-----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, P+FkzLGG1lm2hRtlaOFqMmx1sRcqs696clfTx1MFRp+1d5TNDDspzV4QLz3m76CM 1OVXRJ4K1/qLoSqd1y+FvQ== /in/edgar/work/0000907242-00-500004/0000907242-00-500004.txt : 20001115 0000907242-00-500004.hdr.sgml : 20001115 ACCESSION NUMBER: 0000907242-00-500004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONARCH CASINO & RESORT INC CENTRAL INDEX KEY: 0000907242 STANDARD INDUSTRIAL CLASSIFICATION: [7990 ] IRS NUMBER: 880300760 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22088 FILM NUMBER: 766608 BUSINESS ADDRESS: STREET 1: 1175 W MOANA LANE STREET 2: STE 200 CITY: RENO STATE: NV ZIP: 89509 BUSINESS PHONE: 7758253355 MAIL ADDRESS: STREET 1: 1175 W MOANA LANE STREET 2: STE 200 CITY: RENO STATE: NV ZIP: 89509 EX-10 1 ex1013qt.txt EXHIBIT 10.1 Lease No. 025-5001341 ============ FIRST SECURITY LEASING COMPANY OF NEVADA LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT This Lease Schedule to Master Equipment Lease Agreement ("Lease Schedule") constitutes a separate Lease pursuant to the Master Equipment Lease Agreement between FIRST SECURITY LEASING COMPANY OF NEVADA ("Lessor") and the lessee or lessees designated below ("Lessee") dated as of November 3, 1999 (the "Master Lease"), all terms and conditions of which are incorporated herein. Lessor and Lessee reaffirm as of the date hereof all terms, representations and warranties in the Master Lease. A copy of the signed Master Lease attached to the Lease Schedule, which attachment shall adopt the copied signatures on the Master Lease as of the date of the Lease Schedule, shall constitute an original lease. This lease shall alone constitute the chattel paper for purposes of perfecting a security interest. A. Description of Equipment ID New Invoice or or Purchase Quantity Vendor Description Serial # Used Price ======== ====== =========== ======== ==== ======== ONE (1) DOUBLE FACED FULL COLOR LED DISPLAY MATRIX SIZE 176X336 PIXELS EACH FACE, VISIBLE AREA 10.83 FEET BY 21.67 FEET 1 Mikohn PIXELS TO USE NICHIA New $713,960.00 Lighting BLUE AND GREEN LED AND & Sign HP ALLNGAP RED LEDS PIXEL SPACING WILL BE 19MM PITCH AND DENSITY 2770/M2 THE DISPLAY WILL BE INSTALLED IN EXISTING CABINET, AIR CONDITIONING FOR LED TOTAL INVOICE PURCHASE PRICE: $713,960.00 B. Tax: Section 11(B) of Master Lease shall apply. Recovery Class: 7 property. C. Term Expiration: 60 Months (the "Expiration" or "Expiration Date"). D. Rental: 1. Frequency: Monthly 2. Advanced or Arrears: Advance 3. Interim Rental equal to 0.000256 of each Item's Invoice Purchase Price (as shown in Section A of the Lease Schedule) for each day from (and including) its Acceptance Date to (but excluding) =======, (the "Interim Rental Payment Date") shall be due on the Interim Rental Payment Date. -16- Lease No. 025-5001341 ============ FIRST SECURITY LEASING COMPANY OF NEVADA LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT 4. Basic Rental equal to 0.017549 of the Total Invoice Purchase Price shall be due on each of the following Basic Rental Payment Dates: July 3, 2000 and the same day of each Month thereafter, with the final payment June 3, 2005. E. Purchase Option Amount: Fair Market Value F. Location: The Equipment shall be located at: Address: 3800 S. VIRGINIA STREET RENO, NV 89502 County: WASHOE G. Security Deposit: Not Required H. Insurance. The minimum amount of insurance to be provided by Lessee as required under the terms of the Master Lease shall be as follows: 1. Liability: $1,000,000.00 each individual $1,000,000.00 each accident $1,000,000.00 property damage liability 2. Physical Damage and Loss: $713,960.00 3. Additional riders, exclusions or special terms required by Lessor: N/A I. OTHER TERMS. See Exhibit "A" for the Maintenance and Return Conditions. J. Finance Lease. As to an Item for which a vendor is shown, this is a UCC 2A "finance lease." Lessee approves the purchase contract for such Item and acknowledges that (a) it has received a copy of such contract if such contract is in writing, (b) Lessor hereby informs it of the vendor's identity and that it may have rights under such contract, and (c) Lessor hereby advises it to contact the vendor for a description of such rights. K. Execution of Financing Statements and Title Documents. Lessee agrees to execute and deliver to Lessor such financing statements and/or title documents as reasonably requested by Lessor to protect and identify Lessor's interest in the Equipment. Lessee appoints Lessor, or Lessor's agents or assigns, its true and lawful attorney-in-fact to prepare, to execute and to sign any instrument or financing statement concerning the Equipment, to sign the name of Lessee with the same force and effect as if signed by Lessee, and to file the same at the locations reasonably determined by Lessor. L. Additional Maintenance and Return Provisions. In addition to the return and maintenance provisions of the Master Lease, the provisions contained in the attached exhibit are hereby incorporated into this Lease Schedule and Master Lease by reference. -17- Lease No. 025-5001341 ============ FIRST SECURITY LEASING COMPANY OF NEVADA LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT IN WITNESS WHEREOF, the parties have executed this Lease Schedule as of November 3, 1999 and Lessee's signatories warrant their authority to sign on Lessee's behalf. CO-LESSEES: MONARCH CASINO & RESORT, INC. AND GOLDEN ROAD MOTOR INN, INC. dba ATLANTIS CASINO RESORT LESSEE: MONARCH CASINO & RESORT, INC. LESSOR: FIRST SECURITY LEASING a(n) Nevada Corporation COMPANY OF NEVADA BY: /S/ John Farahi BY: /S/ Jerry J. Velarde =============== =================== TITLE: CEO TITLE: AVP Authorized ================ Representative ================ Address: 3800 S. VIGINIA STREET ADDRESS: c/o First Security Reno, NV 89502 Leasing Company 381 East Broadway, 2nd Floor Salt Lake City, UT 84111 Federal ID or Social Security Number: 88-0300760 LESSEE: GOLDEN ROAD MOTOR INN, INC. dba ATLANTIS CASINO RESORT a(n) Nevada Corporation BY: /S/ John Farahi =============== TITLE: John Farahi, CEO ================ Address: 3800 S. VIRGINIA STREET RENO, NV 89502 Federal ID or Social Security Number: 88-0117859 -18- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT This Master Equipment Lease Agreement ("Master Lease") is between First Security Leasing Company of Nevada ("Lessor") and the lessee or lessees specified below ("Lessee"). Section 1. Intent to Lease. Lessor agrees to pay for and lease to Lessee and Lessee agrees to lease from Lessor the personal property (the "Equipment" or, individually, an "Item") described in each Lease Schedule to Master Equipment Lease Agreement (a "Schedule") pursuant hereto. Each Schedule and a copy of the Master Lease shall be a separate lease (a "Lease). "Agreement" shall mean this Master Lease and all Schedules. Section 2. Term; Rental; Unconditional Obligations; Security. A. The lease of each Item shall begin on the date of the related Schedule (the "Acceptance Date") and end on the Expiration Date specified in the Schedule (the "Expiration") or on the date of any earlier or later than termination hereunder (the "Termination"). B. Lessee shall pay to Lessor Interim Rental, if applicable, and Basic Rental ("Rental") for each Item in the amounts and on the dates ("Rental Payment Dates") shown in the applicable Schedule. If any amount payable under the Agreement is not paid within ten (10) days after it is due, Lessee shall immediately pay to Lessor a late charge equal to five percent (5%) of such amount. Lessee shall also pay to Lessor interest on all overdue amounts at the rate of eighteen percent (18%) per annum or the maximum rate allowed by law, whichever is less, compounded daily. C. All Leases are net leases. Lessee's obligations under each Lease shall all be performed at Lessee's expense and shall only terminate under the provisions thereof. Lessee shall not be entitled to any reduction or withholding of any amount payable under any Lease for any reason (including any present or future claims of Lessee against Lessor, under the Lease or otherwise, or against any manufacturer or vendor). Except as expressly provided, Lessee's obligations shall not be affected by any defect in, damage to, loss of, or interference with use of any Item from any cause or by any person, entity or government, by any invalidity or unenforceability of the Lease or any lack of authority of Lessor to enter into the Lease, or by any other cause, notwithstanding any present or future law or regulation. Lessee waives any rights under Sections 221, 405 and 406 of the applicable version of Uniform Commercial Code Article 2A ("UCC 2A") and any similar laws or rights, including rights to avoidance, allowance, allocation, modification, and notice. D. If a Schedule specifies that a security deposit is required, upon its execution Lessee shall deposit the amount so specified with Lessor. Lessor may commingle such deposit with its other funds. Lessee grants Lessor a security interest in such deposit to secure all of Lessee's obligations under the Agreement. Within fifteen days (15) after written notice to Lessee that all or any part of a security deposit has been used to satisfy any such obligation, Lessee shall deposit with Lessor an amount sufficient to restore the security deposit to the required amount. Upon Expiration or Termination, -19- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT if no Default (as defined in Section 13) exists, any unused portion of the related security deposit will be returned to Lessee without interest. E. Any security for Lessee's existing or future obligations under this or any other agreements with Lessor shall secure Lessee's existing or future obligations under all such agreements. Section 3. Lessee Options at Expiration of Lease Term. At least one hundred twenty (120) days, but not more than one hundred eighty days (180), before Expiration (or, in the case of purchase or return under clause (b) or (c) below, the renewal term, if any, of such item), Lessee will give Lessor irrevocable written notice that it either (a) exercises its option to renew this Lease as to all (but not less than all) Items at the Fair Rental Value and for a single renewal term to be agreed upon by Lessor and Lessee but in no case less than six (6) months (but this renewal option may not be exercised if an Event of Default has occurred or if there has been a material adverse change in Lessee's business or financial condition since the Acceptance Date), (b) exercises its option to purchase all such Items at Expiration or at the expiration of the renewal term, if any, for cash for their Fair Rental Value or (c) will return all such Items to Lessor at Expiration or at the expiration of the renewal term, if any, as described below. If such notice is not given, Lessee shall be deemed to have elected to renew this Lease as to all such Items at their current periodic rent and for a renewal term of six (6) months, unless Lessor by written notice instructs Lessee to return such Items as described below, "Fair market Value" of "Fair Market Rental" is to be determined by agreement between Lessor and Lessee, and if they cannot agree, by an independent appraiser selected by Lessor but acceptable to Lessee. The cost of appraisal shall be borne by Lessee. Lessee will at its sole expense return each Item to Lessor where designated by Lessor, in the good operating order and condition as when delivered to Lessee, free and clear of liens or rights of others and properly packed and crated, with freight prepaid to Lessor at such locations as Lessor may designate to Lessee. Upon Lessor's request, Lessee will store any Item before its return without charge at its current location for up to one hundred twenty (120) days, during which period Lessee will remain liable for all of its obligations under this Lease except payment of rent. If Lessee fails to return any Item in full compliance with this Section 3, or in full compliance with any return provision in the Agreement including, any and all additional return provision attached to any Schedule as an exhibit, Lessor may treat this Lease as continuing in full force and effect as to such Item and Lessee will continue to pay the full current periodic rent for such Item, but Lessor may at any time terminate this Lease without notice and repossess such Item. The Fair Market Value of any Item shall be the value upon which an informed and willing seller and informed and willing buyer (other than a used equipment or scrap dealer) would agree, each under no compulsion to buy or sell. Fair market Rental value for any Item shall be the value upon which and informed and willing lessee (other than a lessee currently in possession) and informed and willing lessor, each under no compulsion to lease, would agree. For purposes of the Section 3 only, the value shall be determined on the assumption that such Item had been maintained and operated in the manner required by Section 8(B) hereof. Costs of removal from the location of current use shall not