin was LIBOR plus 1.5%. The Base Rate at December 31, 1997 was 8.5%, and the one month LIBOR was approximately 6.00%. At December 31, 1997, the Company had Base Rate loans outstanding of $310 thousand and LIBOR loans outstanding of $32.5 million. The maturity date of the Credit Facility is June 30, 2004. If the Company elects to proceed with the Expansion Project, the maximum principal available under the Credit Facility will reduce quarterly (commencing on July 1, 2000) from $80 million by an aggregate of $40 million in increasing increments ranging from $1.5 million to $6 million. If the Company elects -33- not to construct the Expansion Project, the maximum principal available under the Credit Facility will reduce quarterly (commencing on October 1, 1998) from $37.5 million by an aggregate of $19.1 million in increasing increments ranging from $.6 million to $1.0 million. The Company may prepay borrowings under the Credit Facility without penalty (subject to certain charges applicable to the prepayment of LIBOR borrowings prior to the end of the applicable interest period) so long as the amount repaid is at least $200 thousand and a multiple of $10 thousand. Following completion of the Expansion Project, or following an election by the Company not to construct the Expansion Project, amounts prepaid under the Credit Facility may be reborrowed so long as the total borrowings outstanding do not exceed the maximum principal available. The Company may also permanently reduce the maximum principal available under the Credit Facility at any time so long as the amount of such reduction is at least $500 thousand and a multiple of $50 thousand. The Credit Facility is secured by liens on substantially all of the real and personal property of Golden Road, as well as by the aforementioned parent and personal guarantees. The Credit Facility contains covenants customary and typical for a facility of this nature, including, but not limited to, covenants requiring the preservation and maintenance of the Company's assets (including provisions requiring that a minimum amount equal to two percent of the Company's gaming revenues each year must be expended on capital expenditures at the Atlantis), and covenants restricting the Company's ability to merge, transfer ownership of Golden Road, incur additional indebtedness, encumber assets, and make certain investments. The Credit Facility also contains covenants requiring the Company to maintain certain financial ratios, and provisions restricting transfers between Golden Road and Monarch and between Golden Road and other specified persons. The Credit Facility also contains provisions requiring the achievement of certain financial ratios before the Company can repurchase its common stock or pay or declare dividends. Following completion of the Expansion Project, or following an election by the Company not to construct the Expansion Project, the Credit Facility also provides for the Agent Bank to make certain swingline loans to the Company generally to provide short-term financing pending the funding of a draw by the lenders under the Credit Facility. Such swingline loans will accrue interest at the Base Rate in the same manner as other borrowings under the Credit Facility. The Company paid various fees and other loan costs upon the closing of the Credit Facility that will be amortized over the term of the Credit Facility. Following completion of the Expansion Project, or following an election by the Company not to construct the Expansion Project, the Company will be required to pay a fee equal to three eighths of one percent per annum on the average unused portion of the Credit Facility. The Company's previous bank loan facility was terminated prior to maturity in connection with the closing of the Credit Facility. As a result, the Company incurred an extraordinary pre-tax non-cash charge of approximately $280 thousand during the 1997 fourth quarter, reflecting the accelerated write-off of unamortized deferred financing costs. The schedule of maturities of the Company's long-term debt during the next five years will be materially different depending on whether or not the Company proceeds with the first phase of the Expansion Project. Therefore, -34- the Company has provided below schedules illustrating estimated annual maturities of long-term debt, as of December 31, 1997, under both scenarios. The following schedule assumes that the Company elects to proceed with the first phase of the Expansion Project:
Years ending December 31, ------------ 1998.......... $ 2,243,611 1999.......... 94,857 2000.......... 4,002,673 2001.......... 6,000,000 Thereafter 22,810,000 ------------- $ 35,151,141 =============
The following schedule assumes that the Company elects not to proceed with the first phase of the Expansion Project:
Years ending December 31, ------------ 1998.......... $ 2,243,611 1999.......... 94,857 2000.......... 1,650,173 2001.......... 3,400,000 Thereafter 27,762,500 ------------- $ 35,151,141 =============
NOTE 5. INCOME TAX Income tax expense consists of the following:
Years ended December 31, --------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Current expense....................... $ 1,062,921 $ 694,747 $ 360,900 Deferred expense (benefit)............ 949,009 (226,568) 398,000 ----------- ----------- ----------- $ 2,011,930 $ 468,179 $ 758,900 =========== =========== ===========
The difference between the Company's provision for federal income taxes as presented in the accompanying Consolidated Statements of Operations, and the provision for income taxes computed at the statutory rate is comprised of the items shown in the following table as a percentage of pre-tax earnings. -35-
Years ended December 31, --------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Income tax at the statutory rate...... 34.0% 34.0% 34.0% Non-deductible expenses............... 1.2% 3.1% 2.9% Tax credits........................... - - (1.7)% Minority stockholder interest in net loss of subsidiaries included in tax return............... - - (0.9)% Other, net............................ - (1.0)% (1.6)% ----------- ----------- ----------- 35.2% 36.1% 32.7% =========== =========== ===========
The components of the deferred income tax assets and liabilities at December 31, 1997 and 1996, as presented in the Consolidated Balance Sheets, are as follows:
1997 1996 ----------- ----------- CURRENT ASSETS Compensation and benefits............ $ 73,000 $ 45,000 Bad debt reserves.................... 51,000 42,000 Accrued gaming liabilities........... 136,000 208,000 Accrued other liabilities............ 51,000 - Alternative minimum tax credit....... 506,000 885,000 General business tax credit.......... 238,000 171,000 ----------- ----------- Deferred income tax asset $ 1,055,000 $ 1,351,000 =========== =========== NONCURRENT ASSETS Impairment of assets................. $ - $ 382,000 ----------- ----------- - 382,000 ----------- ----------- NONCURRENT LIABILITIES Impairment of assets................. (70,000) - Depreciation......................... (1,899,000) (1,931,000) Land basis........................... (278,000) (278,000) ----------- ----------- (2,247,000) (2,209,000) ----------- ----------- Deferred income tax liability $(2,247,000) $(1,827,000) =========== ===========
NOTE 6. BENEFIT PLANS Self Insurance - The Company is self-insured for health care claims for eligible active employees. Benefit plan administrators assist the Company in determining its liability for self-insured claims, and such claims are not discounted. The Company is also self-insured for workman's compensation. Both plans limit the Company's maximum liability under stop-loss agreements with insurance companies. -36- Savings Plan - Effective November 1, 1995, the Company adopted a savings plan, which qualifies under Section 401(k) of the Internal Revenue Code. Under the plan, participating employees may defer up to 15% of their pre-tax compensation, but not more than statutory limits. The Company contributes twenty five cents for each dollar contributed by a participant, with a maximum contribution of 4% of a participant's compensation. The Company's matching contribution was approximately $17,000 in 1997 and 1996. Stock Option Plans - The Company maintains three stock option plans, consisting of the Directors' Stock Option Plan, the Executive Long Term Incentive Plan, and the Employee Stock Option Plan, which collectively provide for the granting of up to 425,000 common shares. The exercise price of stock options granted under the plans is established by the respective plan committees, but the exercise price may not be less than the market price of the Company's common stock on the date the option is granted. Options expire five to ten years from the grant date. The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting For Stock-Based Compensation, but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. If the Company had elected to recognize compensation cost on the fair market value at the grant dates for awards under the stock option plans, consistent with the method prescribed by SFAS No. 123, net income and income per share would have been changed to the pro forma amounts indicated below: Year Ended December 31, 1997 ----------------- Income before extraordinary item As reported $3,710,148 Pro forma 3,515,191 Net income As reported 3,525,625 Pro forma 3,330,668 Basic earnings per share before extraordinary item As reported 0.39 Pro forma 0.37 Basic earnings per share As reported 0.37 Pro forma 0.35 Diluted earnings per share before extraordinary item As reported 0.39 Pro forma 0.37 Diluted earnings per share As reported 0.37 Pro forma 0.35 The fair value of the Company's stock options was estimated as of the grant date using the Black-Scholes option pricing model with the following weighted average assumptions for 1997 and 1996: dividend yield of 0.0%; expected volatility of 35.0% and 55.0%, respectively; a risk free interest rate of 6.61% and 6.25%, respectively; and an expected holding period of three to seven years. Based on these assumptions, compensation expense was immaterial for 1996. -37- Presented below is a summary of the status of the Company's stock options and the related transactions for the year ended December 31, 1997.
Weighted Average Shares Exercise Price -------- ---------------- Balance at January 1, 1997..... 31,700 $ 6.44 Granted....................... 233,700 3.21 Exercised..................... - - Forfeited/expired............. (2,500) (2.88) -------- -------- Balance at December 31, 1997... 262,900 $ 3.60 ======== ======== Weighted average fair value of options granted during 1997... $ 1.28 ========
Stock Options Outstanding Stock Options Exercisable ------------------------- ------------------------- Weighted Weighted Weighted Average Average Average Range of Contractual Exercise Exercise Exercise Prices Shares Life Price Shares Price ---------------- ------- -------- --------- ------- -------- $2.25 to $3.50 167,400 7.72 $ 2.77 52,400 $ 2.37 $4.00 to $5.00 75,400 2.31 4.50 64,400 4.49 $7.25 to $8.13 20,100 1.07 7.59 20,100 7.59 ------- ------- Total 262,900 136,900 ======= =======
NOTE 7. LEGAL PROCEEDINGS The Company is a defendant in various pending legal proceedings. In the opinion of management, all pending claims in such litigation will not, in the aggregate, have a material adverse effect on the Company's financial position or results of operations. -38- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT This information is incorporated by reference to the Company's Proxy Statement to be filed with the Commission in connection with the Annual Meeting of Stockholders on June 10, 1998. ITEM 11. EXECUTIVE COMPENSATION This information is incorporated by reference to the Company's Proxy Statement to be filed with the Commission in connection with the Annual Meeting of Stockholders on June 10, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information is incorporated by reference to the Company's Proxy Statement to be filed with the Commission in connection with the Annual Meeting of Stockholders on June 10, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is incorporated by reference to the Company's Proxy Statement to be filed with the Commission in connection with the Annual Meeting of Stockholders on June 10, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements Included in Part II of this report: Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995. Consolidated Balance Sheets at December 31, 1997 and 1996. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1996 and 1997. Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements. 2. Schedules are omitted because of the absence of conditions under which they are required or because the required information is provided in the financial statements or notes thereto. -39- (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the 1997 fourth quarter. (c) Exhibits Number Exhibit Description ------ ------------------- 3.01 Articles of Incorporation of Monarch Casino & Resort, Inc., filed June 11, 1993 are incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 3.01. 3.02 Bylaws of Monarch Casino & Resort, Inc., adopted June 14, 1993 are incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 3.02. 3.03 Articles of Incorporation of Golden Road Motor Inn, Inc. filed March 6, 1973; Certificate Amending Articles of Incorporation of Golden Road Motor Inn, Inc. filed August 29, 1973; and Certificate of Amendment of Articles of Incorporation filed April 5, 1984 are incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 3.03. 3.04 Bylaws of Golden Road Motor Inn, Inc., adopted March 9, 1973 are incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 3.04. 4.01 Specimen Common Stock Certificate for the Common Stock of Monarch Casino & Resort, Inc. is incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33- 64556), Part II, Item 16, Exhibit 4.01. 4.02 Amended and Restated Monarch Casino & Resort, Inc. 1993 Directors' Stock Option Plan. 4.03 Amended and Restated Monarch Casino & Resort, Inc. 1993 Executive Long Term Incentive Plan. 4.04 Amended and Restated Monarch Casino & Resort, Inc. 1993 Employee Stock Option Plan. 10.01 Construction and Reducing Revolving Credit Agreement, dated as of December 29, 1997, among Golden Road Motor Inn, Inc. as Borrower, Monarch Casino & Resort, Inc., John Farahi, Bahram Farahi, and Behrouz Farahi as guarantors, the Lenders as defined therein, and Wells Fargo Bank as administrative and collateral Agent for the Lenders and Swingline Lender is incorporated herein by reference to the Company's Form 8-K report (SEC File 0-22088) dated January 14, 1998, Exhibit 10.01. -40- 10.02 First Amendment to Construction and Reducing Revolving Credit Agreement, dated as of January 9, 1998, among Golden Road Motor Inn, Inc. as Borrower, Monarch Casino & Resort, Inc., John Farahi, Bahram Farahi, and Behrouz Farahi as guarantors, the Lenders as defined therein, and Wells Fargo Bank as administrative and collateral Agent for the Lenders, Swingline Lender and L/C Issuer. 