be a deduction from such value. -20- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT Section 4. Conditions Precedent. Lessor's obligation to pay for and lease an Item is subject to the non- existence of any Default and to Lessee's supplying the following in form and substance satisfactory to Lessor: A. If Lessee is a corporation, if requested by Lessor, its articles of incorporation, by-laws, board resolutions, and incumbency certificates, each certified by its secretary or assistant secretary, evidencing the duly authorized execution, delivery and performance of this Agreement and each Lease; B. If Lessee is not a corporation, Lessee's partnership agreement, trust indenture, assumed name filings or such other documents as Lessor may require; C. Evidence of compliance with the insurance provisions hereof; D. If requested by Lessor, a favorable written opinion of Lessee's counsel as to the matters in Section 5(B)(i)-(v) and any other matters Lessor reasonably requests; E. A completed and signed Schedule; F. An invoice of the vendor of the Item; and G. If requested by Lessor, bills of sale, financing statements, lien waivers and any other documents reasonably necessary in Lessor's opinion. The effectiveness of any Lease identified in the Schedule as a UCC 2A "finance lease" is conditioned upon Lessee's approval of the contract for Lessor's purchase of the Equipment. Section 5. Representations and Warranties. A. Lessor warrants that if no Default has occurred, Lessee's use of each Item under a Lease shall not be interrupted by Lessor or anyone claiming solely through Lessor. The foregoing is in lieu of all other written, oral or implied warranties of Lessor, and Lessor shall not, due to this or any other document or any other reason, be deemed to have made any other warranties. LESSOR LEASES THE EQUIPMENT AS IS, WITHOUT WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, (i) ITS DESIGN, PERFORMANCE, SPECIFICATIONS OR CONDITION, (ii) ITS MERCHANTABILITY, (iii) ITS FITNESS FOR ANY PARTICULAR PURPOSE, (iv) LESSOR'S TITLE THERETO, (v) INTERFERENCE BY ANY PARTY OTHER THAN LESSOR WITH THE QUIET ENJOYMENT THEROF, OR (vi) THE QUALITY OF ITS MATERIAL OR WORKMANSHIP OR ITS CONFORMITY TO THE SPECIFICATIONS OF ANY RELATED PURCHASE DOCUMENT. AS BETWEEN LESSOR AND LESSEE, ALL SUCH RISKS SHALL BE BORNE BY LESSEE. During the Lease, Lessee may, at its expense, assert for Lessor's account Lessor's rights under any warranty on the Equipment, and Lessor will cooperate with Lessee in doing so if Lessee indemnifies and holds Lessor harmless from and against all related claims, costs, losses and liabilities. Any warranty payment received shall be applied to restore the Equipment to the conditions it should have been in when delivered to Lessee, ordinary wear and tear excepted, with any balance retained by Lessor. Lessor shall not be responsible for special or consequential damages relating to its obligations or performance under the Agreement. B. Lessee represents and warrants that: (i) Lessee, if a corporation, is duly organized and in good standing and is qualified to do business wherever necessary for its operations; -21- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT (ii) Lessee, if an entity other than a corporation, is duly organized, registered and validly existing under applicable law and is qualified to business wherever necessary for its operations; (iii) Lessee has duly authorized this Agreement, and its execution, delivery and performance do not require any further approval or notice, do not contravene Lessee's organizational documents or by-laws, any other agreement, or any law or regulation; (iv) The Agreement is Lessee's legal, valid and enforceable obligation; (v) There are no judgements or pending or threatened proceedings which may materially adversely affect Lessee; (vi) Lessee's balance sheet, income statement and statement of cash flows for its most recent fiscal year have been given to Lessor and follow generally accepted accounting principles consistently applied, and there has been no material adverse change in Lessee's condition or operations since the date thereof; (vii) Lessee shall keep the Equipment duly registered in Lessor's name and file timely any required reports regarding the Equipment, or, at Lessor's request, Lessee shall give Lessor all information necessary for Lessor to do so; and (viii) Lessee shall not dissolve, consolidate with, or merge into any other entity or transfer or lease substantially all of its assets without Lessor's prior written consent. C. "Year 2000 Compliant" shall mean, with regard to any entity, that all software, hardware, firmware, equipment, goods or systems used by or material to the business operations or financial condition of such entity will properly perform date-sensitive functions before, during and after January 1, 2000. Such date-sensitive functions shall included without limitations, (a) interpretations of years greater than 1999, (b) process date data from, into, and between dates before January 1, 2000, and dates on or after January 1, 2000, (c) recognizing numbers such as "99" as an actual date rather than indefinite or an unknown information, (d) recognizing that the year 2000 is a leap year, and (e) transferring data between systems that used the different methods to make the system Year 2000 Compliant. Lessee represents and warrants to Lessor that Lessee has developed a detailed plan to ensure that Lessee, it affiliates, and all customers, suppliers and vendors that are material to the Lessee's business, become Year 2000 Compliant on or before June 30, 1999. The plan (a) effectively prioritizes mission-critical systems, (b) has the involvement of executive management, (c) includes assessment of Year 2000 Compliance of the customer, supplier, and vendors, (d) includes contingency planning to mitigate risk from Year 2000 business interruptions affecting key vendors, suppliers, or customers, and (e) has been allocated with adequate resources within Lessee's abilities. Section 6. Mortgages, Liens, Personality, Etc. Lessee will not directly or indirectly create, incur, assume or permit the existence of any mortgage, security interest, pledge, lien, charge, encumbrance or claim on or with respect to the Equipment, title thereto or any interest therein except (a) the respective rights of Lessor and Lessee as herein provided, (b) liens or encumbrances which result from claims against -22- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT Lessor except to the extent that such liens and encumbrances arise from failure of Lessee to perform any of Lessee's obligations hereunder, and (c) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings. Lessee will promptly, at its own expense, take such action as may be necessary duly to discharge any such mortgage, security interest, pledge, lien, charge encumbrance or claim not specifically excepted above. The Items shall be personal property even if attached to the real property. Section 7. Taxes. Lessee agrees to pay promptly when due and to indemnify and hold Lessor harmless from all sales, use, personal property, leasing, leasing use, stamp or other taxes, levies, imposts, duties, charges, fees or withholding of any nature (together with any penalties, fines or interest thereon) imposed against Lessor, Lessee or the Equipment by any federal, state, local or foreign government or taxing authority upon or with respect to the Equipment or upon the purchase, ownership, delivery, leasing, possession, use operation, return or other disposition thereof, or upon the rentals, receipts or earnings arising therefrom, or upon or with respect to any Lease (excluding, however, federal, state and local taxes on or measured solely by the net income of Lessor) unless, and to the extent only, that any such tax, levy, impost, duty, charge or withholding is being contested by Lessee in good faith and by appropriate proceedings. In case any report or return is required to be made with respect to any obligation of Lessee under this Section Lessee will notify Lessor of such requirement and make such report or return in such manner as shall be satisfactory to Lessor. Lessor agrees to cooperate fully with lessee in the preparation of any such reports or returns. Lessee agrees to remit all applicable sale or use taxes to Lessor promptly upon receipt of an invoice therefor. Section 8. Title; Use, Maintenance and Operation, Identification Marking. A. Lessor shall retain full legal title to the Equipment notwithstanding delivery to and possession and use thereof by Lessee. Upon delivery of the Equipment Lessee shall cause said Equipment to be duly registered, and at all times thereafter to remain duly registered, in the name of Lessor, or at Lessor's request shall furnish to Lessor such information as may be required to enable Lessor to make application for such registration and shall promptly furnish to Lessor such information as may be required to enable Lessor to file timely any reports required to be filed by it as Lessor under the Lease or as the owner of the Equipment with any governmental authority. B. Lessee agrees that the Equipment will be used solely in the conduct of its business. Lessee further agrees to comply in all material respects with all applicable governmental laws, regulations, requirements and rules with respect to the use, maintenance and operation of each Item of Equipment. Lessee agrees that each Item of Equipment (except Items which prior to the execution of the Lease Lessee shall have advised Lessor in writing are normally used or to be used in more than one Location) will be kept at the address shown in the Schedules with respect to such Item unless Lessor shall first otherwise consent in writing. Lessee will immediately give written notice to Lessor of any change in ins principal place of business. Lessee, at its own cost and expense, will repair and maintain the Equipment so as to keep it in a good condition as when delivered to Lessee hereunder, ordinary wear and tear excepted. Lessee may from time to time add -23- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT further parts or accessories to any Item of Equipment provided that such addition does not impair the value, utility or warranties of such Item of Equipment and is readily removable without causing material damage to such Item. C. Lessee agrees at its own cost and expense to place such markings, plates or other identification on the Equipment showing Lessor's title thereto as Lessor may from time to time request, provided such identification markings are places so as not to interfere with the usefulness of such Equipment. Except as above provided, Lessee will not allow the name of any person, association or corporation to be placed on the Equipment as a designation that might be interpreted as a claim of ownership. D. Upon request, Lessee shall inform Lessor of each Item's location and make each Item and Lessee's related records available for inspection at any reasonable time. Section 9. Loss or Destruction. If any item is lost or stolen or becomes permanently unfit for use for any reason (an "Event of Loss"), Lessee shall, within ten (10) days, notify Lessor in writing and shall, at Lessor's option, either (i) replace it with property acceptable to Lessor within thirty (30) days after the Event of Loss or (ii) on the first Rental Payment Date at least twenty (20) days after the Event of Loss, pay to Lessor the value its interest in the Item and the remainder of the Lease thereof (plus compensation for the loss of Tax Benefits, if applicable), as such value is established by Lessor from time to time, (the "Casualty Value") and all unpaid amounts due with respect to such Item through that date. Lessor may apply the Casualty Value payment to Lessee's obligations, whether or not matured, in any order, at Lessor's option. Upon request, Lessor will furnish Lessee a schedule of the Casualty Values for any Item. If Lessee replaces such Item, the replacement shall be of like kind, be free of all liens, encumbrances and rights of others, and have a fair market value substantially equal to the value the replaced Item would have if it were in the conditions required by the Lease. The replacement shall immediately become Lessor's property and part of the Equipment for all purposes, and Lessee's Rental obligation shall not changes. Lessee shall execute any documents Lessor deems necessary to ensure Lessor's full title thereto. The replaced Item shall no longer be part of the Equipment, and Lessor will transfer its interest therein to Lessee without recourse or warranty. If Lessee does not replace such Item, upon payment of all amounts due with respect thereto, Lessee's Rental obligation with respect to the Item shall cease, and Lessor will transfer its interest in the Item to Lessee, without recourse or warranty, "as is and where is." Section 10. Insurance At its own expense, Lessee shall maintain comprehensive general liability, products liability and property damage insurance acceptable to Lessor with respect to each Item in an amount not less than the amount specified in the Schedules relating thereto and, in any event, in an amount sufficient to provide full coverage against all loss and liability. Each such insurance policy shall name Lessor as an insured and as loss payee and -24- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT shall provide that it may be altered or canceled by the insurer only after thirty (30) days prior written notice to Lessor. Lessee agrees to cause certificates or other evidence satisfactory to Lessor showing the existence of such insurance, the terms and conditions of each policy and payment of the premium therefor to be delivered to Lessor upon demand thirty (30) days prior to expiration or cancellation showing renewal or replacement of such policy. In the event Lessee shall fail to obtain and/or maintain insurance in accordance with the provisions of this paragraph, Lessor shall have the right to obtain such insurance as Lessor deems necessary, and Lessee shall reimburse Lessor for the payment by Lessor of all premiums therefor together with interest computed from the date of Lessor's payment at the rate of eighteen percent (18%) per annum. If (a) any insurance proceeds are received with respect to a loss with respect to Equipment which does not constitute an Event of Loss under Section 9, or (b) if Lessee elects to replace an Item or Items suffering an Event of Loss under the provisions of Section 9 hereof, proceeds will be applied in payment for repairs and replacement required pursuant to Section 8 hereof, or to reimburse Lessee have made such payments. Section 11. Indemnification. A. Lessee shall indemnify and hold harmless Lessor and its assignees and their agents and employees from and against all claims, liability (including strict tort and strict products liability), or expenses (including attorney's fees) relating to (i) the Equipment or any part thereof, or its construction, purchase, delivery, installation, ownership, leasing, use, maintenance, repair, replacement, operation, return or condition (whether defects are latent or discoverable), (ii) Lessee's failure to accept the Equipment "as is," (iii) any actual or alleged patent or trademark infringement or act or omission of Lessee or its agents or employees, or (iv) Lessee's financial or tax accounting. This Section shall be effective from the date the first Item is ordered even though not accepted by Lessee. Lessee shall give Lessor prompt notice of any claim or liability indemnified against. B. (OPTIONAL. This Section 11(B) shall apply if so indicated in the applicable Schedule.) Lessor shall be entitled to the following benefits (the "Tax Benefits"): (i) Lessor will be the owner and lessor of each Item for all purposes; (ii) Lessor will have a basis in each Item under Section 1012 of the Internal Revenue Code of 1986, as amended (the "Code") equal to the invoice purchase price indicated in the Schedule therefor; (iii) Each Item will be "3- year," "5-year," "7-year," "10-year," "15-year," or "20-year" property (as defined in Section 168(e) of the Code) as indicated in the Schedule, and Lessor will be allowed 100% of the deduction with respect to each Item in each recovery year as provided in Section 168(b) and (c) of the Code. Neither Lessee nor any of its affiliates will at any time, take or fail to take any action inconsistent with the Tax Benefits or which would increase the amount Lessor is required to take into income with respect to any Item. Lessee shall keep and make available for Lessor's inspection and copying all records necessary to facilitate the foregoing. Lessee represents and warrants that Lessor will be the owner of each Item on or before its Acceptance Date and that each Item will be "placed in service" (within the meaning of the Code and related regulations) no later than the end of the calendar year in which the Acceptance Date occurs. If Lessor shall lose or shall not have the right to any of the Tax Benefits for any reason other than (i) Lessor's sale of an Item before any Event of Default, (ii) Lessor's -25- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT failure to claim the Tax Benefits, (iii) a change in the Lessor's business, or (iv) Lessor's failure to have sufficient income to use the Tax Benefits, then Lessee shall pay Lessor, on demand, an amount which, in Lessor's reasonable opinion and after deduction of all related taxes, will provide Lessor with the same net after-tax return Lessor would have had through Expiration if there had been no such loss. C. Lessor's rights under Section 11 shall survive Expiration or Termination with respect to any Item. For purposes of Section 11, "Lessor" shall include any group of which Lessor is a member which files a consolidated income tax return. Section 12. Assignments and Subleases. Lessor may at any time, without notice, grant a security interest in, transfer or assign any or all Leases, Items, or rights and remedies as Lessor to any party, with such party assuming all, part or none of Lessor's obligations. Lessee shall not assert against such party any defense, counterclaim or offset Lessee may have against Lessor. Lessee acknowledges that any such grant, transfer or assignment would not materially change Lessee's duties, risks or interests under the Agreement. LESSEE SHALL NOT, WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, SUBLEASE OR RELINQUISH POSSESSION OF ANY ITEM OR ASSIGN ANY OF ITS RIGHTS OR DELEGATE ANY OF ITS OBLIGATIONS HEREUNDER. Lessee grants Lessor a security interest in any existing or future sublease of an Item and the proceeds thereof, whether or not such sublease is prohibited. Section 13. Default; Remedies. A. The following shall be Events of Default: (i) Lessee's failure to pay any Rental when due which continues unremedied for ten (10) days; (ii) Lessee's failure to maintain required insurance; (iii) Lessee's failure to pay any amount other than Rental or perform any obligation under the Agreement for then (10) days after notice of non-performance from Lessor; (iv) The failure of any of Lessee's representations or warranties herein or in any related document to be correct in any respect at any time; (v) Lessee's insolvency, bankruptcy, or assignment for the benefit of creditors, or the appointment of or Lessee's consent to the appointment of a trustee or receiver for Lessee or a substantial part of its property; (vi) Any event of default or default as described in the documentation executed in connection with any other credit or lease facility extended by Lessor, or any affiliated company of Lessor, to Lessee; (vii) Lessee's failure to perform any obligation under any agreement with Lessor or any other creditor; (viii) The existence of any judgements or any pending or threatened proceedings which may adversely affect Lessee; (ix) An adverse change in Lessee's financial condition as a result of which Lessor, in good faith, deems itself or any Item to be insecure; or (x) The occurrence of any of the above Events of Default with regard to any guarantor of any of Lessee's obligations under the Agreement. B. "Default" shall mean an Event of Default or an event which would be an Event of Default with only the passage of time or the giving of notice or both. C. At any time after an Event of Default, Lessor may, at its option, exercise any one or more of the following remedies and any other remedies under applicable law: (i) By written notice, terminate any or all Leases, whereupon Lessee's rights to possess and use the Equipment shall cease; (ii) -26- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT By court action, enforce Lessee's performance of the Agreement and/or recover damages for its breach; (iii) Whether or not a Lease is terminated, cause Lessee to promptly return such Equipment in accordance with Section 3; (iv) At any hour, without notice, and without liability except for malicious acts, enter Lessee's or any other premises and take possession of or render unusable any Item and attachments thereon, whether or not the property of Lessor; (v) Retain, use, re-lease or sell at public or private sale the Item and attachments thereon; (vi) Recover (a) all accrued and unpaid Rental and other amounts payable under the Agreement (including all of Lessor's costs and any decrease in the value of any Item resulting from Lessee's failure to maintain, operate, remove, or deliver the Item as required by the Lease) and (b) as liquidated damages and not as penalty, (1) the amount of each remaining Rental payment (which otherwise would have accrued thereafter) and the Fair Market Value of each Item (assuming its sale at Expiration) all discounted at the rate of six percent (6%) per annum to the date the Item is returned to or recovered by Lessor (or if it is not returned or recovered, to the date of judgment against Lessee) minus (2) the Fair Market Value of such Item on the date of such return, recovery or judgement; (vii) Recover (a) all of its related expenses, collection costs and costs of remarketing the Equipment, including employees' salaries and reasonable attorneys' fees (including fees on appeal), (b) interest on all amounts payable under any Lease at the rate of eighteen percent (18%) per annum or the maximum rate allowed by law, whichever is less, compounded daily, both before and after judgement, and (c) if applicable, an amount sufficient in Lessor's opinion to compensate Lessor for the related loss of Tax Benefits. D. Lessor's remedies shall be cumulative and in addition to all other legal or equitable remedies. No express or implied waiver of any Default shall waive any later Default. Lessor's complete or partial failure to exercise or delay in exercising any right shall not waive or exhaust such right or any other right. E. To the extent allowed, Lessee waives (i) all rights under UCC 2A Sections 508-522 or any similar laws, including rights to cancel or repudiate; reject or revoke acceptance; claim a security interest; deduct claimed damages; accept partial delivery; cover; recover general, special, incidental or consequential damages; and seek specific performance, replevin, or the like and (ii) any rights now or hereafter conferred by law requiring Lessor to sell, lease or use any Item to mitigate damages or which might otherwise modify Lessor's right or remedies. F. Any action by Lessee against Lessor relating to the Agreement must be commenced within one (1) year after any such cause of action accrues. Section 14. Lessor's Performance for Lessee. Lessee authorizes Lessor or Lessor's agent to sign, on Lessee's behalf, financing statements, reports and similar documents with respect to any Item an all related replacements, modifications, attachments and additions and the proceeds thereof. If Lessee fails to perform any obligation under the Agreement, Lessor may do so, but shall not be required to, make payment or perform or comply with any covenant or agreement contained herein, and all reasonable expenses of Lessor incurred in connection therewith shall be payable by Lessee upon demand together with interest as set out in Section 2(B) herein. -27- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT Section 15. Further Assurances; Financial Information. Lessee will promptly execute and deliver to Lessor such documents and take such action as Lessor may request in order to carry out the intent of the Agreement and protect Lessor's rights. Lessee, at its sole expense, shall deliver to Lessor a balance sheet, income statement and statement of cash flows prepared by accountants acceptable to Lessor within one hundred twenty (120) days after the close of each fiscal year of Lessee and within forty-five (45) days after the close of each fiscal quarter and shall execute and deliver financing statements with respect to the Equipment in accordance with the laws of such jurisdictions as Lessor may from time to time deem advisable. Section 16. Notices and Payments. Notices and payments to Lessor shall be sent to or made at the following address: First Security Leasing Company, 381 East Broadway, 2nd Floor, Salt Lake City, Utah 84111, or such other address as Lessor may designate in writing. Notices to Lessee may be sent to the address on the signature page hereof. All required notices shall be in writing and be effective when placed in the United States mail, first class postage prepaid. Section 17. Year 2000. The lessee shall take all actions that may be necessary or desirable, or that Lessor may reasonably request, in order to ensure that the lessee, its affiliates and all customers, suppliers and vendors that are material to the Lessee's business, become Year 2000 Compliant on or before June 30, 1999. Such actions shall include, without limitation, (a) performing a comprehensive inventory, review and assessment of all the Lessee's systems and adopting a detailed plan with, itemized budget and timetable, for the remediation, monitoring and testing such systems, and (b) making a detailed inquiry of all material customers, suppliers