10.03 Lease, by and between Sierra Development Company, dba Club Cal- Neva, Tenant, and Golden Road Motor Inn, Inc., dba Clarion Hotel and Casino, Landlord, dated June 10, 1991 is incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 10.03. 10.04 Agreement for Purchase of Real Property between Marcelle M. Caramella, a widow, individually and Marcelle Margaret Caramella, as trustee of the Trust created under the Last Will and Testament of Ernest John Caramella, deceased, Ben A. Caramella and Cecile D. Caramella, as trustees of the Caramella Family Trust Agreement dated December 1, 1989, Marcelle Margaret Caramella, Erma V. Pezzi, Trustee of the Erma V. Pezzi Trust Agreement dated November 21, 1991, Golden Road Motor Inn, Inc. and Farahi Investment Company, dated June 1, 1993 is incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 10.04. 10.05 Agreement between Monarch Casino & Resort, Inc. and Peter Wilday dated May 13, 1994; First Amendment to Agreement between Monarch Casino & Resort, Inc. and Peter Wilday dated June 8, 1994; and Second Amendment to Agreement between Monarch Casino & Resort, Inc. and Peter Wilday dated March 23, 1995 are incorporated herein by reference from the Company's Form 10-K report (SEC File 0-22088) for the fiscal year ended December 31, 1994, Item 14(a)(3), Exhibit 10.20. 10.06 Nonstandardized 401(k) Plan Adoption Agreement between Monarch Casino & Resort, Inc. and Smith Barney Shearson dated November 7, 1995 is incorporated herein by reference to the Company's Form 10-K report (SEC File 0-22088) for the fiscal year ended December 31, 1995, Item 14(a)(3), Exhibit 10.21. 10.07 Recordkeeping Service Agreement between Monarch Casino & Resort, Inc. and Travelers Recordkeeping dated June 29, 1995 is incorporated herein by reference to the Company's Form 10-K report (SEC File 0-22088) for the fiscal year ended December 31, 1995, Item 14(a)(3), Exhibit 10.22. 10.08 Trademark Agreement between Golden Road Motor Inn, Inc. and Atlantis Lodge, Inc., dated February 3, 1996 is incorporated herein by reference to the Company's Form 10-K report (SEC File 0-22088) for the fiscal year ended December 31, 1995, Item 14(a)(3), Exhibit 10.23. -41- 21.01 List of Subsidiaries of Monarch Casino & Resort, Inc. is incorporated by reference from the Company's Form 10-K report (SEC File 0-22088) for the fiscal year ended December 31, 1993, Item 14(a)(3), Exhibit 21.01. 27.01 Financial Data Schedule -42- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MONARCH CASINO & RESORT, INC. (Registrant) Date: March 26, 1998 By: /s/ BEN FARAHI ------------------------------------ Ben Farahi, Co-Chairman of the Board, Secretary, Treasurer and Chief Financial Officer(Principal Financial Officer and Duly Authorized Officer)
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/ JOHN FARAHI Co-Chairman of the Board of Directors, March 27, 1998 ------------------ Chief Executive Officer (Principal John Farahi Executive Officer) and Director /s/ BOB FARAHI Co-Chairman of the Board of Directors, March 26, 1998 ------------------ President, and Director Bob Farahi /s/ BEN FARAHI Co-Chairman of the Board of Directors, March 26, 1998 ------------------ Secretary, Treasurer, Chief Financial Ben Farahi Officer (Principal Financial Officer and Principal Accounting Officer) and Director /s/ JOHN P. UPHOFF Director March 27, 1998 ------------------ John P. Uphoff /s/FRANK A. MODICA Director March 27, 1998 ------------------ Frank A. Modica
-43- EXHIBIT INDEX
Exhibit Page Number Description Number - ----------- ------------------------------------------------------------------ -------- 3.01 Articles of Incorporation of Monarch Casino & Resort, Inc., filed June 11, 1993 are incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 3.01. 3.02 Bylaws of Monarch Casino & Resort, Inc., adopted June 14, 1993 are incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 3.02. 3.03 Articles of Incorporation of Golden Road Motor Inn, Inc. filed March 6, 1973; Certificate Amending Articles of Incorporation of Golden Road Motor Inn, Inc. filed August 29, 1973; and Certificate of Amendment of Articles of Incorporation filed April 5, 1984 are incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 3.03. 3.04 Bylaws of Golden Road Motor Inn, Inc., adopted March 9, 1973 are incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 3.04. 4.01 Specimen Common Stock Certificate for the Common Stock of Monarch Casino & Resort, Inc. is incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33- 64556), Part II, Item 16, Exhibit 4.01. 4.02 Amended and Restated Monarch Casino & Resort, Inc. 1993 Directors' 46 Stock Option Plan. 4.03 Amended and Restated Monarch Casino & Resort, Inc. 1993 Executive 51 Long Term Incentive Plan. 4.04 Amended and Restated Monarch Casino & Resort, Inc. 1993 Employee 60 Stock Option Plan. 10.01 Construction and Reducing Revolving Credit Agreement, dated as of December 29, 1997, among Golden Road Motor Inn, Inc. as Borrower, Monarch Casino & Resort, Inc., John Farahi, Bahram Farahi, and Behrouz Farahi as guarantors, the Lenders as defined therein, and Wells Fargo Bank as administrative and collateral Agent for the Lenders and Swingline Lender is incorporated herein by reference to the Company's Form 8-K report (SEC File 0-22088) dated January 14, 1998, Exhibit 10.01. 10.02 First Amendment to Construction and Reducing Revolving Credit 66 Agreement, dated as of January 9, 1998, among Golden Road Motor Inn, Inc. as Borrower, Monarch Casino & Resort, Inc., John Farahi, Bahram Farahi, and Behrouz Farahi as guarantors, the Lenders as defined therein, and Wells Fargo Bank as administrative and collateral Agent for the Lenders, Swingline Lender and L/C Issuer. 10.03 Lease, by and between Sierra Development Company, dba Club Cal- Neva, Tenant, and Golden Road Motor Inn, Inc., dba Clarion Hotel and Casino, Landlord, dated June 10, 1991 is incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 10.03. -44- 10.04 Agreement for Purchase of Real Property between Marcelle M. Caramella, a widow, individually and Marcelle Margaret Caramella, as trustee of the Trust created under the Last Will and Testament of Ernest John Caramella, deceased, Ben A. Caramella and Cecile D. Caramella, as trustees of the Caramella Family Trust Agreement dated December 1, 1989, Marcelle Margaret Caramella, Erma V. Pezzi, Trustee of the Erma V. Pezzi Trust Agreement dated November 21, 1991, Golden Road Motor Inn, Inc. and Farahi Investment Company, dated June 1, 1993 is incorporated herein by reference from the Company's Form S-1 registration statement (SEC File 33-64556), Part II, Item 16, Exhibit 10.04. 10.05 Agreement between Monarch Casino & Resort, Inc. and Peter Wilday dated May 13, 1994; First Amendment to Agreement between Monarch Casino & Resort, Inc. and Peter Wilday dated June 8, 1994; and Second Amendment to Agreement between Monarch Casino & Resort, Inc. and Peter Wilday dated March 23, 1995 are incorporated herein by reference from the Company's Form 10-K report (SEC File 0-22088) for the fiscal year ended December 31, 1994, Item 14(a)(3), Exhibit 10.20. 10.06 Nonstandardized 401(k) Plan Adoption Agreement between Monarch Casino & Resort, Inc. and Smith Barney Shearson dated November 7, 1995 is incorporated herein by reference to the Company's Form 10-K report (SEC File 0-22088) for the fiscal year ended December 31, 1995, Item 14(a)(3), Exhibit 10.21. 10.07 Recordkeeping Service Agreement between Monarch Casino & Resort, Inc. and Travelers Recordkeeping dated June 29, 1995 is incorporated herein by reference to the Company's Form 10-K report (SEC File 0-22088) for the fiscal year ended December 31, 1995, Item 14(a)(3), Exhibit 10.22. 10.08 Trademark Agreement between Golden Road Motor Inn, Inc. and Atlantis Lodge, Inc., dated February 3, 1996 is incorporated herein by reference to the Company's Form 10-K report (SEC File 0-22088) for the fiscal year ended December 31, 1995, Item 14(a)(3), Exhibit 10.23. 21.01 List of Subsidiaries of Monarch Casino & Resort, Inc. is incorporated by reference from the Company's Form 10-K report (SEC File 0-22088) for the fiscal year ended December 31, 1993, Item 14(a)(3), Exhibit 21.01. 27.01 Financial Data Schedule
-45- EX-4 2 Amended and Restated MONARCH CASINO & RESORT, INC. 1993 Directors' Stock Option Plan Adopted by the Board of Directors June 15, 1993 Amended by the Board of Directors September 14, 1993 Approved by the Stockholders June 15, 1994 Amended by the Board of Directors May 14, 1997 1. Purpose The Monarch Casino & Resort, Inc. 1993 Directors' Stock Option Plan (the "Plan") is intended to promote the interests of Monarch Casino & Resort, Inc. (the "Corporation") and its subsidiaries by offering members of the Board of Directors of the Corporation who are not employed as regular salaried officers or employees of the Corporation or any of its subsidiaries (hereinafter referred to as "Non-Employee Directors" or "Optionees") the opportunity to participate in a stock option plan in order to encourage Non-Employee Directors to take a long term view of the affairs of the Corporation; to attract and retain new top-notch Non-Employee Directors; and to aid in rewarding Non-Employee Directors for their services to the Corporation. 2. Administration The Plan shall be administered by a Committee (the "Committee") of not less than two Directors of the Corporation who are not eligible to participate under the Plan, selected by and serving at the pleasure of its Board of Directors (the "Board"). The Committee shall have the authority to otherwise interpret the Plan and make all determinations necessary or advisable for its administration. The Committee's decisions under the Plan shall be subject to the approval of the Board 3. Eligibility Only Non-Employee Directors will be eligible to be granted awards. 4. Stock Subject to the Plan The stock from which awards may be granted shall be the Corporation's $.01 par value Common Stock ("Common Stock"). When options are exercised, the Corporation may either issue authorized but unissued shares of Common Stock or transfer issued shares of Common Stock held in its treasury. The total number of shares of Common Stock which may be granted as stock options shall not exceed 75,000. If an option expires, or is otherwise terminated prior to its exercise, the Common Stock covered by such an option immediately prior to such expiration or other termination shall continue to be available for grant under the Plan. 5. Grant and Amount of Options 5.1. Basic Grant The date of the initial option grant for a Non-Employee Director serving his or her term upon approval of the Plan shall be the date that the Plan is approved by the stockholders. The date of the initial option grant for a Non- Employee Director commencing his or her term shall be the date that he or she becomes a member of the Board of Directors. The initial option grant shall be to purchase 2 400 shares of Common Stock (subject to adjustment per Section 7). All annual awards of options shall be granted immediately following the close of the annual stockholders' meeting, with the first annual grant effective at the 1994 annual stockholders' meeting. All annual awards of such option grants will be to purchase 2,400 shares of Common Stock (subject to adjustment per Section 7) for five years following election to the Board. 5.2. Discretionary Grants The Committee may recommend discretionary grants of options on terms deemed appropriate by the Committee, subject to the approval of the Board. 6. Terms and Conditions of Options Options shall be designated non-qualified options or not qualified as Incentive Stock Options under Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be evidenced by written instruments approved by the Committee. Such instruments shall conform to the following terms and conditions. 6.1. Option Price The option price shall be not less than the fair market value of the shares of Common Stock under option. The fair market value per share shall be the last reported sale price of the stock on such date on the NASDAQ National Market System, or on such other stock exchange that the stock may be listed from time to time. The option price shall be paid (i) in cash or (ii) in shares of Common Stock of the Corporation having a fair market value equal to such option price or (iii) in a combination of cash and shares of Common Stock. The fair market value of shares of Common Stock delivered to the Corporation pursuant to the immediately preceding sentence shall be determined on the basis of the last reported sale price of the stock on the NASDAQ National Market System on the day next preceding the day of exercise on which there was such a sale. 6.2. Exercise and term of options Each option shall be exercisable six months and one day after the date of grant. Except in special circumstances or as provided in Discretionary Grants pursuant to Section 5.1 hereof, each option shall expire the latter of the fifth anniversary of the date of its grant or nine months after the Non- Employee Director retires, whichever occurs first. After becoming exercisable, each option shall remain exercisable until expiration or termination of the option. After becoming exercisable an option may be exercised by the Optionee from time to time, in whole or part, up to the total number of shares with respect to which it is then exercisable. The Committee may provide that payment of the option exercise price may be made following delivery of the certificate for the exercised shares. Upon the exercise of a stock option, the purchase price will be payable in full in cash or its equivalent in property acceptable to the Corporation. In the discretion of the Committee, the purchase price may be paid by the assignment and delivery to the Corporation of shares of Common Stock or a combination of cash and such shares equal in value to the purchase price. Any shares of Common Stock so assigned and delivered to the Corporation in payment or partial payment of the purchase price will be valued at Fair Market Value on the exercise date. Upon the exercise of a non-qualified stock option, the Corporation shall withhold from the shares of Common Stock to be issued to the eligible Optionee the number of shares necessary to satisfy the Corporation's obligation to withhold Federal taxes, such determination to be based on the shares' Fair Market Value on the date of exercise. 