and vendors to ascertain whether such entities are aware of the need to be Year 2000 Compliant and are taking all appropriate steps to become Year 2000 Compliant on a timely basis. Lessee shall, promptly, upon request, provide to Lessor such certifications or other evidence of Lessee's compliance within the terms of this section as Lessor may, from time to time, reasonably require. Section 18. Execution of Financing Statements and Title Documents. Lessee agrees to execute and deliver to Lessor such financing statements and/or title documents as reasonably requested by Lessor to protect and identify Lessor's interest in the Equipment. Lessee appoints Lessor, or Lessor's agents or assigns, its true and lawful attorney-in-fact to prepare, to execute and to sign any instrument or financing statement concerning the Equipment, to sign the name of Lessee with the same force and effect as if signed by Lessee, and to file the same at the locations reasonably determined by Lessor. Section 19. Miscellaneous. A. If there is more than one Lessee, their liability shall be joint and several, and each Lessee has the authority to enter into written agreements with Lessor modifying or extending the terms of the Agreement on behalf of each other Lessee. If used herein or in any related document, the term "Co-lessee" or "Co-lessees" shall by synonymous with "Lessee" as defined herein. B. Any provision of this Agreement which may be determined by competent -28- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. C. The Agreement may only be changed by a writing signed by the party against which enforcement of the change is sought. No third-party manufacturer, supplier, salesperson, or broker, or any agent thereof, is Lessor's agent or is authorized to waive or modify any provision of the Agreement. D. Lessee shall have no interest in any Item except as specified in the Agreement. E. THE AGREEMENT SHALL BE GOVERNED BY NEVADA LAW. In order to induce Lessor to enter into the Agreement (and, if Lessee executes it outside of Utah, in consideration for Lessor allowing Lessee to do so) Lessee agrees that ANY PROCEEDING AGAINST LESSEE MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN NEVADA AND LESSEE UNCONDITIONALLY AGREES TO BE BOUND BY JUDGMENTS OF SUCH COURTS. If Lessee is not a Utah resident, service of process upon Lessee by mail shall be sufficient. Lessor may serve process in any other manner and bring proceedings in any jurisdiction. F. The word "including" as used in the Agreement shall mean "including, but not limited to." G. The Agreement and related documents executed by the parties contain their entire agreement, and there are no related oral agreements, representations or warranties. The Agreement shall benefit and be binding upon the parties' heirs, personal representatives, successors and assigns. -29- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT LESSEE ACKNOWLEDGES THAT IT HAS READ THE ENTIRE MASTER LEASE. IN WITNESS WHEREOF, the parties have caused this Master Lease to be executed as of November 3, 1999, and Lessee's signatories warrant their authority to sign on Lessee's behalf. CO-LESSEES: MONARCH CASINO & RESORT, INC. AND GOLDEN ROAD MOTOR INN, INC. dba ATLANTIS CASINO RESORT LESSEE: MONARCH CASINO & RESORT, INC. LESSEE: GOLDEN ROAD MOTOR INN, INC. dba: ATLANTIS CASINO RESORT a(n) Nevada Corporation a(n) Nevada Corporation BY: /S/ John Farahi BY: /S/ John Farahi ================ ================ Title: CEO Title: CEO ============== ============== Address: 3800 S. Virginia Street Address: 3800 S. Virginia Street Reno, NV 89502 Reno, NV 89502 Federal ID or Federal ID or Social Security Number 88-0300760 Social Security Number 88-0117859 LESSOR: First Security Leasing Company of Nevada BY: /S/ Jerry J. Velarde ===================== TITLE: AVP Authorized Representative ========================= Address: c/o First Security Leasing Company 381 East Broadway, 2nd Floor Salt Lake City, Utah 84111 -30- Lease No. 025-3003833 ============ FIRST SECURITY LEASING COMPANY OF NEVADA LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT This Lease Schedule to Master Equipment lease Agreement (the "Lease Schedule") between the signatories hereof dated as of November 3, 1999 and constitutes a separate lease (the "Lease") thereunder. All terms and conditions of the Agreement are hereby incorporated herein and made a part hereof as if such terms and conditions were set forth in this Lease Schedule at length and all capitalized terms not otherwise defined in this Lease Schedule shall have the meaning set out in the Agreement. By their execution and delivery of this Lease Schedule Lessor and Lessee hereby reaffirm on and as of the date hereof all the terms, conditions, agreements, representations and warranties contained in the Agreement. A copy of the signed Agreement attached to the Lease Schedule, which attachment shall adopt the copied signatures on the Agreement as of the date of the Lease Schedule, shall constitute an original lease. A copy of the Agreement and the Lease Schedule shall alone constitute the chattel paper for purposes of perfecting a security interest. A. Description of Equipment ID New Invoice or or Purchase Quantity Vendor Description Serial # Used Price ======== ====== =========== ======== ==== ======== TWO (2) SETS OF 23 FT 9 INCH OVER ALL AREA HEIGHT ILLUMINATED CHANNEL LETTERS COPY "ATLANTIS" BUILT USING GRID NEON WITH 6 INCH SPACE AND USING 2 Mikohn 60 MA TRANSFORMERS New $214,500.00 Lighting NEON WILL BE MOUNTED ON A MULT- & Sign COLORED PAINTED METAL BACKGROUND TO MATCH THE EXISTING BUILDING LETTERS LOCATED ON THE LOWER TOWER THE LETTERS WILL HAVE GOLD POLISHED RETURNS ANS SINGLE WHITE NEON OUTLINE (Tax in the amount of $14,500.00 paid directly to the State of Nevada) TOTAL INVOICE PURCHASE PRICE: $214,500.00 B. Term. 60 months. C. Rental. 1. Frequency: Monthly 2. Advanced or Arrears: Advance 3. Rental Payment Dates: July 3, 2000, and on the same day of each Month with the final payment on June 3, 2005. -31- Lease No. 025-3003833 ============ FIRST SECURITY LEASING COMPANY OF NEVADA LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT 4. Basic Rental in an amount equal to .0202716 of the total invoice purchase price of all Items is payable on each Rental Payment Date. 5. Interim Rental in an amount equal to .000254 of the invoice purchase price for each Item for each day from and including the date of acceptance for such Item to but excluding the first Rental Payment Date will be payable on the first Rental Payment Date. D. Residual Value. 0 of the invoice purchase price of each item. E. Location. The Equipment shall be located at: Address: 3800 S. VIRGINIA STREET RENO, NV 89502 County: WASHOE If required, the Equipment will be registered in NV. F. Security Deposit. Concurrently with the execution hereof Lessee shall deposit with Lessor the sum of N/A as a security deposit which Lessor may use to satisfy any unpaid late charges, recording fees or other amounts due and unpaid. Any unused portion of the deposit will be returned to Lessee without interest upon expiration or earlier termination of the Lease and upon payment of all sums then due and owing to Lessor, or Lessee may, at its option, apply the unused balance of the security deposit toward the last Rental payment. G. Insurance. The minimum amount of insurance to be provided by Lessee as required under the terms of the Agreement shall be as follows: 1. Liability: $1,000,000.00 each individual $1,000,000.00 each accident $1,000,000.00 property damage liability 2. Physical Damage and Loss: $200,000.00 3. Additional riders, exclusions or special terms required by Lessor: N/A -32- EXHIBIT "A" Maintenance & Return Conditions =============================== 03.10 Electronic Signs ====================== Maintenance, Use & Repair: ========================== a. Lessee agrees to use the signage, "the Equipment," for the purpose for which it was designed by the original manufacturer. b. Lessee's use of the Equipment shall be in compliance with all federal, state and local regulations regarding the use of such Equipment. c. Lessee shall not move the Equipment from the location(s) as specified in the lease without the prior written consent of the Lessor. d. Lessee, at its own cost and expense, enter into and maintain in force a maintenance contract with the manufacturer of the Equipment or such party as shall be acceptable to Lessor. If Lessee has the Equipment maintained by a party other than the manufacturer, Lessee hereby assumes and agrees to pay any costs necessary to have the manufacturer re-certify the Equipment as eligible for its then standard maintenance contract, at the scheduled expiration of the lease term, which lease term shall continue upon the same terms and conditions until such re-certification has been obtained. e. Lessee may, upon notification to Lessor, upgrade the Equipment during the lease term as it deems necessary. The Equipment will be maintained throughout the term of the lease at a capacity equal to or greater than the capacity of the Equipment at the inception of the lease agreement. Return Conditions: ================== a. If the Equipment is to be returned to Lessor, Lessee shall return all, but not less than all, of the Equipment, together with all maintenance agreements, service records, handbooks, manuals, cabling, certificates, or other instructions and written material relating to the Equipment, to Lessor free and clear of all liens, encumbrances or other charges. At the time of return of the signage the lessee will pay a remarketing fee to the lessor equal to 20% of the original equipment cost. b. De-installation, packing and shipment is to be performed by Lessee, at its sole cost and expense, in accordance with any manufacturer's specifications and requirements. c. The equipment will be delivered by Lessee, at its sole cost and expense, to the manufacturer's location in Reno designated by Lessor in writing. There will be no missing or damaged parts and the equipment will function as when first delivered, except for normal wear and tear after the 60 month term. CO-LESSEE: MONARCH CASINO & RESORT, INC. CO-LESSEE: GOLDEN ROAD MOTOR INN, INC. DBA ATLANTIS CASINO & RESORT By: /S/ John Farahi By: /S/ John Farahi =============== =============== Its: CEO Its: CEO =============== =============== -33- EX-10 2 ex1023qt.txt EXHIBIT 10.2 Lease No. 025-3003833 ============ First Security Leasing Company of Nevada LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT This Lease Schedule to Master Equipment Lease Agreement (the "Lease Schedule") is entered into pursuant to the terms of the Master Equipment Lease Agreement (the "Agreement") between the signatories hereof dated November 3, 1999 and constitutes a separate lease (the "Lease") thereunder. All the terms and conditions of the Agreement are hereby incorporated herein and made a part hereof as if such terms and conditions were set forth in this Lease Schedule at length and all capitalized terms not otherwise defined in this Lease Schedule shall have the meaning set out in the Agreement. By their execution and delivery of this Lease Schedule Lessor and Lessee hereby reaffirm on and as of the date hereof all the terms, conditions, agreements, representations and warranties contained in the Agreement. A copy of the signed Agreement attached to the Lease Schedule, which attachment shall adopt the copied signatures on the Agreement as of the date of the Lease Schedule, shall constitute an original lease. A copy of the Agreement and the Lease Schedule shall alone constitute the chattel paper for purposes of perfecting a security interest. A. Description of Equipment ID New Invoice or or Purchase Quantity Vendor Description Serial # Used Price ======== ====== =========== ======== ==== ======== TWO (2) SETS OF 23 FT 9 INCH OVER ALL AREA HEIGHT ILLUMINATED CHANNEL LETTERS COPY "ATLANTIS" BUILT USING GRID NEON WITH 6 INCH SPACE AND USING 2 Mikohn 60 MA TRANSFORMERS New $214,500.00 Lighting NEON WILL BE MOUNTED ON A MULT- & Sign COLORED PAINTED METAL BACKGROUND TO MATCH THE EXISTING BUILDING LETTERS LOCATED ON THE LOWER TOWER THE LETTERS WILL HAVE GOLD POLISHED RETURNS ANS SINGLE WHITE NEON OUTLINE (Tax in the amount of $14,500.00 paid directly to the State of Nevada) TOTAL INVOICE PURCHASE PRICE: $214,500.00 B. Term. 60 months. C. Rental. 1. Frequency: Monthly 2. Advanced or Arrears: Advance 3. Rental Payment Dates: July 3, 2000, and on the same day of each Month with the final payment on June 3, 2005. -34- Lease No. 025-3003833 ============ First Security Leasing Company of Nevada LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT 4. Basic Rental in an amount equal to .0202716 of the total invoice purchase price of all Items is payable on each Rental Payment Date. 5. Interim Rental in an amount equal to .000254 of the invoice purchase price for each Item for each day from and including the date of acceptance for such Item to but excluding the first Rental Payment Date will be payable on the first Rental Payment Date. D. Residual Value. 