6.3. Termination of Directorship If an Optionee ceases, other than by reason of death or retirement to be elected to serve on the Board of Directors, all options granted to such Optionee and exercisable on the date of termination of Directorship shall expire on the earlier of (i) the fifth anniversary after the date of grant or (ii) nine months after the day such Optionee's term ends. 6.4. Exercise upon death of optionee If an Optionee dies, the option may be exercised, to the extent of the number of shares that the Optionee could have exercised on the date of such death, by the Optionee's estate, personal representative or beneficiary who acquires the option by will or by the laws of descent and distribution. Such exercise may be made at any time prior to the earlier of (i) the fifth anniversary after the date of grant or (ii) the second anniversary of such Optionee's death. On the earlier of such dates, the option shall terminate. The Committee may approve all cash payments to the estate of an Optionee if circumstances warrant such a decision. 6.5. Assignability No option shall be assignable or transferable by the Optionee except by will or by the laws of descent and distribution and during the lifetime of the Optionee the option shall be exercisable only by such Optionee. 7. Capital Adjustments The number and price of shares of Common Stock covered by each award of options and the total number of shares that may be granted under the Plan shall be proportionally adjusted to reflect, as deemed equitable and appropriate by the Committee and subject to any required action by the stockholders, any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination or exchange of shares or other similar corporate change. 8. Change of Control Notwithstanding the provisions of Section 6, in the event of a change of control, all vesting on all unexercised stock options will accelerate to the change of control date. For purposes of this Plan, a "Change of Control" of the Corporation shall be deemed to have occurred at such time as (a) any "person" (as the term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Exchange Act")) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 25 0% or more of the combined voting power of the Corporation's outstanding securities ordinarily having the right to vote at the election of directors; or (b) individuals who constitute the Board of Directors on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by at least a majority of the directors comprising the Incumbent Board, or whose nomination for election was approved by a majority of the Board of Directors of the Corporation serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as he or she were a member of the Incumbent Board; or (c) merger, consolidation or sale of all or substantially all the assets of the Corporation occurs, unless such merger or consolidation shall have been affirmatively recommended to the Corporation's stockholders by a majority of the Incumbent Board; or (d) a proxy statement soliciting proxies from stockholders of the Corporation by someone other than the current management of the Corporation seeking stockholder approval of a plan or reorganization, merger or consolidation of the Corporation with one or more corporations as a result of which the outstanding shares of the Corporation's securities are actually exchanged for or converted into cash or property or securities not issued by the Corporation unless the reorganization, merger or consolidation shall have been affirmatively recommended to the Corporation's stockholders by a majority of the Incumbent Board. 9. Approvals The issuance of shares pursuant to this Plan is expressly conditioned upon obtaining all necessary approvals from the Nevada Gaming Commission and upon obtaining stockholder approval of the Plan. 10. Effective Date of Plan The effective date of the Plan is June 14, 1993. 11. Term: Amendment of Plan This Plan shall expire on June 13, 2003 (except to options outstanding on that date). The Board may terminate the Plan at any time. The Board may amend the Plan at any time, provided however, the provisions of Section 5 pertaining to the amount of options to be granted and the timing of such option grants and the provisions of Section 6.1 pertaining to the option price of the Common Stock under option shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code or the rules thereunder. Further provided however, that, without the approval of the holders of a majority of the outstanding shares of Common Stock; the total number of shares that may be sold, issued or transferred under the Plan may not be increased (except by adjustment pursuant to Section 7); the provisions of Section 3 regarding eligibility may not be modified; the purchase price at which shares may be offered pursuant to options may not be reduced (except by adjustment pursuant to Section 7); and the expiration date of the Plan may not be extended and no change may be made which would cause the Plan not to comply with Rule 1 6b-3 of the Exchange Act, as amended from time to time. No action of the Board or stockholders, however, may, without the consent of an Optionee, alter or impair such Optionee's rights under any option previously granted. 12. Withholding Taxes The Corporation shall have the right to deduct withholding taxes from any payments made pursuant to the Plan or to make such other provisions as it deems necessary or appropriate to satisfy its obligations to withhold Federal, state or local income or other taxes incurred by reason of payments or the issuance of shares of Common Stock under the Plan. Whenever under the Plan, shares of Common Stock are to be delivered upon exercise of an option, the Committee shall be entitled to require as a condition of delivery that the grantee remit an amount sufficient to satisfy all Federal, state and other government withholding tax requirements related thereto. 13. Plan Not A Trust Nothing contained in the Plan and no action taken pursuant to the Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Corporation and any Optionee, the executor, administrator or other personal representative, or designated beneficiary of such Optionee, or any other persons. Any reserves that may be established by the Corporation in connection with the Plan shall continue to be part of the general funds of the Corporation and no individual or entity other than the Corporation shall have any interest in such funds until paid to an Optionee. If and to the extent that any Optionee or such Optionee's executor, administrator or other personal representative, as the case may be, acquires a right to receive any payment from the Corporation pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Corporation. 14. Notices Each Optionee shall be responsible for furnishing the Committee with the current and proper address for the mailing of notices and delivery of agreements, Common Stock and cash pursuant to the Plan. Any notices required or permitted to be given shall be deemed given if directed to the person to whom addressed at such address and mailed by regular United States mail, first-class and prepaid. If any item mailed to such address is returned as undeliverable to the addressee, mailing will be suspended until the Optionee furnishes the proper address. This provision shall not be construed as requiring the mailing of any notice or notification if such notice is not required under the terms of the Plan or any applicable law. 15. Separability of Provisions If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included. 16. Payment to Minors, etc. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Corporation and other parties with respect thereto. 17. Headings and Captions The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. 18. Controlling Law This Plan shall be construed and enforced according to the laws of the State of Nevada to the extent not preempted by Federal law, which shall otherwise control. EX-4 3 Amended and Restated MONARCH CASINO & RESORT, INC. 1993 EXECUTIVE LONG TERM INCENTIVE PLAN Amended by the Board of Directors May 14, 1997 1. Purpose The 1993 Executive Long Term Incentive Plan (the "Plan") is intended to promote the interest of Monarch Casino & Resort, Inc. and its subsidiaries (collectively the "Corporation") by offering those executive officers and key employees of the Corporation who are primarily responsible for the management, growth and success of the business of the Corporation the opportunity to participate in a long-term incentive plan designed to reward them for their services and to encourage them to continue in the employ of the Corporation. 2. Definitions For all purposes of this Plan, the following terms shall have the following meanings: "Common Stock" means Monarch Casino & Resort common stock, $.01 par value. "ISO" means incentive stock options qualified under Section 422A of the Internal Revenue Code of 1954, as amended. "Monarch" means Monarch Casino & Resort, Inc. "Non-qualified Options" means stock options not qualified under Section 422A of the Internal Revenue Code of 1986, as amended. "Restricted Shares" means shares of Common Stock which have not been registered under federal securities law. "Subsidiary" means any company of which Monarch Casino & Resort, Inc. owns, directly or indirectly, the majority of the combined voting power of all classes of stock. 3. Administration The Plan shall be administered by a Committee (the "Committee") of not less than two directors of Monarch selected by, and serving at the pleasure of, Monarch's Board of Directors ("Monarch Board"). Except for Directors who are ineligible to participate under this Plan, directors who are also employees of Monarch or any Subsidiary, or who have been such employees within one year, may not serve on the Committee. Initially, the Subsidiary will recommend to the Committee persons to whom awards may be granted. The Committee then shall have the authority, subject to the terms of the Plan, to determine, based upon recommendations from the Subsidiaries, the persons to whom awards shall be granted ("Participants"), the number of shares covered by each award, the time or times at which awards shall be granted, the timing of when awards shall vest, and the terms and provisions of the instruments by which awards shall be evidenced; and to interpret the Plan and make all determinations necessary or advisable for its administration. The Committee shall notify the Monarch Board of all decisions concerning awards granted to Participants under the Plan, the interpretation thereof, and determinations concerning its administration. 4. Eligibility Awards shall be granted only to employees who (a) serve as executives or other key employees of the Corporation and (b) do not, at the time of grant, own (within the meaning of Section 425(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of Monarch or of any Subsidiary. 5. Stock Subject to the Plan The stock from which awards may be granted shall be shares of Common Stock. When Restricted Shares are vested or when options are exercised, Monarch may either issue authorized but unissued Common Stock or Monarch, or the Subsidiary which employs the Participant, may transfer issued Common Stock held in its treasury. Each of the respective Boards of the Corporation will fund the Plan to the extent so required to provide Common Stock for the benefit of Participants employed by Monarch or the Subsidiary, respectively. The total number of shares of Common Stock which may be granted as Restricted Shares or stock options shall not exceed, in the aggregate, 250,000 shares in total. Any Restricted Shares awarded and later forfeited are again subject to award under the Plan. If an option expires, or is otherwise terminated prior to its exercise, the shares of Common Stock covered by such an option immediately prior to such expiration or other termination shall continue to be available for grant under the Plan. 6. Granting of Options The date of grant of options to Participants under the Plan will be the date on which the options are awarded by the Committee. The grant of any option to any Participant shall neither entitle nor disqualify such Participant from participating in any subsequent grant of options. 7. Terms and Conditions of Options Options shall be designated Non-qualified Options or Incentive Stock Options qualified under Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be evidenced by written instruments approved by the Committee. Such instruments shall conform to the following terms and conditions: 7.1 Option price The option price per share for Incentive Stock Options shall be the fair market value of the Common Stock under option on the day the option is granted, which shall be an amount equal to the last reported sale price of the Common Stock on such date on the NASDAQ National Market System, or such other stock exchange on which the Common Stock may be listed from time to time. The price for Non-qualified Options shall be an amount equal to the price of the Common Stock under option as determined above. The option price shall be paid (i) in cash or (ii) in Common Stock having a fair market value equal to such option price or (iii) in a combination of cash and Common Stock. The fair market value of Common Stock delivered to the Corporation pursuant to the immediately preceding sentence shall be determined on the basis of the last reported sale price of the Common Stock on the NASDAQ National Market System on the day of exercise or, if there was no such sale price on the day of exercise, on the day next preceding the day of exercise on which there was such a sale. 7.2 Term and exercise of options Unless the Committee specifies otherwise, and except as otherwise provided in this Plan, each option shall expire on the tenth anniversary of the date of its grant and shall be exercisable according to a vesting schedule to be determined by the Committee. However the Committee may include in any option instrument, initially or by amendment at any time, a provision making any installment or installments exercisable at such earlier date, if the Committee deems such provision to be in the interests of the Corporation or necessary to realize the reasonable expectation of the optionee. After becoming exercisable, each installment shall remain exercisable until expiration or termination of the option. After becoming exercisable an option may be exercised by the optionee from time to time, in whole or part, up to the total number of shares with respect to which it is then exercisable. The Committee may provide that payment of the option exercise price may be made following delivery of the certificate for the exercised shares. Upon the exercise of a stock option, the purchase price will be payable in full in cash or its equivalent in property acceptable to Monarch or the Subsidiary which employs the Participant. In the discretion of the Subsidiary which employs the Participant grantee, the purchase price may be paid by the assignment and delivery to Monarch or Subsidiary who employs the Participant of shares of Common Stock or a combination of cash and such shares equal in value to the purchase price. Any shares of Common Stock so assigned and delivered to Monarch or the Subsidiary, as applicable, in payment or partial payment of the purchase price will be valued at Fair Market Value on the exercise date. Upon the exercise of a Non-qualified Option, Monarch or the employing Subsidiary shall withhold from the shares of Common Stock to be issued to the Participant the number of shares necessary to satisfy Monarch's or the Subsidiary's, as applicable, obligation to withhold Federal taxes, such determination to be based on the shares Fair Market Value on the date of exercise. 