0 of the invoice purchase price of each item. E. Location. The Equipment shall be located at: Address: 3800 S. VIRGINIA STREET RENO, NV 89502 County: WASHOE If required, the Equipment will be registered in NV. F. Security Deposit. Concurrently with the execution hereof Lessee shall deposit with Lessor the sum of N/A as a security deposit which Lessor may use to satisfy any unpaid late charges, recording fees or other amounts due and unpaid. Any unused portion of the deposit will be returned to Lessee without interest upon expiration or earlier termination of the Lease and upon payment of all sums then due and owing to Lessor, or Lessee may, at its option, apply the unused balance of the security deposit toward the last Rental payment. G. Insurance. The minimum amount of insurance to be provided by Lessee as required under the terms of the Agreement shall be as follows: 1. Liability: $1,000,000.00 each individual $1,000,000.00 each accident $1,000,000.00 property damage liability 2. Physical Damage and Loss: $200,000.00 3. Additional riders, exclusions or special terms required by Lessor: N/A H. Other Terms. I. Execution of Financing Statements and Title Documents. Lessee agrees to execute and deliver to Lessor such financing statements and/or title documents as reasonably requested by Lessor to protect and identify Lessor's interest in the Equipment. Lessee appoints Lessor, or Lessor's agents or assigns, its true and lawful attorney-in-fact to prepare, to execute and to sign the name of Lessee with the same force and effect as if signed by Lessee, and to file the same at the locations reasonably determined by Lessor. -35- Lease No. 025-3003833 ============ First Security Leasing Company of Nevada LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Schedule to be duly executed on behalf of each of them on November 3, 1999 and the signatories warrant their authority to bind principles. CO-LESSEES: MONARCH CASINO & RESORT, INC. and GOLDEN ROAD MOTOR INN, INC. dba ATLANTIS CASINO & RESORT LESSEE: MONARCH CASINO & RESORT, INC. LESSOR: FIRST SECURITY a(n) Nevada Corporation LEASING COMPANY OF NEVADA BY: /S/ John Farahi BY: /S/ Jerry J. Velarde =============== =================== John Farahi, CEO Jerry J. Velarde, AVP TITLE: CEO TITLE: AVP Authorized ================ Representative ================ Address: 3800 S. VIGINIA STREET ADDRESS: c/o First Security Reno, NV 89502 Leasing Company 381 East Broadway, Federal ID or Social 2nd Floor Security Number: 88-0300760 Salt Lake City, UT 84111 GOLDEN ROAD MOTOR INN, INC. dba ATLANTIS CASINO RESORT a(n) Nevada Corporation BY: /S/ John Farahi =============== John Farahi, CEO TITLE: CEO ================ Address: 3800 S. VIRGINIA STREET RENO, NV 89502 Federal ID or Social Security Number: 88-0117859 -36- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT This MASTER EQUIPMENT LEASE AGREEMENT is between the First Security Leasing Company of Nevada ("Lessor") and the lessee or lessees specified below ("Lessee"). Section 1. Declaration of Intent to Lease; Delivery and Acceptance of Equipment. A. Subject to the terms hereof, Lessor agrees to make payment for and to lease to Lessee the personal property described in Schedules, as defined below, (hereinafter referred to collectively as "Equipment" and individually as "Item" or "Item of Equipment"), and Lessee agrees to lease each such Item of Equipment from Lessor for the Rental specified in the Lease Schedules to Master Equipment Lease Agreement entered into pursuant to this Agreement and making specific reference hereto (the "Schedules"), subject to the terms and conditions set forth herein and in the Schedules. B. There may be one or more Schedules under this Agreement executed either simultaneously with or subsequent to the execution and delivery of this Agreement. Each Schedule making specific reference to the Agreement and incorporating the terms hereof shall constitute a separate lease which will be identified by a Lease Number identified in such Schedule. The term "Agreement" used herein shall refer to this Master Equipment Lease Agreement and the Schedules. The lease created by a particular Schedule and a copy of the Master Equipment Lease Agreement shall be referred to as "a Lease". The terms of this Master Equipment Lease Agreement may be changed, modified or supplemented in Section 1 of any Schedule. Section 2. Term; Rental and Late Charges. A. The term of each Lease with respect to any Item of Equipment (the "Term") shall commence on the date of acceptance indicated in the Schedules hereof relating thereto (the "Acceptance Date") and shall end, unless earlier terminated in accordance with the provisions of this Agreement, at the expiration of the Term specified in the Schedule. B. Lessee shall pay to Lessor Basic Rental and Interim Rental for each Item of Equipment in the amounts and on the dates specified in the Schedules (each a "Rental Payment Date"). C. In the event any Rental or other amount payable hereunder shall not be paid within ten (10) days when due, Lessee shall pay to Lessor, as supplemental rental, an amount equal to five percent (5%) of such overdue Rental, plus interest on such overdue payment until paid, at the rate of eighteen percent (18%) per annum. D. All payments to Lessor provided for in this Lease shall be paid to Lessor at the address indicated herein or at such other place as Lessor shall specify in writing. E. All Leases created hereunder are net leases and Lessee shall not be entitled to any abatement of Rental, Residual Value or other charges payable hereunder by Lessee or withholding thereof from Lessor or any reduction thereof, including, but not limited to, abatements or reductions due to any present or future claims of Lessee against Lessor or any assigned under this Agreement or otherwise, or against the manufacturer or vendor of the Equipment, nor, except as otherwise expressly provided herein, shall this Agreement terminate, or the obligations of Lessee be affected, by reason of any defect in or damage to or loss or destruction of all or any of the Equipment from whatever cause, the interference with use by any private person, corporation or governmental authority, the invalidity, -37- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT unenforceability or lack of due authorization of this Agreement or lack of right, power or authority of Lessor to enter into this Agreement, or for any other cause whether similar or dissimilar to the foregoing. Section 3. Early Termination; Renewal; Purchase. A. Provided no Event of Default shall have occurred and be continuing hereunder, Lessee shall have the right during the Term, upon not less than sixty (60) days' prior written notice to Lessor, to terminate a Lease with respect to all, but not less than all, Items thereunder as of the next succeeding Rental Payment Date following such notice, subject to Lessor's receipt of the payments specified in the following sentence. On or before the termination of a Lease, Lessee shall pay to Owner: (1) all Rental due and to become due up to an including the next succeeding Rental Payment Date following such notice; and (2) the Termination Value of the Equipment being terminated as of such next succeeding Rental Payment Date. Upon payment of all such amounts the obligation of Lessee to pay Rental on each succeeding Rental Payment Date shall then terminate. The "Termination Value" of an Item shall mean, as of any Rental Payment Date, the present value of the sum of (i) all remaining installments of Rental (excluding the installment due on such Rental Payment Date) and (ii) the Residual Value indicated in the Schedule relating thereto, computed by discounting such amounts at such rate and applying such penalties as shall then be consistent with Lessor's normal business practices. B. Provided no Event of Default shall have occurred and be continuing hereunder, Lessee shall have the right, upon not less than sixty (60) days' prior written notice to Lessor, to renew a Lease upon the expiration of the term thereof with respect to all, but not less than all, Items thereunder for such term as Lessor and Lessee agree and with Rental payments which will fully amortize the Residual Value at then current market rates. C. Upon the expiration of the Term of a Lease, unless renewed or terminated earlier in accordance herewith, Lessee shall pay to Lessor on the final day of the Term an amount in cash equal to the Residual Value of all, but not less than all, Items thereunder. D. If Lessee shall determine upon the expiration of the Term of a Lease or the termination thereof pursuant to this Section 3, to sell the Equipment thereunder to a third party rather than to retain such Equipment, Lessee shall notify Lessor in writing of such determination at lease sixty (60) days prior to such expiration or termination. Upon receipt of such notice, Lessor shall act as the exclusive agent of Lessee to sell such Equipment. Lessor shall use its best efforts to arrange a sale for cash of the Equipment at then current market values. Lessee agrees to reimburse Lessor for all expenses incurred by Lessor in connection with such sale including the costs of repair or preparation of the Equipment and to pay a reasonable fee for such services. Lessor shall be entitled to retain from the proceeds of any such sale or lease any amounts then still due and owing to Lessor. Any excess shall be paid to Lessee. Nothing in this paragraph shall be construed to relieve Lessee of its obligation to pay the applicable Termination Value and Residual Value on the date such payments are due under Sections 3(A) and 3(C) hereof. E. All sales pursuant to this Section 3 shall be made without any representation, recourse or warranty on the part of Lessor except that Lessor shall warrant that the Equipment is free and clear of all liens, charges and encumbrances arising as a result of claims against Lessor not related to its -38- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT ownership of the Equipment. Lessor shall deliver to Lessee or other buyer any and all documents reasonably requested to transfer title to such Equipment on an as-is where-is basis. Section 4. Conditions Precedent. The obligation of Lessor to lease an Item of Equipment and to make payment to the vendor therefor is subject to Lessee's supplying the following, if requested by Lessor, at Lessee's expense, in form and substance satisfactory to Lessor. A. Articles of Incorporation and By-laws of Lessee, and resolutions of the Board of Directors, each certified by the Secretary or an Assistant Secretary duly authorizing each Lease of Equipment hereunder and the execution, delivery and performance of this Agreement and each Schedule if Lessee is a corporation; B. Partnership Agreement, trust indenture, assumed name filings or such other documents as Lessor may demand if lessee is not a corporation; C. Evidence satisfactory to Lessor as to due compliance with the insurance provisions of Section 11 hereof and Section G of the Schedules; D. A favorable written opinion of counsel for Lessee satisfactory to Lessor as to each of the matters set forth in Section 5(B)(i)-(vi) hereof and as to such other matters as Lessor may reasonably request; E. A completed and signed Schedule including a description of such Item; and F. Vendor's invoice of the Item. Section 5. Representations and Warranties. A. Lessor's Representations and Warranties. Lessor warrants that during the Term of any Lease, if no Event of Default has occurred, Lessee's use of the Equipment shall not be interrupted by Lessor or anyone claiming solely through or under Lessor. The warranties set forth in the preceding paragraph are in lieu of all other warranties of Lessor, whether written, oral or implied, and Lessor shall not, by virtue of having executed this Agreement or any other document pursuant to this Agreement, or for any other reason, be deemed to have made any other warranties. LESSOR LEASES THE EQUIPMENT AS IS WITHOUT WARRANTY OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION (A) THE DESIGN, PERFORMANCE, SPECIFICATIONS OR CONDITION OF ANY ITEM OR ITEMS OF EQUIPMENT, (B) THE MERCHANTABILITY THEREOF, (C) THE FITNESS FOR ANY PARTICULAR PURPOSE THEREOF, (D) THE LESSOR'S TITLE THERETO, (E) INTERFERENCE BY ANY PARTY OTHER THAN LESSOR WITH LESSEE'S RIGHT TO THE QUIET ENJOYMENT THEREOF, OR (F) THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE EQUIPMENT OR CONFORMITY THEREOF TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE ORDER RELATING THERETO, IT BEING AGREED THAT ALL SUCH RISKS AS BETWEEN LESSOR AND LESSEE ARE TO BE BORNE BY LESSEE. LESSEE FURTHER UNDERSTANDS AND AGREES THAT NEITHER THE EQUIPMENT SUPPLIER NOR ANY SALESPERSON OR OTHER AGENT OR EMPLOYER OF SUCH SUPPLIER IS AN AGENT FOR OR HAS ANY AUTHORITY TO SPEAK FOR OR TO BIND LESSOR IN ANY WAY, LESSOR IS NOT AN AGENT OR REPRESENTATIVE OF SUCH SUPPLIER. Lessor hereby authorizes Lessee, at Lessee's expense, to assert for Lessor's account during the Term of a Lease, all of Lessor's rights under any manufacturer's vendor's or dealer's warranty on the Equipment to the extent permitted by law and agreement, and Lessor agrees to cooperate with Lessee n asserting such rights; provided, however, Lessee shall indemnify and hold harmless Lessor -39- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT from and against any and all claims, and all costs, expenses, damages, losses and liabilities incurred or suffered by Lessor in connection therewith, as a result of, or incident to, any action by Lessee pursuant to the above authorization. Lessor shall not be responsible for special or consequential damages relating to its obligations or performance under their Agreement. B. Lessee's Representations and Warranties. Lessee represents and warrants that: (i) Lessee, if a corporation, is duly organized and existing in good standing under the laws of the state of its incorporation, and is duly qualified to do business in those jurisdictions (including those where the Equipment will be located) where such qualification is necessary to carry on its present business operations; (ii) Lessee, if a partnership, trust or other entity, is duly organized, registered and validly existing under the laws of the jurisdiction of its organization or residence and is duly qualified to do business in those jurisdictions (including those where the Equipment will be located) where such qualification is necessary to carry on its present business operations; (iii) Lessee has full power, authority and legal right to execute, deliver and perform the terms of this Agreement. This Agreement has been duly authorized by all necessary corporate action on the part of Lessee and the execution, delivery and performance thereof do not require any stockholder approval, do not require the approval of or the giving of notice to any federal, state, local or foreign government authority, do not contravene any law binding on Lessee or Lessee's certificate or articles of incorporation or by-laws and do not contravene or constitute a default under any indenture, credit agreement or other agreement to which Lessee is a party or by which it is bound; (iv) This Agreement constitutes a legal, valid and binding obligation of Lessee, enforceable in accordance with its terms; (v) There are no pending or threatened actions or proceedings before any court, administrative agency or other tribunal or body or judgments which may materially adversely affect Lessee's financial condition or operations; (vi) No approval, consent or withholding of objection is required from any governmental authority with respect to the entering into or performance by Lessee of this Agreement; (VII) The balance sheet of Lessee for its most recent fiscal year and the related earnings statement of Lessee for such fiscal year have been furnished to Lessor and fairly present Lessee's financial condition as of such date and the results of its operations for such year in accordance with generally accepted accounting principles consistently applied, and since such date there has been no material adverse change in such conditions or operations; and (VIII) Lessee shall not consolidate with or merge into any other business entity or convey, transfer or lease substantially all of its assets as an entirety to any third party without the prior written consent of Lessor. C. "Year 2000 Compliant" shall mean, with regard to any entity, that all software, hardware, firmware, equipment, goods or systems used by or material to the business operations or financial condition of such entity will properly perform date-sensitive functions before, during and after January 1, -40- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT 2000. Such date-sensitive functions shall include, without limitations, (a) interpretation of years greater than 1999, (b) process date data from, into, and between dates before January 1, 2000, and dates on or after January 1, 2000, (c) recognizing numbers such as "99" as an actual date rather than indefinite or an unknown information, (d) recognizing that the year 2000 is a leap year, and (e) transferring data between systems that used different methods to make the system Year 2000 Compliant. Lessee represents and warrants to Lessor that Lessee has developed a detailed plan to ensure that Lessee, its affiliates, and all customers, suppliers and vendors that are material to the Lessee's business, become Year 2000 Compliant on or before June 30, 1999. The plan (a) effectively prioritizes mission-critical systems, (b) has the involvement of executive management, (c) includes assessment of Year 2000 Compliance of the customer, supplier, and vendors, (d) includes contingency planning to mitigate risk from Year 2000 business interruptions affecting key vendors, suppliers, or customers, and (e) has been allocated with adequate resources within Lessee's abilities. Section 6. Mortgages, Liens, Etc. Lessee will not directly or indirectly create, incur, assume or permit the existence of any mortgage, security interest, pledge, lien, charge, encumbrance or claim on or with respect to the Equipment, title thereto or any interest therein except (a) the respective rights of Lessor and Lessee as herein provided, (b) liens or encumbrances which result from claims against Lessor except to the extent that such liens and encumbrances arise from failure of Lessee to perform any of Lessee's obligations hereunder, and (c) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings. Lessee will promptly, at its own expense, take such action as may be necessary duly to discharge any such mortgage, security interest, pledge, lien, charge encumbrance or claim not specifically excepted above. Section 7. Taxes. Lessee agrees to pay promptly when due and to indemnify and hold Lessor harmless from all sales, use, personal property, leasing, leasing use, stamp or other taxes, levies, imposts, duties, charges, fees or withholding of any nature (together with any penalties, fines or interest thereon) imposed against Lessor, Lessee or the Equipment by any federal, state, local or foreign government or taxing authority upon or with respect to the Equipment or upon the purchase, ownership, delivery, leasing, possession, use operation, return or other disposition thereof, or upon the rentals, receipts or earnings arising therefrom, or upon or with respect to any Lease (excluding, however, federal, state and local taxes on or measured solely by the net income of Lessor) unless, and to the extent only, that any such tax, levy, impost, duty, charge or withholding is being contested by Lessee in good faith and by appropriate proceedings. In case any report or return is required to be made with respect to any obligation of Lessee under this Section Lessee will notify Lessor of such requirement and make such report or return in such manner as shall be satisfactory to Lessor. Lessor agrees to cooperate fully with lessee in the preparation of any such reports or returns. Lessee agrees to remit all applicable sale or use taxes to Lessor promptly upon receipt of an invoice therefor. -41- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT Section 8. Title; Use, Maintenance and Operation, Identification Marking. A. Lessor shall retain full legal title to the Equipment notwithstanding delivery to and possession and use thereof by Lessee. Upon delivery of the Equipment Lessee shall cause said Equipment to be duly registered, and at all times thereafter to remain duly registered, in the name of Lessor, or at Lessor's request shall furnish to Lessor such information as may be required to enable Lessor to make application for such registration and shall promptly furnish to Lessor such information as may be required to enable Lessor to file timely any reports required to be filed by it as Lessor under the Lease or as the owner of the Equipment with any governmental authority. B. Lessee agrees that the Equipment will be used solely in the conduct of its business. Lessee further agrees to comply in all material respects with all applicable governmental laws, regulations, requirements and rules with respect to the use, maintenance and operation of each Item of Equipment. Lessee agrees that each Item of Equipment (except Items which prior to the execution of this Lease Lessee shall have advised Lessor in writing are normally used or to be used in more than one location) will be kept at the address shown in the Schedules with respect to such Item unless Lessor shall first otherwise consent in writing. Lessee will immediately give written notice to Lessor of any change in its principal place of business. C. Lessee, at its own cost and expense, will repair and maintain the Equipment so as to keep it in a good condition as when delivered to Lessee hereunder, ordinary wear and tear excepted. Lessee may from time to time add further parts or accessories to any Item of Equipment provided that such addition does not impair the value, utility or warranties of such Item of Equipment and is readily removable without causing material damage to such Item. D. Lessee agrees at its own cost and expense to place such markings, plates or other identification on the Equipment showing Lessor's title thereto as Lessor may from time to time request, provided such identification markings are placed so as not to interfere with the usefulness of such Equipment. Except as above provided, Lessee will not allow the name of any person, association or corporation to be placed on the Equipment as a designation that might be interpreted as a claim of ownership. Section 9. Inspection. Upon the request of Lessor, Lessee shall advise Lessor as to the location of each Item of Equipment and shall, at any reasonable time, make the Equipment available to Lessor or Lessor's agent for inspection at the place where it is ordinarily located and shall make Lessee's records pertaining to the Equipment available for Lessor's inspection. Section 10. Loss or Destruction. In the event any Item of Equipment shall be lost, stolen, destroyed, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever ("Event of Loss"), Lessee shall promptly, but in any event within ten (10) days of the Event of Loss, give written notification to Lessor of said loss and the facts pertaining thereto. In addition, within ten (10) days of the Event of Loss Lessee shall elect either: (a) to replace such Item of Equipment at Lessee's own cost and expense of; or (b) to pay to Lessor the Termination Value of the Item and shall notify Lessor in writing of such election. -42- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT Should Lessee elect to replace such Item, any replacement Item shall be free and clear of all liens, encumbrances and rights of others and shall be of like kind and have substantially equal fair market value as the replaced Item, as if such replaced Item were in the condition and repair required to be maintained by the terms hereof. All such replacement Items shall become the property of Lessor and shall immediately become subject to this Agreement, and shall be deemed part of the Equipment for all purposes hereof, to the same extent as the property originally comprising the Equipment. Such replaced Item of Equipment shall no longer be deemed part of the Equipment lease hereunder, and Lessor will transfer to Lessee, without recourse or warranty all of Lessor's right, title and interest therein. In the event Lessee elects to replace such Item of Equipment, Lessee's obligation to pay Rental as set forth in this lease Agreement shall remain unchanged. Lessee further agrees to execute such documents in connection with such replacement as deemed necessary by Lessor to insure Lessor's full title thereto. Should Lessee elect not to replace such Item of Equipment, Lessee shall pay to Lessor, on the next Rental Payment Date for such Item following such Event of Loss, the Termination Value of such lost or destroyed Item. The obligation of Lessee to pay Rental with respect to such Item (including the Rental due on such Rental Payment Date) shall continue undiminished until the payment of such Termination Value. After the payment of such Termination Value, Lessee's obligation to pay Rental for such Item shall cease, but Lessee's obligation to pay Rental for all other Items of Equipment shall remain unchanged. After the payment of such Termination Value, Lessor will transfer to Lessee, without recourse or warranty, all of Lessor's right, title and interest in and to such Item of Equipment suffering the Event of Loss. Section 11. Insurance. At its own expense, Lessee shall maintain comprehensive general liability, products liability and property damage insurance acceptable to Lessor with respect to each Item in an amount not less than the amount specified in the Schedules relating thereto and, in any event, in an amount sufficient to provide full coverage against all loss and liability. Each such insurance policy shall name Lessor as an insured and as loss payee and shall provide that it may be altered or canceled by the insurer only after