7.3 Termination of employment In the event the employment of an optionee terminates, for whatever reason, prior to the date upon which options become exercisable, then such options shall terminate and lapse on the date upon which the employment of such optionee terminates. If the employment of an optionee terminates for a reason other than for cause, retirement (as defined and determined under any of the Company's pension plans), disability (as defined and determined by the Committee) or death, then all options granted to the optionee and exercisable on the date of such termination shall expire on the earlier of the tenth anniversary of the date of grant or the first anniversary of the day of such optionee's termination of employment due to such reasons; provided, however, such options, to the extent unexercised, expire on the date that such optionee (i) uses for profit or discloses to unauthorized persons, confidential information or trade secrets of the Company, or (ii) breaches any contract with or violates any fiduciary obligation to the Company, or (iii) engages in unlawful trading in the Company's securities or the securities of another Company based on information gained as a result of that optionee's employment with the Company, or (iv) violates (as determined by the Committee) any covenant not to compete in effect between the Company and the optionee. In the event that an optionee is or has been terminated for cause, such cause including, but not limited to, (i) use for profit or disclosure to unauthorized persons of confidential information or trade secrets of the Company, or (ii) breach of any contract with or violation of any fiduciary obligation to the Company, or (iii) unlawful trading in the Company's securities or the securities of another Company based on information gained as a result of that optionee's employment with the Company, or (iv) violation (as determined by the Committee) of any covenant not to compete in effect between the Company and the optionee, then that optionee shall forfeit all rights to any unexercised options granted under the Plan and all of that optionee's outstanding options shall automatically terminate and lapse, unless the Committee shall determine otherwise. If an optionee retires, all options granted to such optionee, and exercisable on the date of such optionee's retirement shall expire on the earlier of (i) the tenth anniversary after the date of grant or (ii) the second anniversary of the day of such optionee's retirement. Any installment not exercisable on the date of such termination or retirement shall expire and be thenceforth unexercisable. Whether authorized leave of absence or absence in military or governmental service may constitute employment for the purposes of the Plan shall be conclusively determined by the Committee. The Committee can increase or reduce the amount of options that are exercisable up to but not exceeding the tenth anniversary of the date of grant, in the event of optionee termination for other than death or retirement. 7.4 Exercise upon death of optionee If an optionee dies, the option may be exercised, to the extent of the number of shares that the optionee could have exercised on the date of such death, by the optionee's estate, personal representative or beneficiary who acquires the option by will or by the laws of descent and distribution. Such exercise may be made at any time prior to the earlier of (i) the tenth anniversary after the date of grant or (ii) the second anniversary of such optionee's death. On the earlier of such dates, the option shall terminate. The Committee may approve all cash payments to the estate of an optionee if circumstances warrant such a decision. 7.5 Assignability No option shall be assignable or transferable by the optionee except by will or by the laws of descent and distribution and during the lifetime of the optionee the option shall be exercisable only by such optionee. 7.6 Limitation on Incentive Stock Options During a calendar year, the aggregate fair market value of the option stock (determined at the time of the ISO grant) for which ISOs are exercisable for the first time under the Plan, cannot exceed $100,000. 8. Restricted Share Awards 8.1 Grant of Restricted Share Awards The Committee will determine for each Participant the time or times when Restricted Shares shall be awarded and the number of shares of Common Stock to be covered by each Restricted Share Award. 8.2 Restrictions Shares of Common Stock issued to a Participant as a Restricted Share Award will be subject to the following restrictions ("Share Restrictions"): (a) Except as set forth in Sections 8.4 and 8.5, all of the Restricted Shares subject to a Restricted Award will be forfeited and returned to Monarch or, in the event such Restricted Shares were provided to the Participant from shares of Common Stock purchased by the Subsidiary, then the Restricted Shares will be returned to the Subsidiary. In either case, all rights of the Participant to such Restricted Shares will terminate without any payment of consideration by Monarch or the employing Subsidiary unless the Participant remains in the continuous employment (employment may include consulting agreements) of Monarch or a Subsidiary for a period of time determined by the Committee. (b) During the Restriction Period relating to a Restricted Share Award, none of the Restricted Shares subject to such award may be sold, assigned, bequeathed, transferred, pledged, hypothecated or otherwise disposed of in any way by the Participant. (c) The Committee may require the Participant to enter into an escrow agreement providing that the certificates representing Restricted Shares sold or granted pursuant to the Plan will remain in the physical custody of Monarch or the employing Subsidiary or an escrow holder during the Restriction Period. (d) Each certificate representing a Restricted Share sold or granted pursuant to the Plan will bear a legend making appropriate reference to the restrictions imposed on the Restricted Share. (e) The Committee may impose other restrictions on any Restricted Shares sold pursuant to the Plan as it may deem advisable, including without limitation, restrictions under the Securities Act of 1933, as amended, under the requirements of any stock exchange upon which such share or shares of the same class are then listed and under any state securities laws or other securities laws applicable to such shares. 8.3 Rights as a Stockholder Except as set forth in Section 8.2(b), the recipient of a Restricted Share Award will have all of the rights of a stockholder of Monarch with respect to the Restricted Shares, including the right to vote the Restricted Shares and to receive all dividends or other distributions made with respect to the Restricted Shares. 8.4 Lapse of Restrictions at Termination of Employment In the event of the termination of employment of a Participant during the Restriction Period by reason of death, total and permanent disability, retirement as determined under any of the Corporation's pension plans, or discharge from employment other than a discharge for cause, the Committee may, at its discretion, remove Share Restrictions on Restricted Shares subject to a Restricted Share Award. Restricted Shares to which the Share Restrictions have not so lapsed will be forfeited and returned to the Corporation as provided in Section 8.2(a). 8.5 Lapse of Restrictions at Discretion of the Committee The Committee may shorten the Restriction Period or remove any or all Share Restrictions if, in the exercise of its absolute discretion, it determines that such action is in the best interests of the Corporation and equitable to the Participant. 8.6 Listing and Registration of Shares Monarch may, in its discretion, postpone the issuance and/or delivery of Restricted Shares until completion of stock exchange listing, or registration, or other qualification of such Restricted Shares under any law, rule or regulation. 8.7 Designation of Beneficiary A Participant may, with the consent of the Committee, designate a person or persons to receive, in the event of death, any Restricted Shares to which such Participant would then be entitled. Such designation will be made upon forms supplied by and delivered to the Committee and may be revoked in writing by the Participant. If a Participant fails effectively to designate a beneficiary, then such Participant's estate will deemed to be the beneficiary. 8.8 Withholding of Taxes for Restricted Shares When the Participant, as holder of the Restricted Shares, recognizes income, either on the Date of Grant or the date the restrictions lapse, Monarch or the Subsidiary, as applicable, shall withhold from the shares of Common Stock, the number of shares necessary to satisfy Monarch's or the Subsidiary's, as applicable, obligation to withhold Federal taxes, such determination to be based on the shares' Fair Market Value as of the date income is recognized. 9. Capital Adjustments The number and price of Common Stock covered by each award of options and/or Restricted Shares and the total number of shares that may be granted or sold under the Plan shall be proportionally adjusted to reflect, as deemed equitable and appropriate by the Committee and subject to any required action by stockholders, any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination or exchange of shares or other similar corporate change. 10. Change of Control Notwithstanding the provisions of Section 9, in the event of a change of control, all share restrictions on all Restricted Shares will lapse and vesting on all unexercised stock options will accelerate to the change of control date. For purposes of this plan, a "Change of Control" of Monarch shall be deemed to have occurred at such time as (a) any "person" (as that term is used in Section 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Monarch representing 25.0% or more of the combined voting power of Monarch's outstanding securities ordinarily having the right to vote at the election of directors; or (b) individuals who constitute the Board of Directors of Monarch on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by at least a majority of the directors comprising the Incumbent Board, or whose nomination or election was approved by a majority of the Board of Directors of Monarch serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as if he or she were a member of the Incumbent Board; or (c) merger, consolidation or sale of all or substantially all the assets of Monarch occurs, unless such merger or consolidation shall have been affirmatively recommended to Monarch's stockholders by a majority of the Incumbent Board; or (d) a proxy statement soliciting proxies from stockholders of Monarch, by someone other than the current management of Monarch seeking stockholder approval of a plan or reorganization, merger or consolidation of Monarch with one or more corporations as a result of which the outstanding shares of Monarch's securities are actually exchanged for or converted into cash or property or securities not issued by Monarch unless the reorganization, merger or consolidation shall have been affirmatively recommended to Monarch's stockholders by a majority of the Incumbent Board. 11. Approvals The issuance of shares pursuant to this Plan is expressly conditioned upon obtaining all necessary approvals from the Nevada Gaming Commission and upon obtaining stockholder approval of the Plan. 12. Effective Date of Plan The effective date of the Plan is June 14, 1993. 13. Term: Amendment of Plan This Plan shall expire on June 13, 2003 (except to options outstanding on that date). Monarch's Board may terminate or amend the Plan in any respect at any time, except that, without the approval of the holders of a majority of the outstanding Common Stock: the total number of shares that may be sold, issued or transferred under the Plan may not be increased (except by adjustment pursuant to Section 9); the provisions of Section 4 regarding eligibility may not be modified; the purchase price at which shares may be offered pursuant to options may not be reduced (except by adjustment pursuant to Section 9); and the expiration date of the Plan may not be extended and no change may be made which would cause the Plan not to comply with Rule 16(b)3 of the Securities Exchange Act of 1934, as amended from time to time. No action of the Monarch Board or Monarch's stockholders, however, may, without the consent of an optionee, alter or impair such optionee's rights under any option previously granted. 14. No Right of Employment Neither the action of the Corporation in establishing this Plan, nor any action taken by any Board of Monarch or any Subsidiary or the Committee under the Plan, nor any provision of the Plan itself, shall be construed to limit in any way the right of the Corporation to terminate a Participant's employment at any time; nor shall it be evidence of any agreement or understanding, expressed or implied, that the Corporation will employ an employee in any particular position nor ensure participation in any future compensation or stock purchase program. 15. Withholding Taxes Monarch or the Subsidiary, as applicable, shall have the right to deduct withholding taxes from any payments made pursuant to the Plan or to make such other provisions as it deems necessary or appropriate to satisfy its obligations to withhold Federal, state or local income or other taxes incurred by reason of payments or the issuance of Common Stock under the Plan. Whenever under the Plan, Common Stock is to be delivered upon vesting of Restricted Shares or exercise of an option, the Committee shall be entitled to require as a condition of delivery that the Participant remit an amount sufficient to satisfy all Federal, state and other government withholding tax requirements related thereto. 16. Plan not a Trust Nothing contained in the Plan and no action taken pursuant to the Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Corporation and any Participant, the executor, administrator or other personal representative, or designated beneficiary of such Participant, or any other persons. Any reserves that may be established by the Corporation in connection with the Plan shall continue to be part of the general funds of the Corporation and no individual or entity other than the Corporation shall have any interest in such funds until paid to a Participant. If and to the extent that any Participant of such Participant's executor, administrator or other personal representative, as the case may be, acquires a right to receive any payment from the Corporation pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Corporation. 17. Notices Each Participant shall be responsible for furnishing the Committee with the current and proper address for the mailing of notices and delivery of agreements, Common Stock and cash pursuant to the Plan. Any notices required or permitted to be given shall be deemed given if directed to the person to whom addressed at such address and mailed by regular United States mail, first-class and prepaid. If any item mailed to such address is returned as undeliverable to the addressee, mailing will be suspended until the Participant furnishes the proper address. This provision shall not be construed as requiring the mailing of any notice or notification if such notice is not required under the terms of the Plan or any applicable law. 18. Separability of Provisions If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included. 19. Payment to Minors, etc. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Corporation and other parties with respect thereto. 20. Headings and Captions The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. 21. Controlling Law This Plan shall be construed and enforced according to the laws of the State of Nevada to the extent not preempted by Federal law, which shall otherwise control. EX-4 4 Amended and Restated MONARCH CASINO & RESORT, INC. 1993 EMPLOYEE STOCK OPTION PLAN Amended by the Board of Directors May 14, 1997 1. Purpose. The 1993 Employee stock Option Plan (the "Plan") is intended to promote the interests of the Company by providing long-term incentives and rewards to its employees in order to: improve individual employee performance; assist the Company in attracting, retaining and motivating employees with experience and ability; and associate the interests of the Company's employees with those of its shareholders. 2. Definitions. For all purposes of this Plan, the following terms shall have the following meanings: (a) "Committee" means the Compensation Committee of the Board of Directors ("Board") of the Company as appointed from time to time by the Board, consisting of not less than two members of the Board who are not eligible to participate in the Plan and who have not, within one year prior to their appointment to the Committee, participated in the Plan. (b) "Common Stock" means Monarch Casino & Resort, Inc.'s, $.O1 par value, common stock. (c) "Company" means Monarch Casino & Resort, Inc. and its subsidiaries. (d) "Fair Market Value" means an amount equal to the last reported sale price of the Common Stock on the NASDAQ National Market System, or such other stock exchange on which the Common Stock may be listed from time to time, on that day (or, if no sale of Common Stock is recorded on such day, then on the next preceding day on which there was such a sale). (e) "Option" or "Non-qualified Stock Option" means a stock option not qualified under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). (f) "Option Exercise Price" means the price at which a share of Common Stock covered by an Option granted hereunder may be purchased. (g) "Optionee" or "Participant" means an eligible employee of the Company who has received an Option granted under the Plan. 3. Administration. The Plan shall be administered by the Committee, which shall have full power and authority to administer and interpret the Plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the Plan as the Committee deems necessary or advisable. The Committee's powers include, but are not limited to (subject to the specific limitations described herein), authority to determine the employees to be granted options under the Plan, to determine the size and applicable terms and conditions of grants to be made to such employees, and to authorize grants to eligible employees. The Committee's interpretations of the Plan, the actions taken by the Committee thereunder and determinations made by the Committee in connection with any matter arising under or with respect to the Plan or any Option granted hereunder, shall be final, binding and conclusive on all interested parties, including the Company, its shareholders and all former, present and future employees of the Company. The Committee may as to all questions of accounting rely conclusively upon any determination made by the independent public accountants of the Company. 4. Stock Subject to the Plan. The stock which is subject to Options granted pursuant to the Plan shall be shares of Common Stock. The aggregate number of shares of Common Stock available for grant under the Plan is 100,000, subject to adjustment pursuant to Section 12. Shares of Common Stock issued pursuant to the Plan may be either authorized but unissued shares or shares now or hereafter held in the treasury of the Company. If an Option expires, is surrendered or canceled, or is otherwise terminated prior to its exercise, the shares of Common Stock covered by such an Option immediately prior to such expiration, surrender, cancellation or other termination shall continue to be available for grant under the Plan. 5. Granting of Options. The date of grant of Options to Participants under the Plan will be the date on which the Options are awarded by the Committee. The grant of any Option to any Participant shall neither entitle nor disqualify such Participant from participating in any subsequent grant of Options. 6. Terms and Conditions of Options. Options shall be designated and constitute Non-qualified Stock Options and shall be evidenced by written instruments approved by the Committee. Such instruments shall conform to the following terms and conditions: 6.1. Option Price. The Option price per share for each Option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant. 6.2. Exercise and Conditions of Options. (a) Exercisability. Unless the Committee specifies otherwise, and except as otherwise provided in this Plan, each Option shall expire on the tenth anniversary of the date of its grant and shall be exercisable according to a vesting schedule to be determined by the Committee. However, the Committee may include in any option instrument, initially or by amendment at any time, a provision making any installment or installments exercisable at such earlier date, if the Committee deems such provision to be in the interests of the Corporation or necessary to realize the reasonable expectation of the Optionee. After becoming exercisable, each Option shall remain exercisable until it expires or terminates. (b) Method of Exercise. Optionees may exercise Options by giving written notice to the secretary of the Company or his designee stating the number of shares of Common Stock with respect to which the Options are being exercised and tendering payment therefor. At the time that an Option granted under the Plan, or any part thereof, is exercised, payment for the Common Stock issuable thereupon shall be made in full in cash, money order or certified check or, if the Committee in its discretion agrees to accept, in shares of Common Stock of the Company (the number of such shares paid for each share subject to the Option, or part thereof, being exercised shall be determined by dividing the Option price by the Fair Market Value per share of the Common Stock on the date of exercise). The Committee in its discretion may provide for exercise of Options pursuant to Federal Reserve Board Regulation T and permit the payment of any withholding taxes incurred by an Optionee pursuant to such exercise to be paid with shares purchased thereunder. In addition, in order to enable the Company to meet any applicable foreign, federal (including FICA) state and local withholding tax requirements, an Optionee shall also be required to pay the amount of tax to be withheld at the time of exercise. No share of Common Stock will be delivered to any Optionee until all such amounts have been paid. As soon as reasonably possible following such exercise, a certificate representing shares of Common Stock purchased, registered in the name of the Optionee, or that Optionees agent, shall be delivered to the Optionee or that Optionee's agent. (c) Conditions. Options shall be subject to such terms and conditions, shall be exercisable at such time or times, and shall be evidenced by such instrument between the Optionee and the Company, as the Committee shall determine. 6.3. Termination of Options. In the event the employment of an Optionee terminates, for whatever reason, prior to the date upon which Options become exercisable, then such Options shall terminate and lapse on the date upon which the employment of such Optionee terminates. If the employment of an Optionee terminates for a reason other than for cause, or by reason of retirement (as defined and determined under any of the Company's pension plans), disability (as defined and determined by the Committee) or death, then all Options granted to the Optionee and exercisable on the date of such termination shall expire on the earlier of the tenth anniversary of the date of grant or the first anniversary of the day of such Optionee's termination of employment due to such reasons; provided, however, such Options, to the extent unexercised, expire on the date that such Optionee (i) uses for profit or discloses to unauthorized persons, confidential information or trade secrets of the Company, or (ii) breaches any contract with or violates any fiduciary obligation to the Company, or (iii) engages in unlawful trading in the Company's securities or the securities of another Company based on information gained as a result of that Optionee's employment with the Company, or (iv) violates (as determined by the Committee) any covenant not to compete in effect between the Company and the Optionee. In the event that an Optionee is or has been terminated for cause, such cause including, but not limited to, (i) use for profit or disclosure to unauthorized persons of confidential information or trade secrets of the Company, or (ii) breach of any contract with or violation of any fiduciary obligation to the Company, or (iii) unlawful trading in the Company's securities or the securities of another Company based on information gained as a result of that Optionee's employment with the Company, or (iv) violation (as determined by the Committee) of any covenant not to compete in effect between the Company and the Optionee, then that Optionee shall forfeit all rights to any unexercised Options granted under the Plan and all of that Optionee's outstanding Options shall automatically terminate and lapse, unless the Committee shall determine otherwise. 6.4. Assignability. No Option shall be assignable or transferable by the Optionee except by will or by the laws of descent and distribution and during the lifetime of the Optionee the Option shall be exercisable only by such Optionee. No Option shall be otherwise transferred, assigned, pledged or hypothecated for any purpose whatsoever, nor shall any Option be subject in whole or in part, to execution, attachment or similar process. Any attempted assignment, transfer, pledge or hypothecation or other disposition of the Option, other than in accordance with terms set forth herein, shall be null and void, and of no effect. 7. Eligibility. Only the following employees shall be eligible to participate in the Plan: (a) Full-time, salaried or hourly, union-represented or unrepresented employees regularly scheduled for and working at least thirty (30) hours per week; (b) part-time, salaried or hourly, union-represented or unrepresented employees regularly scheduled for and working less than thirty (30) hours per week and at least two (2) weeks per month; and (c) all those employees of the Company as shall be determined from time to time by the Committee; provided, however, that no person then eligible to be granted an option under the Company's 1993 Executive Long Term Incentive Plan, 1993 Directors' Stock Option Plan or any other Company sponsored stock option plan may be granted an Option hereunder. Inclusion of union-represented employees in this Plan is subject to discussions with their respective collective bargaining representatives. 8. Term/Amendment. This Plan shall expire on June 13, 2003 (except as to Options outstanding on that date). The Committee may from time to time alter, amend or suspend the Plan or any Option granted hereunder or may at any time terminate the Plan, except that the provisions of Section 7 may not be modified to increase eligibility to include directors and/or executive officers, who are otherwise eligible to participate in the Company's 1993 Executive Long-Term Incentive Plan and 1993 Directors' Stock Option Plan without the approval of the holders of a majority of the outstanding Common Stock. No action taken by the Committee under this Section, either with or without the approval of the stockholders of the Company, may materially and adversely affect any outstanding Option without the consent of the holder thereof. 9. Registration, Listing and Qualification of Shares. Each Option shall be subject to the requirement that if at any time the Committee shall determine that the registration, listing or qualification of the shares covered thereby upon any securities exchange or under any foreign, federal, state or local law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with, the granting of such Option or the purchase of shares thereunder, no such Option may be exercised unless and until such registration, listing, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Committee. Any person exercising an Option shall make such representations and agreements and furnish such information as the Committee may request to assure compliance with the foregoing or any other applicable legal requirements. 