thirty (30) days prior written notice to Lessor. Lessee agrees to cause certificates or other evidence satisfactory to Lessor showing the existence of such insurance, the terms and conditions of each policy and payment of the premium therefor to be delivered to Lessor upon demand thirty (30) days prior to expiration or cancellation showing renewal or replacement of such policy. In the event Lessee shall fail to obtain and/or maintain insurance in accordance with the provisions of this paragraph, Lessor shall have the right to obtain such insurance as Lessor deems necessary, and Lessee shall reimburse Lessor for the payment by Lessor of all premiums therefor together with interest computed from the date of Lessor's payment at the rate of eighteen percent (18%) per annum. If (a) any insurance proceeds are received with respect to a loss with respect to Equipment which does not constitute an Event of Loss under Section 10, or (b) if Lessee elects to replace an Item or Items suffering an Event of Loss under the provisions of Section 10 hereof, proceeds will be applied in payment for repairs and replacement required pursuant to Section 8 and 9 hereof, or to reimburse Lessee have made such payments. -43- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT Section 12. Indemnification and Expenses. Lessee shall indemnify, protect and keep harmless Lessor or any assignee or transferee of Lessor and their respective agents and servants from and against all claims, causes of action, damages, liability (including strict liability in tort), costs, fees or expenses (including attorney's fees) incurred in any manner by or for the account of any of them relating to the Equipment or any part thereof including without limitation the construction, purchase, delivery, installation, ownership, leasing or return of the Equipment or as a result of the use, maintenance, repair, replacement, operation or condition thereof, (whether defects are latent or discoverable by Lessor or by Lessee). This Section shall be effective from the date the first Item of Equipment is ordered and shall remain in effect notwithstanding the expiration or other termination of a Lease with respect to any one or more Items of Equipment. Lessee agrees to give Lessor prompt notice of any claim or liability hereby indemnified against. Lessor agrees to cooperate with Lessee in any defense or other action which Lessee is by this Section obligated to undertake. Section 13. Assignments and Subsidies. Lessor may at any time, without notice, grant a security interest in, transfer or assign any or all Leases, Items, or rights and remedies as Lessor to any party, with such party assuming all, part or none of Lessor's obligations. Lessee shall not assert against such party any defense, counterclaim, or offset Lessee may have against Lessor. Lessee acknowledges that any such grant, transfer or assignment would not materially change Lessee's duties, risks or interests under the Agreement. LESSEE SHALL NOT, WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, SUBLEASE OR RELINQUISH POSSESSION OF ANY ITEM OR ASSIGN ANY OF ITS RIGHTS OR DELEGATE ANY OF ITS OBLIGATIONS HEREUNDER. Lessee grants Lessor a security interest in any existing or future sublease of an Item and the proceeds thereof, whether or not such sublease is prohibited. Section 14. Events of Default; Remedies. A. The following shall constitute Events of Default hereunder: (i) Lessee shall fail to make any Interim or Basic Rental payment or the Residual Value payment when due and such failure shall continue unremedied for ten (10) days: (ii) Lessee shall fail to make any payment other than Rental required hereunder or shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it under this Agreement, and such failure shall continue unremedied for ten (10) days after notice form Lessor requiring performance; (iii) Any representation or warranty made by Lessee herein, in any Schedule or any supplement or addition hereto, or in any document or certificate furnished Lessor in connection herewith shall prove to be incorrect at any time in any material respect; or (iv) Lessee shall become insolvent or bankrupt or make an assignment for the benefit of creditors or consent to the appointment of a trustee or receiver, or a trustee or a receiver shall be appointed for Lessee or for a substantial part of its property without its consent and shall not be dismissed within a period of sixty (60) days, or bankruptcy, reorganization -44- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT or insolvency proceedings shall be instituted by or against Lessee and, if instituted against Lessee, shall not be dismissed for a period of sixty (60) days. (v) Any event of default as described in the documentation executed in connection with any other credit or lease facility extended by Lessor, or any affiliated company of Lessor, to Lessee. B. Upon the occurrence of an Event of Default Lessor may at its option exercise one or more of the following remedies: (i) Declare all unpaid Rentals under any Lease or all Leases to be immediately due and payable; (ii) Proceed by appropriate court action to enforce performance by Lessee of the applicable covenants, of the Agreement and/or to recover damages for the breach thereof; or (iii) By notice in writing terminate any Lease or all Leases whereupon all rights of Lessee to the use of the Equipment shall absolutely cease and terminate, but Lessee shall remain liable as hereinafter provided. Thereafter, Lessee, if requested by Lessor, shall, at its own cost promptly deliver possession of the Equipment to Lessor in such manner and to such place as Lessor shall direct or Lessor may at any hour and without liability, except for malicious acts by its agents, and without notice to Lessee enter upon the premises of Lessee or other premises where any of the Equipment may be located and take possession of or render unusable all or any of such Equipment and attachments thereon whether or not the property of Lessor and thenceforth hold, sell or re-lease such Equipment at its option. Lessor shall thereupon have a right to recover from Lessee an amount equal to any unpaid Rental due and payable up to and including the Rental Payment Date following the date on which Lessor has given the termination notice referred to above, any and all other amounts due and payable hereunder and in addition thereto (a) as damages for loss of the bargain and not as penalty an amount equal to the Termination Value as of such Rental Payment Date, and (b) all expenses, including by not limited to reasonable attorney's fees, which Lessor shall have sustained by reason of the breach of any covenant of this Agreement, expenses for obtaining and storing the Equipment and expenses in connection with locating another lessee or buyer. C. The remedies in this Agreement in favor of Lessor shall not be deemed exclusive, but shall be cumulative and shall be in addition to all other remedies in its favor existing at law or in equity. Lessee hereby waives any mandatory requirements of law, now or hereafter in effect, which might limit or modify any of the remedies herein provided, to the extent that such waiver is permitted by law. No express or implied waiver by Lessor of any Event of Default hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Default. The failure or delay of Lessor in exercising any rights granted it hereunder upon any occurrence of any of the contingencies is set forth in Section 14 (A) shall not constitute a waiver of any such right upon the continuation or recurrence of any such contingencies or similar contingencies and any single or partial exercise of any particular right by Lessor shall not exhaust the same or constitute a waiver of any other right provided herein. -45- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT Section 15. Lessor's Rights to Perform for Lessee. If Lessee fails to perform or comply with any of its agreements contained herein, Lessor may, but shall not be required to, make any payment or perform or comply with any covenant or agreement contained herein, and all reasonable expenses of Lessor incurred in connection therewith shall be payable by Lessee upon demand together with interest at the rate of eighteen percent (18%) per annum from the date of payment to the date of reimbursement. Section 16. Further Assurance; Financial Information. Lessee will promptly and duly execute and deliver to Lessor such further documents or instruments of further assurance and take such further action as Lessor may from time to time, reasonably request in order to carry out the intent and purpose of this Agreement and to establish and protect the rights and remedies created or intended to be created in favor of Lessor hereunder, including, without limitation, if requested by Lessor, at the expense of Lessee: A. The execution and delivery of financing statements with respect hereto, in accordance with the laws of such jurisdictions as Lessor may from time to time deem advisable. B. An audit report containing a balance sheet, income statement and statement of sources and uses of funds prepared by independent certified public accountants, or other accountant acceptable to Lessor within one hundred twenty (120) days after the close of each fiscal year of Lessee; and C. A report containing balance sheets as of the end of each quarterly period of Lessee's fiscal year, income statement and statement of sources and uses of funds certified as accurate by an officer of Lessee within forty-five (45) days after the close of each such quarterly period. Section 17. Notices. All notices required by the terms hereof shall be in writing, and shall become effective when deposited in the United States mail, with proper postage for certified mail prepaid, addressed to the address shown herein or to such other address as such party shall from time to time designate for itself in writing to the other party. Notice to Lessor is sufficient if mailed to: First Security Leasing Company, P.O. Box 30006, Salt Lake City, Utah, 84130. Notice to Lessee is sufficient if mailed to the address set forth on the signature page of this Agreement. Section 18. Multiple Lessees. If there is more than one Lessee named in this Agreement, the liability of each shall be joint and several, and each Lessee has the authority to enter into agreements with Lessor modifying or extending the terms of the Agreement on behalf of each other Lessee. If used herein or in any related document, the term "Co-Lessee" or Co-Lessees" shall be synonymous with "Lessee" as defined herein. Section 19. Year 2000. The Lessee shall take all actions that may be necessary or desirable, or that Lessor may reasonably request, in order to ensure that the Lessee, its affiliates and all customers, suppliers and vendors that are material to the Lessee's business, become Year 2000 Compliant on or before June 30, 1999. Such actions shall include, without limitation, (a) performing a -46- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT comprehensive inventory, review and assessment of all of the Lessee's systems and adopting a detailed plan with, itemized budget and timetable, for the remediation, monitoring and testing such systems, and (b) making a detailed inquiry of all material customers, suppliers and vendors to ascertain whether such entities are aware of the need to be Year 2000 Compliant and are taking all appropriate steps to become Year 2000 Compliant on a timely basis. Lessee shall, promptly, upon request, provide to Lessor such certifications or other evidence of Lessee's compliance within the terms of the section as Lessor may, from time to time, reasonably require. Section 20. Execution of Financing Statements and Title Documents. Lessee agrees to execute and deliver to Lessor such financing statements and/or title documents as reasonably requested by Lessor to protect and identify Lessor's interest in the Equipment. Lessee hereby grants a security interest to Lessor in the Equipment. Lessee appoints Lessor, or Lessor's agents or assigns, its true and lawful attorney-in-fact to prepare, to execute and to sign any instrument or financing statement concerning the Equipment, to sign the name of Lessee with the same force and effect as if signed by Lessee, and to file the same at the locations reasonably determined by Lessor. Section 21. Effect of Invalid Provision. Any provision of the Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. Section 22. Miscellaneous. This Agreement and other written documents executed by the parties hereto contain the entire agreement between the parties and there are no verbal representations, warranties, or agreements of any kind whatsoever. No term or provision of this Agreement may be changed, waived, discharged, or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. No third-party manufacturer, supplier, salesperson, or broker, or any agent thereof, is Lessor's agent or is authorized to waive or modify any provision of the Agreement. This Agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of