10. Dissolution, Merger and Consolidation. Upon the dissolution or liquidation of the Company, or upon a merger or consolidation of the Company in which the Company is not the surviving corporation, each Option granted hereunder shall expire as of the effective date of such transaction; provided, however, that the Committee shall give at least 30 days' prior written notice to all Optionees of such event during which time such Optionees shall have a right to exercise wholly or partially unexercised Options (without regard to installment exercise limitations, if any) and, subject to prior expiration pursuant to Section 6.3, each Option shall be exercisable after receipt of such written notice and prior to the effective date of such transaction. 11. Effective Date and Conditions Subsequent to Effective Date. The Plan shall become effective on the date of adoption of the Plan by the Company's Board of Directors. The Plan shall be null and void and of no effect if the foregoing condition is not fulfilled, and in such event, each Option granted hereunder shall, notwithstanding any of the provisions of the Plan, be null and void and of no effect. No grant or award shall be made under the Plan after June 13, 2003; provided, however, that the Plan and all Options granted under the Plan prior to such date shall remain in effect, and subject to adjustment and amendment as herein provided, until they have been exercised or terminated in accordance with the terms of the respective grants or awards and the related instruments. 12. Capital Adjustments. In the event of any change in the outstanding shares of Common Stock by reason of any stock split, stock dividend, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, such equitable adjustments may be made in the Plan and the Options granted hereunder as the Committee determines are necessary or appropriate, including, if necessary, an adjustment in the number of shares and Option Exercise Prices per share applicable to Options then outstanding and in the number of shares which are reserved for issuance under the Plan. Any such adjustment shall be conclusive and binding for all purposes of the Plan. 13. Approvals. The issuance of shares pursuant to this Plan is expressly conditioned upon obtaining all necessary approvals from the Nevada Gaming Commission. 14. No Right to Options or Employment. No employee or other person shall have any claim or right to be granted an Option under the Plan. Having received an Option under the Plan shall not give an employee any right to receive any other grant under the Plan. An Optionee shall have no rights to or interest in any Option except as set forth herein. Neither the action of the Company in establishing the Plan nor any action taken hereunder, nor any provision of the Plan itself shall be construed to limit in any way the right of the Company to terminate an Optionee's employment at any time; nor shall it be evidence of any agreement or understanding, expressed or implied, that the Company will employ an employee in any particular position nor ensure participation in any future compensation or stock program. 15. Rights as Shareholder. An Optionee under the Plan shall have no rights as a holder of Common Stock with respect to Options granted hereunder, unless and until certificates for shares of Common Stock are issued to such Optionee. 16. Other Actions. This Plan shall not restrict the authority of the Committee or the Company for proper corporate purposes, to grant or assume stock options, other than under the Plan, to or with respect to any employee or other person. 17. Costs and Expenses. Except with respect to withholding taxes and expenses of brokerage fees, commissions and expenses incurred by an Optionee pursuant to exercise of an Option, the costs and expenses of administering the Plan shall be borne by the Company and shall not be charged to any Option nor to any Optionee. 18. Plan Not a Trust. Nothing contained in the Plan and no action taken pursuant to the Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and any Participant, the executor, administrator or other personal representative, or designated beneficiary of such Participant, or any other persons. Any reserves that may be established by the Company in connection with the Plan shall continue to be part of the general funds of the Company and no individual or entity other than the Company shall have any interest in such funds until paid to a Participant. If and to the extent that any Participant or such Participant's executor, administrator or other personal representative, as the case may be, acquires a right to receive any payment from the Company pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. 19. Leaves of Absence and Disability. The Committee shall have full power and authority to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by or disability of any Optionee. Without limiting the generality of the foregoing, the Committee shall be entitled to determine (i) whether or not any such leave of absence shall constitute a termination of employment within the meaning of the Plan, and (ii) the impact, if any, of any such leave of absence on awards under the Plan theretofore made to any Optionee who takes such leave of absence. 20. Notices. Every direction, revocation or notice authorized or required by the Plan shall be deemed delivered to the Company (1) on the date it is personally delivered to the Secretary of the Company at its principal executive offices or (2) five business days after it is sent by registered or certified mail, postage prepaid, addressed to the Secretary at such offices, and shall be deemed delivered to an Optionee (1) on the date it is personally delivered to him or her or (2) five business days after it is sent by registered or certified mall, postage prepaid, addressed to him or her at the last address shown for him or her on the records of the Company. Each Participant shall be responsible for furnishing the Committee with the current and proper address for the mailing of notices, delivery of instruments and Common Stock pursuant to the Plan. If any item mailed to such address is returned as undeliverable to the addressee, mailing will be suspended until the Participant furnishes the proper address. This provision shall not be construed as requiring the mailing of any notice or notification if such notice is not required under the terms of the Plan or any applicable law. 21. Separability of Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included. 22. Payments to Minors, Etc. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Company and other parties with respect thereto. 23. Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. 24. Governing Law. This Plan shall be construed and enforced according to the laws of the State of Nevada to the extent not preempted by federal law, which shall otherwise control. EX-10 5 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("First Amendment") is made and entered into as of the 9th day of January, 1998, by and among GOLDEN ROAD MOTOR INN, INC., a Nevada corporation (the "Borrower"), MONARCH CASINO & RESORT, INC., a Nevada corporation ("MCRI"), JOHN FARAHI, BAHRAM FARAHI and BEHROUZ FARAHI (collectively "Farahi" and together with MCRI, collectively the "Guarantors") and WELLS FARGO BANK, National Association, as Lender, Swingline Lender and L/C Issuer and as the administrative and collateral agent for the Lender, Swingline Lender and L/C Issuer (herein in such capacity called the "Agent Bank" and, together with the Lender, Swingline Lender and L/C Issuer collectively referred to as the "Banks"). R_E_C_I_T_A_L_S: WHEREAS: A. Borrower, Guarantors, Agent Bank, Swingline Lender and Lender entered into a Credit Agreement dated as of December 29, 1997 (the "Existing Credit Agreement") for the purpose of establishing a reducing revolving line of credit in favor of Borrower, up to the maximum principal amount of Eighty Million Dollars ($80,000,000.00), including a Swingline Facility in the maximum amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00) at any time outstanding. B. For the purpose of this First Amendment, all capitalized words and terms not otherwise defined herein shall have the respective meanings and be construed herein as provided in Section 1.01 of the Existing Credit Agreement and any reference to a provision of the Existing Credit Agreement shall be deemed to incorporate that provision as a part hereof, in the same manner and with the same effect as if the same were fully set forth herein. C. Borrower and Guarantors desire to amend the Existing Credit Agreement for the purpose of establishing an additional subfacility for the issuance of standby and commercial letters of credit up to the maximum aggregate amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00) at any time outstanding. D. Banks have agreed to establish an additional subfacility for the issuance of standby and documentary letters of credit to be issued by L/C Issuer at the request of Borrower up to the maximum aggregate amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00) at any time outstanding, subject to the terms, conditions and provisions set forth in this First Amendment. NOW, THEREFORE, in consideration of the foregoing and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do agree to the amendments and modifications to the Existing Credit Agreement as specifically hereinafter provided as follows: 1. Definitions. Section 1.01 of the Existing Credit Agreement entitled "Definitions" shall be and is hereby amended to include the following definitions. Those terms which are currently defined by Section 1.01 of the Existing Credit Agreement and which are also defined below shall be superseded and restated by the applicable definition set forth below: "Agent Bank" shall mean WFB in its capacity as administrative and collateral agent for Lenders, Swingline Lender and L/C Issuer. "Aggregate Outstandings" shall mean collective reference to the sum of the Funded Outstandings, Swingline Outstandings and L/C Exposure as of any given date of determination. "Available Borrowings" shall mean, at any time, and from time to time, the aggregate amount available to Borrower for a Borrowing, a Construction Disbursement, a Swingline Advance or issuance of a Letter of Credit not exceeding the amount of the Maximum Availability, as of each date of determination. "Bank Facilities" shall mean collective reference to the Credit Facility, Swingline Facility and L/C Facility. "Bank Facility Termination" shall mean indefeasible payment in full of all sums owing under the Bank Facilities and each of the other Loan Documents, the occurrence of the Stated Expiry Date or other termination of all outstanding Letters of Credit, and the irrevocable termination of: (i) the obligation of Lenders to advance Borrowings and Construction Disbursements under the Credit Facility, (ii) the obligation of Swingline Lender to advance Swingline Advances under the Swingline Facility, and (iii) the obligation of L/C Issuer to issue Letters of Credit under the L/C Facility. "Borrowing(s)" shall mean such amounts as Borrower may request from Agent Bank from time to time to be advanced under the Credit Facility by Notice of Borrowing in the manner provided in Section 2.03 and/or Construction Disbursement Request in the manner provided in Section 2.09 or at the request of Agent Bank pursuant to Section 2.08 or Section 2.16. "Cash Collateral Account" shall mean the restricted depository savings account to be established by Borrower or Agent Bank on behalf of Borrower with L/C Issuer at its offices located at One East First Street, Reno, Nevada, or at such other office located in the United States as may be designated from time to time by L/C Issuer, for the purpose of depositing Cash collateral for the aggregate L/C Exposure upon the occurrence of any Event of Default. "Cash Collateral Pledge Agreement" shall mean the Pledge and Assignment of Savings Account Agreement to be executed by Borrower in favor of L/C Issuer as of the First Amendment Effective Date as the same may be amended or modified from time to time under the terms of which all sums held from time to time in the Cash Collateral Account are pledged in favor of L/C Issuer to secure repayment of any funding required under any outstanding Letters of Credit, a copy of the form of which Cash Collateral Pledge Agreement is marked "Exhibit O", affixed to the First Amendment and by this reference incorporated herein and made a part hereof. "Commercial Letter(s) of Credit" shall mean a letter or letters of credit issued by L/C Issuer pursuant to Section 2.16 of the Credit Agreement for the purpose of assuring payment for goods, equipment or materials supplied to Borrower. "Credit Agreement" shall mean the Existing Credit Agreement as amended by the First Amendment, together with all Schedules, Exhibits and other attachments thereto, as it may be further amended, modified, extended, renewed or restated from time to time. "Existing Credit Agreement" shall have the meaning set forth in Recital Paragraph A of the First Amendment. "First Amendment" shall mean the First Amendment to Credit Agreement. "First Amendment Effective Date" shall mean the date upon which each of the conditions precedent set forth in Paragraph 11 of the First Amendment shall have occurred to the satisfaction of Agent Bank. "Funded Outstandings" shall mean the unpaid principal amount outstanding on the Credit Facility as of any given date of determination for Borrowings and Construction Disbursements made thereunder, not including Swingline Outstandings or the amount of any L/C Exposure. "Funding Date" shall mean each date upon which Lenders fund Borrowings or Construction Disbursements requested by Borrower in accordance with the provisions of Section 2.03 or 2.09 or at the request of Agent Bank pursuant to Section 2.08 or 2.16. "Indebtedness" of any Person includes all obliga-tions, contingent or otherwise, which in accordance with GAAP should be classified upon such Person's balance sheet as liabilities, but in any event including liabilities for borrowed money or other liabilities secured by any lien existing on property owned or acquired by such Person, Affiliate or a Subsidiary thereof (whether or not the liability secured thereby shall have been assumed), obligations which have been or under GAAP should be capitalized for financial reporting purposes, the face amount of all Letters of Credit issued for the account of such Person and all guaranties, endorse-ments, and other contingent obligations with respect to Indebtedness of others, including, but not limited to, any obligations to acquire any of such Indebtedness, to purchase, sell, or furnish property or services primarily for the purpose of enabling such other Person to make payment of any of such Indebtedness, or otherwise to assure the owner of any of such Indebtedness against loss with respect thereto. "L/C Agreement(s)" shall mean collective reference to the Application and Agreement for Standby Letter of Credit and Application for Commercial Letter of Credit and addendum(s) thereto executed by an Authorized Officer of Borrower in favor of L/C Issuer in L/C Issuer's standard form, setting forth the terms and conditions upon which L/C Issuer shall issue a Letter(s) of Credit, as the same may be amended or modified from time to time. "L/C Exposure" shall mean the aggregate amount which L/C Issuer may be required to fund or is contingently liable for disbursement under all issued and outstanding Letter(s) of Credit, which amount shall be determined by subtracting from the aggregate of the Stated Amount of each such Letter(s) of Credit (to the extent such Letter of Credit is not secured by Cash deposited into the Cash Collateral Account and subject to the Cash Collateral Pledge Agreement), the principal amount of all L/C Reimbursement Obligations which have accrued and have been fully satisfied as of each date of determination. "L/C Facility" shall mean the agreement of L/C Issuer to issue Letters of Credit subject to the terms and conditions and up to the maximum amounts and duration as set forth in Section 2.16 of the Credit Agreement. "L/C Fee" shall have the meaning set forth in Section 2.10(c) of the Credit Agreement. "L/C Issuer" shall mean WFB in its capacity as the issuer of Letters of Credit under the L/C Facility. "L/C Reimbursement Obligation(s)" shall mean the obligation of Borrower to reimburse L/C Issuer for amounts funded or disbursed under a Letter(s) of Credit, together with accrued interest thereon. "Letter(s) of Credit" shall mean collective reference to the Standby Letter(s) of Credit and/or Commercial Letter(s) of Credit, as the case may be, issued by L/C Issuer on behalf of Borrower, as the same may be extended, renewed or reissued from time to time. "Loan Documents" shall mean collective reference to the Credit Agreement, the Revolving Credit Note, the Swingline Note, the Security Documentation, Cash Collateral Pledge Agreement, the Environmental Certificate and all other documents and instruments which may hereafter be executed and delivered by or on behalf of Borrower or any other Person in connection with the Bank Facilities for the benefit of Banks or Agent Bank on behalf of the Lenders, the Swingline Lender and/or the L/C Issuer. "Standby Letter(s) of Credit" shall mean a letter or letters of credit issued by L/C Issuer pursuant to Section 2.16 of the Credit Agreement for the purpose of securing payment or performance of a financial obligation of Borrower, other than in connection with the payment for goods, equipment or materials. "Stated Amount" shall mean the maximum amount which L/C Issuer may be required to disburse to the beneficiary(ies) of a Letter(s) of Credit under the terms thereof. "Stated Expiry Date(s)" shall mean the date set forth on the face of a Letter(s) of Credit as the date when all obligations of L/C Issuer to advance funds thereunder will terminate, as the same may be extended from time to time. 2. Amendment of Section 2.03(a). As of the First Amendment Effective Date, the last sentence of Section 2.03(a) of the Existing Credit Agreement shall be and is hereby deleted and the following is substituted as a full restatement thereof: "Borrower shall be entitled to no more than one (1) Construction Disbursement during each month during the Construction Period and no more than three (3) Borrowings during each calendar month during the Preconstruction Period and the Revolving Credit Period, exclusive of Borrowings or Construction Disbursements made for the sole purpose of funding repayment of a Swingline Advance or L/C Reimbursement Obligation." 3. Amendment of Section 2.04. As of the First Amendment Effective Date, the first sentence of Section 2.04 of the Existing Credit Agreement shall be and is hereby deleted and the following is substituted as a full restatement thereof: "During the Revolving Credit Period, Borrowings, other than Borrowings made at the request of Agent Bank for the purpose of funding repayment of Swingline Outstandings and/or L/C Reimbursement Obligations as hereinafter provided, will only be made so long as Borrower is in full compliance with each of the requirements and conditions precedent set forth in Article III B of this Credit Agreement." 4. Addition to Section 2.10. As of the First Amendment Effective Date, Section 2.10 of the Credit Agreement entitled "Fees" shall be and is hereby amended by adding Subsection (c) thereto as follows: "c. Concurrently with the issuance of each Letter of Credit, Borrower shall pay an issuance fee to the L/C Issuer ("L/C Fee") in an amount equal to the Stated Amount of each such Letter of Credit multiplied by one and one-half percent (1.50%) per annum for the number of days elapsing from the issuance date to the Stated Expiry Date of each such Letter of Credit, but in no event shall the L/C Fee be less than Five Hundred Dollars ($500.00) for each Letter of Credit. From each L/C Fee the greater of Five Hundred Dollars ($500.00) or one quarter of one percent (.25%) of the Stated Amount of each such Letter of Credit, calculated on a per annum basis as provided hereinabove, shall be retained by L/C Issuer for its own account and the balance of each L/C Fee shall be promptly distributed by Agent Bank to Lenders in proportion to their respective Syndication Interests in the Credit Facility. All L/C Fees paid by Borrower are nonrefundable and shall be deemed fully earned upon issuance of the applicable Letter of Credit." 5. Amendment of Section 2.12. As of the First Amendment Effective Date, the first sentence of Section 2.12 of the Existing Credit Agreement entitled "Net Payments" shall be and is hereby deleted and the following is substituted as a full restatement thereof: "All payments under the Credit Agreement, the Revolving Credit Note, the Swingline Note and/or a L/C Reimbursement Obligation shall be made without set-off, counterclaim, recoupment or defense of any kind and in such amounts as may be necessary in order that all such payments, after deduction or withholding for or on account of any future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by the United States or any Governmental Authority, other than franchise taxes or any tax on or measured by the gross receipts or overall net income of any Lender pursuant to the income tax laws of the United States or any State, or the jurisdiction where each Lender's principal office is located (collectively "Taxes"), shall not be less than the amounts otherwise specified to be paid under the Credit Agreement and the Notes." 6. Addition of Letter of Credit Provisions. As of the First Amendment Effective Date, Section 2.16 entitled "Issuance of Letters of Credit" shall be and is hereby added to the Credit Agreement as follows: "Section 2.16. Issuance of Letters of Credit. a. Any Authorized Officer of Borrower may from time to time request that a Standby Letter of Credit or Commercial Letter of Credit be issued by delivering to L/C Issuer (with a telecopy to the Agent Bank) on a Banking Business Day, at least five (5) Banking Business Days prior to the date of such proposed issuance, an L/C Agreement in L/C Issuer's then standard form (consistent with the terms of the Credit Agreement), completed to the satisfaction of L/C Issuer and such other certificates as the L/C Issuer may reasonably request; provided, however, that no Letter of Credit shall be issued (a) if any Default or Event of Default has occurred and remains continuing, or (b) if after giving effect to the issuance thereof, the aggregate Stated Amount of outstanding Letters of Credit would exceed Two Million Five Hundred Thousand Dollars ($2,500,000.00), or (c) the Stated Amount of the requested Letter of Credit exceeds the Maximum Availability. Each Letter of Credit shall be issued by the L/C Issuer on the Banking Business Day specified in the Borrower's application therefor. Each request for a Letter of Credit and each Letter of Credit shall be subject to the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication New 1994 Revision No. 500, or any successor publication then in effect. Each Standby Letter of Credit will be issued for a term not greater than one (1) year and shall not include any provision for automatic renewal. Each Commercial Letter of Credit will be issued for a term not greater than one hundred eighty (180) calendar days. In no event shall any Letter of Credit have a Stated Expiry Date later than thirty (30) days prior to the Maturity Date. Promptly after receipt of each request for the issuance of a Letter of Credit and immediately prior to the issuance thereof, L/C Issuer shall obtain telephonic verification from Agent Bank that the amount of such request does not exceed the then Available Borrowings. The L/C Issuer shall promptly notify the Agent Bank of the aggregate L/C Exposure of outstanding Letters of Credit each time there is a change therein. b. Upon presentation of a draft drawn under any Letter of Credit, L/C Issuer shall promptly notify the Agent Bank and Borrower of the amount under such draft and the date upon which such draft is to be funded. On or before two (2) Banking Business Days following such notice (unless Borrower has made other arrangements acceptable to the L/C Issuer to pay the amount of such draft in full), Borrower shall advance to L/C Issuer the amount of such draft from Borrower's available funds or shall request a Borrowing or Construction Disbursement under the Credit Facility in an amount sufficient to pay the amount of such draft in full. The Agent Bank, upon receipt of such funds from the Lenders, shall automatically provide such amount to the L/C Issuer for payment of the amount of such draft and the balance of the Borrowing or Construction Disbursement, as the case may be, shall be deposited in immediately available funds to the Designated Deposit Account. In the event Borrower fails to advance to L/C Issuer the amount of such draft from Borrower's available funds or to request a Borrowing within two (2) Banking Business Days from receipt of the notice as specified above, on the third (3rd) Banking Business Day following Agent Bank's receipt of such notice, Agent Bank shall, without notice to or consent of the Borrower and without regard to any other conditions precedent for the making of Borrowings or Construction Disbursements under the Credit Facility, cause a Borrowing (or Construction Disbursement if made during the Construction Period) to be made and funded by the Lenders under the Credit Facility in the amount necessary to pay the amount of such draft in full. Upon the occurrence of any Event of Default, L/C Issuer shall, without notice or further authorization or consent of Borrower whatsoever, be authorized to immediately cause the Cash Collateral Account to be established and funded by Lenders with a Borrowing (or Construction Disbursement if made during the Construction Period) advanced to Agent Bank equal to the aggregate amount of the L/C Exposure then outstanding. All amounts held by L/C Issuer in the Cash Collateral Account shall be held as security for the repayment of any L/C Reimbursement Obligation thereafter arising pursuant to the terms of the L/C Agreement(s) and the Cash Collateral Pledge Agreement. Borrowings and Construction Disbursements advanced by Lenders to pay drafts drawn upon or to secure repayment of the L/C Exposure under Letters of Credit pursuant to this subsection shall: (i) constitute Borrowings (or Construction Disbursements if made during the Construction Period) under the Credit Facility, (ii) initially be Base Rate Loans and (iii) be subject to all of the provisions of this Credit Agreement concerning Borrowings (or Construction Disbursements if made during the Construction Period) under the Credit Facility, except that such Borrowings or Construction Disbursements shall be made upon demand of the Agent Bank as set forth above rather than upon Notice of Borrowing or Construction Disbursement Request by Borrower and shall be made, notwithstanding anything in this Credit Agreement to the contrary, without regard to any other conditions precedent to the making of Borrowings or Construction Disbursements under the Credit Agreement and notwithstanding any Default or Event of Default thereunder. All amounts paid by L/C Issuer on a draft drawn under any Letter of Credit which has not been funded or concurrently reimbursed by Borrower or through a Borrowing or Construction Disbursement as provided hereinabove, shall bear interest at the Base Rate plus the Applicable Margin per annum until repaid or reimbursed to L/C Issuer. c. Each Lender's obligation to advance Borrowings or Construction Disbursements in the proportionate amount of its Syndication Interest in the Credit Facility of any unreimbursed amounts outstanding under any Letter of Credit pursuant hereto is several, and not joint or joint and several. The failure of any Lender to perform its obligation to advance a Borrowing or Construction Disbursement in a proportionate amount of such Lender's Syndication Interest of any unreimbursed amounts outstanding under a Letter of Credit will not relieve any other Lender of its obligation hereunder to advance such Borrowing or Construction Disbursement in the amount of such other Lender's proportionate Syndication Interest of such amount, nor relieve the Lender which has failed to fund of its obligation to fund hereunder. The Borrower agrees to accept the Borrowings or Construction Disbursements for payment of Letters of Credit as provided hereinabove, whether or not such Borrowings or Construction Disbursements could have been made pursuant to the terms of Article III B or C, Article IX or any other section of the Credit Agreement. d. Letters of Credit shall be used and issued for the benefit of Borrower for the general corporate purposes of Borrower relating to the Hotel/Casino Facility and/or the Expansion Project." 7. Amendment of Paragraph B of Article III Entitled "Conditions Precedent to all Borrowings". As of the First Amendment Effective Date, Paragraph B of Article III of the Existing Credit Agreement shall be and is hereby deleted and the following is substituted as a full restatement thereof: "B. Conditions Precedent to all Borrowings. The obligation of each Lender and Agent Bank to make any Borrowing requested to be made on any Funding Date, except Borrowings made upon the demand of Agent Bank for the purpose of funding repayment of Swingline Outstandings and/or L/C Reimbursement Obligations, is subject to the occurrence of each of the following conditions precedent as of such Funding Date:" 8. Additions to Section 7.02. As of the First Amendment Effective Date, Section 7.02 entitled "Default Remedies" shall be and is hereby amended by adding thereto the additional Subsections (e), (f) and (g) as follows: "(e) The Swingline Lender shall, upon receipt of written notice of the occurrence of an Event of Default, terminate its obligation to make any advances under the Swingline Facility and may declare all outstanding unpaid Indebtedness hereunder and under the Swingline Note, together with all accrued interest thereon immediately due and payable without presentation, demand, protest or notice of any kind. This remedy will be deemed to have been automatically exercised on the occurrence of any event set out in Sections 7.01(g), (h) or (i). (f) The L/C Issuer shall, upon receipt of written notice of the occurrence of an Event of Default, terminate its obligation to issue Letters of Credit and/or any Letter of Credit which may be terminated in accordance with its terms. This remedy will be deemed to have been automatically exercised on the occurrence of any event set out in Sections 7.01(g), (h) or (i). (g) Agent Bank and/or L/C Issuer may, or at the direction of the Requisite Lenders will, direct the Borrower to pay (and Borrower hereby agrees upon receipt of such notice to pay) to the L/C Issuer an amount in Cash equal to the then outstanding L/C Exposure, such Cash to be held by L/C Issuer in the Cash Collateral Account as security for the repayment of all L/C Reimbursement Obligations thereafter occurring." 9. Amendment of Section 10.04(b). As of the First Amendment Effective Date, the penultimate sentence of Section 10.04(b) shall be and is hereby deleted and the following is substituted as a full restatement thereof: "No Nonusage Fee or L/C Fees shall accrue in favor of, or be payable to, such Defaulting Lender from the date of any failure to fund Borrowings, Construction Disbursements or to reimburse Agent Bank for any Liabilities and Costs as herein provided until such failure has been cured, and Agent Bank shall be entitled to (A) withhold or setoff, and to apply to the payment of the defaulted amount and any related interest, any amounts to be paid to such Defaulting Lender under the Credit Agreement, and (B) bring an action or suit against such Defaulting Lender in a court of competent jurisdiction to recover the defaulted amount and any related interest." 10. Amendment of Section 11.01. As of the First Amendment Effective Date, Section 11.01 entitled "Amendments and Waivers" shall be and is hereby amended by inserting at the end thereof the following: "No modification of Section 2.08 or the Swingline Note shall be made without the consent of the Swingline Lender. No modification of Section 2.16 shall be made without the consent of the L/C Issuer." 11. Conditions Precedent to First Amendment Effective Date. The occurrence of the First Amendment Effective Date is subject to Agent Bank having received the following documents and payments, in each case in a form and substance reasonably satisfactory to Agent Bank, and the occurrence of each other condition precedent set forth below on or before January 30, 1998: a. Due execution by Borrower, Guarantors and Banks of seven (7) duplicate originals of this First Amendment; b. Corporate resolutions or other evidence of requisite authority of Borrower and Guarantors, as applicable, to execute the First Amendment; c. Due execution by Borrower of an original Cash Collateral Pledge Agreement; d. Reimbursement to Agent Bank by Borrower for all reasonable fees and out-of-pocket expenses incurred by Agent Bank in connection with the First Amendment, including, but not limited to, reasonable attorneys' fees of Henderson & Nelson and all other like expenses remaining unpaid as of the First Amendment Effective Date; and e. Such other documents, instruments or conditions as may be reasonably required by Lenders. 12. Representations of Borrower. Borrower hereby represents to the Banks that: a. the representations and warranties contained in Article IV of the Existing Credit Agreement and contained in each of the other Loan Documents (other than representations and warranties which expressly speak only as of a different date, which shall be true and correct in all material respects as of such date) are true and correct on and as of the First Amendment Effective Date in all material respects as though such representations and warranties had been made on and as of the First Amendment Effective Date, except to the extent that such representations and warranties are not true and correct as a result of a change which is permitted by the Credit Agreement or by any other Loan Document or which has been otherwise consented to by Agent Bank; b. Since the date of the most recent financial statements referred to in Section 5.08 of the Existing Credit Agreement, no Material Adverse Change has occurred and no event or circumstance which could reasonably be expected to result in a Material Adverse Change or Material Adverse Effect has occurred; c. no event has occurred and is continuing which constitutes a Default or Event of Default under the terms of the Credit Agreement; and d. The execution, delivery and performance of this First Amendment has been duly authorized by all necessary action of Borrower and Guarantors and this First Amendment constitutes a valid, binding and enforceable obligation of Borrower and Guarantors. 13. Affirmation and Ratification of Continuing Guaranty. Guarantors join in the execution of this First Amendment for the purpose of ratifying and affirming their respective obligations under the Continuing Guaranty for the guaranty of the full and prompt payment and performance of all of Borrower's indebtedness and obligations under the Bank Facilities and each of the Loan Documents, as modified and amended under this First Amendment. 14. Incorporation by Reference. This First Amendment shall be and is hereby incorporated in and forms a part of the Existing Credit Agreement. 15. Governing Law. This First Amendment to Credit Agreement shall be governed by the internal laws of the State of Nevada without reference to conflicts of laws principles. 16. Counterparts. This First Amendment may be executed in any number of separate counterparts with the same effect as if the signatures hereto and hereby were upon the same instrument. All such counterparts shall together constitute one and the same document. 17. Continuance of Terms and Provisions. All of the terms and provisions of the Credit Agreement shall remain unchanged except as specifically modified herein. 18. Additional Exhibit Attached. The following additional Exhibit is attached hereto and incorporated herein and made a part of the Credit Agreement as follows: Exhibit O - Cash Collateral Pledge Agreement - Form IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the day and year first above written. BORROWER: GOLDEN ROAD MOTOR INN, INC., a Nevada corporation By /s/ Ben Farahi ---------------------- Ben Farahi, Secretary Address: 1175 West Moana Lane Suite 200 Reno, NV 89509 Telephone: (702) 825-3355 Facsimile: (702) 825-7705 GUARANTORS: MCRI: MONARCH CASINO & RESORT, INC., a Nevada corporation By /s/ Ben Farahi ---------------------- Ben Farahi, Secretary Address: 1175 West Moana Lane Suite 200 Reno, NV 89509 Telephone: (702) 825-3355 Facsimile: (702) 825-7705 /s/ John Farahi ------------------------ John Farahi /s/ Bahram Farahi ------------------------ Bahram Farahi /s/ Behrouz Farahi ------------------------ Behrouz Farahi BANKS: WELLS FARGO BANK, National Association, Agent Bank, Lender, Swingline Lender and L/C Issuer By /s/ Rob Medeiros ---------------------- Rob Medeiros, Vice President Address: One East First Street Reno, NV 89501 Telephone: (702) 334-5747 Facsimile: (702) 334-5637 PLEDGE AND ASSIGNMENT OF SAVINGS ACCOUNT AGREEMENT THIS PLEDGE AND ASSIGNMENT OF SAVINGS ACCOUNT AGREEMENT ("Pledge Agreement") is made and entered into as of this 9th day of January, 1998, by and between, GOLDEN ROAD MOTOR INN, INC., a Nevada corporation, Debtor and Assignor, hereinafter referred to as "Borrower", party of the first part, and WELLS FARGO BANK, National Association, hereinafter referred to as "L/C Issuer" party of the second part. R_E_C_I_T_A_L_S: WHEREAS: A. In this Pledge Agreement all capitalized words and terms not otherwise specifically herein defined shall have the respective meanings and be construed herein as provided in or incorporated into Section 1.01 entitled "Definitions" of the Credit Agreement (as may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), dated as of December 29, 1997, as amended by First Amendment to Credit Agreement executed concurrently herewith by and among Borrower, the Guarantors therein named, L/C Issuer and the Banks therein described, and any reference to a provision of the Credit Agreement shall be deemed to incorporate that provision as a part hereof in the same manner and with the same effect as if the same were fully set forth herein. B. Pursuant to the Credit Agreement, L/C Issuer has agreed, subject to the terms and conditions specified therein, to issue Letters of Credit on behalf of Borrower up to the maximum aggregate Stated Amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00) at any time outstanding. As security for the prompt payment of each and every L/C Reimbursement Obligation arising after the occurrence of an Event of Default, L/C Issuer may establish a restricted depository savings account for the account of Borrower (the "Cash Collateral Account"). It is a condition of the Credit Agreement and the issuance of Letters of Credit that all Borrowings, Construction Disbursements, Cash, securities and other property of Borrower which may hereafter be deposited into the Cash Collateral Account be presently and irrevocably pledged and assigned to L/C Issuer to be held by L/C Issuer in the manner and for the purposes set forth in the Credit Agreement and L/C Agreements. NOW, THEREFORE, in consideration of the Letters of Credit to be issued by L/C Issuer for the benefit of Borrower, the receipt and sufficiency of which consideration is hereby acknowledged, the Borrower hereby pledges and assigns to L/C Issuer all of its right, title and interest in and to the Cash Collateral Account and any Borrowings, Construction Disbursements, Cash, securities and other property of Borrower hereafter held or deposited therein, as follows: 1. Borrower shall and does hereby agree that L/C Issuer shall have the right, on and after the occurrence of an Event of Default, to establish and maintain the Cash Collateral Account for the purpose set forth herein and in the Credit Agreement. The Borrower by these presents does hereby presently and irrevocably grant, bargain, sell, assign, transfer and set over unto L/C Issuer, its successors and assigns, all of Borrower's right, title and interest in and to the Cash Collateral Account and any Borrowings, EXHIBIT O Construction Disbursements, Cash, securities and other property of Borrower hereafter held or deposited therein. 2. In addition to all rights of setoff for repayment of any L/C Reimbursement Obligation against any Borrowings or Construction Disbursements held in the Cash Collateral Account, monies, securities or other property given to L/C Issuer by law, L/C Issuer shall have a right of setoff for the repayment of any L/C Reimbursement Obligation against any Borrowings, Construction Disbursements, monies, securities and other property of Borrower now or hereafter held or deposited in the Cash Collateral Account or on deposit with L/C Issuer whether held in a general or special account or deposit, or for safekeeping or otherwise; and every such right of setoff for the repayment of any L/C Reimbursement Obligation may be exercised without demand upon or notice to Borrower. No right of setoff shall be deemed to have been waived by any act or conduct on the part of L/C Issuer or by any neglect to exercise such right of setoff, or by any delay in doing so; and every right of setoff shall continue in full force and effect until specifically waived or released by an instrument in writing executed by L/C Issuer. 3. No delay or failure by L/C Issuer, Agent Bank or any of the Banks to exercise any right or remedy against the Borrower under the Loan Documents shall be construed as a waiver of such right or remedy. All remedies of L/C Issuer, Agent Bank and Banks against the Borrower under the Loan Documents are cumulative. 4. This Pledge Agreement may not be amended, changed or terminated except by an agreement in writing signed by the party or parties against whom enforcement of the change is sought. This Pledge Agreement shall be governed by and construed in accordance with the laws of the State of Nevada and if any action is taken to enforce the terms of this Pledge Agreement such action shall be commenced and maintained within the State of Nevada. 5. If and to the extent that the amounts held from time to time in the Cash Collateral Account (including any interest) exceed the Stated Amount of all undrawn Letters of Credit and all unpaid L/C Reimbursement Obligations, L/C Issuer shall, on or before ten (10) days following receipt of written request by Borrower, apply such excess in the order of priority set forth in Section 7.03 of the Credit Agreement. IN WITNESS WHEREOF, the parties hereto have executed the foregoing instrument on the day and year first above written. BORROWER: L/C ISSUER: GOLDEN ROAD MOTOR INN, INC., WELLS FARGO BANK, a Nevada corporation National Association, Agent Bank By By -------------------- -------------------- Ben Farahi, Rob Medeiros Secretary Vice President STATE OF NEVADA ) ) ss COUNTY OF WASHOE ) This instrument was acknowledged before me on January ___, 1998, by BEN FARAHI as Secretary of/for GOLDEN ROAD MOTOR INN, INC. ____________________________ Notary Public STATE OF NEVADA ) ) ss COUNTY OF WASHOE ) This instrument was acknowledged before me on January ___, 1998, by ROB MEDEIROS as Vice President of/for WELLS FARGO BANK. ____________________________ Notary Public EX-27 6
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS. YEAR DEC-31-1997 DEC-31-1997 5,527,839 0 988,145 150,725 570,367 9,323,802 74,639,827 17,868,111 67,828,087 9,979,893 32,907,530 0 0 95,363 22,598,301 67,828,087 0 59,114,766 0 29,866,442 4,308,991 244,730 3,253,067 5,722,078 2,011,930 3,710,148 0 184,524 0 3,525,624 0.37 0.37
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