Nevada. Any judicial proceeding brought against Lessee with respect to this Agreement may be brought in any court of competent jurisdiction in the State of Nevada. By its execution of the Agreement and the Schedules, Lessee unconditionally accepts the jurisdiction of the courts of the State of Nevada and agrees to be bound by any judgement rendered thereby with respect to this Agreement. If Lessee is not a resident of the State of Utah, service process upon Lessee by mail shall constitute sufficient notice of any such proceeding. The word "including" as used in the Agreement shall mean "including, but not limited to". Nothing herein shall affect the right to serve process in -47- First Security Leasing Company of Nevada MASTER EQUIPMENT LEASE AGREEMENT any other manner permitted by law or limit the right of Lessor to bring proceedings against Lessee in the courts of any jurisdiction. This Agreement shall inure to the benefit of and be binding upon the heirs, successors, assigns and personal representatives of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on behalf of them as of this November 3, 1999 and signatories warrant their authority to bind their principals. CO-LESSEES: MONARCH CASINO &. and GOLDEN ROAD MOTOR INN, INC. dba GOLDEN ROAD MOTOR INN, INC. dba ATLANTIS CASINO RESORT ATLANTIS CASINO & RESORT a(n) Nevada Corporation BY: /S/ John Farahi ================ John Farahi, CEO TITLE: CEO ================ Address: 3800 S. VIRGINIA STREET RENO, NV 89502 Federal ID or Social Security Number: 88-0117859 LESSEE: MONARCH CASINO & RESORT, INC. LESSOR: First Security Leasing a(n) Nevada Corporation Company of Nevada BY: /S/ John Farahi BY: /S/ Jerry J. Velarde =============== =================== John Farahi, CEO Jerry J. Velarde, AVP TITLE: CEO TITLE: AVP Authorized ================ Representative ================ Address: 3800 S. VIGINIA STREET ADDRESS: c/o First Security Reno, NV 89502 Leasing Company 381 East Broadway, 2nd Floor Salt Lake City, UT 84111 Federal ID or Social Security Number: 88-0300760 -48- 10-Q 3 fm10q3q00.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 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: (775) 825-3355 ------------------------- NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report.) 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 ___ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES ___ NO ___ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of November 9, 2000, there were 9,436,275 shares of Monarch Casino & Resort, Inc. $0.01 par value common stock outstanding. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- -------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues Casino............................... $15,848,849 $ 13,744,711 $45,399,037 $ 35,623,157 Food and beverage.................... 8,116,661 7,467,982 22,292,559 17,832,428 Hotel................................ 5,604,076 5,054,669 14,356,205 10,832,779 Other................................ 968,159 829,793 2,674,310 2,129,621 ----------- ------------ ----------- ------------ Gross revenues.................... 30,537,745 27,097,155 84,722,111 66,417,985 Less promotional allowances.......... (3,959,558) (3,538,745) (10,515,705) (9,347,854) ----------- ------------ ----------- ------------ Net revenues...................... 26,578,187 23,558,410 74,206,406 57,070,131 ----------- ------------ ----------- ------------ Operating expenses Casino............................... 6,960,454 5,945,758 19,180,481 15,565,767 Food and beverage.................... 5,010,792 4,907,518 13,847,679 11,070,611 Hotel................................ 1,737,449 1,400,690 4,962,350 3,058,834 Other................................ 371,929 322,388 1,036,124 821,428 Selling, general and administrative.. 6,930,928 6,398,733 18,957,890 16,777,993 Depreciation and amortization........ 2,555,859 1,668,726 7,574,260 4,401,792 ----------- ------------ ----------- ------------ Total operating expenses.......... 23,567,411 20,643,813 65,558,784 51,696,425 ----------- ------------ ----------- ------------ Income from operations............ 3,010,776 2,914,597 8,647,622 5,373,706 ----------- ------------ ----------- ------------ Other expense Interest expense, net................ 2,140,797 1,780,613 6,358,809 3,320,813 ----------- ------------ ----------- ------------ Total other expense............... 2,140,797 1,780,613 6,358,809 3,320,813 ----------- ------------ ----------- ------------ Income before income taxes........ 869,979 1,133,984 2,288,813 2,052,893 Provision for income taxes............. 287,705 385,555 783,514 697,984 ----------- ------------ ----------- ------------ Net Income........................ $ 582,274 $ 748,429 $ 1,505,299 $ 1,354,909 =========== ============ =========== ============ Income per share of common stock Net income Basic.............................. $ 0.06 $ 0.08 $ 0.16 $ 0.14 Diluted............................ $ 0.06 $ 0.08 $ 0.16 $ 0.14 Weighted average number of common shares and potential common shares outstanding Basic.............................. 9,436,275 9,436,275 9,436,275 9,436,275 Diluted............................ 9,481,878 9,503,403 9,479,076 9,500,346
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -2- MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2000 1999 -------------- ------------- (Unaudited) ASSETS Current assets Cash................................................. $ 6,533,089 $ 6,367,507 Receivables, net..................................... 3,515,824 1,954,447 Federal income tax refund receivable................. 280,000 - Related party receivables............................ 64,310 83,205 Inventories.......................................... 1,143,300 1,456,602 Prepaid expenses..................................... 1,797,701 1,600,249 Prepaid federal income taxes ........................ - 443,870 Deferred income taxes................................ 1,475,380 1,174,626 ------------- ------------ Total current assets.............................. 14,809,604 13,080,506 ------------- ------------ Property and equipment Land................................................. 10,339,530 10,339,530 Land improvements.................................... 3,066,402 3,034,095 Buildings............................................ 78,944,938 78,432,078 Building improvements................................ 4,687,778 4,462,520 Furniture and equipment.............................. 50,749,060 49,392,494 ------------- ------------ 147,787,708 145,660,717 Less accumulated depreciation and amortization....... (35,517,254) (27,964,180) ------------- ------------ 112,270,454 117,696,537 Construction in progress............................. 72,963 - ------------- ------------ Net property and equipment........................ 112,343,417 117,696,537 ------------- ------------ Other assets, net...................................... 722,349 877,382 ------------- ------------ Total assets...................................... $ 127,875,370 $ 131,654,425 ============= =============
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -3- MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2000 1999 -------------- ------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt................. $ 7,954,177 $ 7,333,921 Accounts payable..................................... 6,552,672 7,238,084 Accounts payable construction........................ 37,564 942,264 Accrued expenses..................................... 6,565,976 5,156,363 Federal income taxes payable......................... 249,818 213,686 ------------- ------------ Total current liabilities......................... 21,360,207 20,884,318 Long-term debt, less current maturities................ 75,591,000 82,235,509 Deferred income taxes.................................. 3,550,283 2,666,017 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 outstanding............................... 95,363 95,363 Additional paid-in capital........................... 17,241,788 17,241,788 Treasury stock....................................... (329,875) (329,875) Retained earnings.................................... 10,366,604 8,861,305 ------------- ------------ Total stockholders' equity........................ 27,373,880 25,868,581 ------------- ------------ Total liabilities and stockholders' equity........ $ 127,875,370 $ 131,654,425 ============= =============
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -4- MONARCH CASINO & RESORT, INC. CONDENSED CONSOLIDATED STATMENTS OF CASH FLOWS
Nine Months Ended September 30, ---------------------------- 2000 1999 ------------ ------------ (Unaudited) (Unaudited) Cash flows from operating activities: Net income............................................ $ 1,505,299 $ 1,354,907 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....................... 7,710,391 4,542,584 Gain on disposal of assets.......................... (89,995) (15,044) Increase in deferred income taxes................... 583,512 137,719 Increase in receivables, net........................ (1,822,482) (995,505) Decrease (increase) in inventories.................. 313,302 (633,137) Decrease in prepaid expenses........................ 246,418 298,671 Decrease (increase) in other assets................. 16,306 (22,053) (Decrease) increase in accounts payable............ (685,412) 2,041,371 Increase in accrued expenses and federal income taxes payable....................... 1,445,745 826,719 ------------ ------------ Net cash provided by operating activities.......... 9,223,084 7,536,232 ------------ ------------ Cash flows from investing activities: Proceeds from sale of assets.......................... 240,023 21,018 Acquisition of property and equipment................. (2,018,065) (28,763,396) Decrease in accounts payable construction............. (904,700) (3,887,148) ------------ ------------ Net cash used in investing activities.............. (2,682,742) (32,629,526) ------------ ------------ Cash flows from financing activities: Proceeds from long-term debt.......................... - 27,492,634 Principal payments on long-term debt.................. (6,374,760) (1,496,268) ------------ ------------ Net cash (used in) provided by financing activities............................. (6,374,760) 25,996,366 ------------ ------------ Net increase in cash............................... 165,582 903,072 Cash at beginning of period............................. 6,367,507 4,919,143 ------------ ------------ Cash at end of period................................... $ 6,533,089 $ 5,822,215 ============ ============ Supplemental disclosure of cash flow information: Cash paid for interest, net of capitalized interest.......................... $ 5,932,562 $ 3,352,036 Capitalized interest.................................. - 1,090,428 Cash paid for income taxes............................ - - Supplemental schedule of non-cash investing and financing activities: The Company financed the purchase of property and equipment in the following amounts............... $ 350,507 $ 6,847,232
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. -5- MONARCH CASINO & RESORT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Monarch Casino & Resort, Inc. ("Monarch") was incorporated in 1993. Monarch's wholly-owned subsidiary, Golden Road Motor Inn, Inc. ("Golden Road"), owns and operates the Atlantis Casino Resort (the "Atlantis"), a hotel/casino facility in Reno, Nevada. Unless stated otherwise, "Monarch" or the "Company" refers to Monarch Casino & Resort, Inc. and its Golden Road subsidiary. The consolidated financial statements include the accounts of Monarch and Golden Road. Intercompany balances and transactions are eliminated. 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 1999 condensed consolidated financial statements have been reclassified to conform with the 2000 presentation. These reclassifications had no effect on the Company's previously reported net income. Related Party Receivables Receivables from officers, employees, or affiliated companies are primarily for banquet related services and are priced at the retail value of the goods or services provided. NOTE 2. INTERIM FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements for the three month and nine month periods ended September 30, 2000 and September 30, 1999 are unaudited. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the Company's financial position and results of operations for such periods, have been included. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 1999. The results for the three month and nine month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000, or for any other period. -6- NOTE 3. EARNINGS PER SHARE In 1997, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 replaces previously reported earnings per share with "basic" earnings per share and "diluted" earnings per share. Basic earnings per share is computed by dividing reported net earnings by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the additional dilution for all potentially dilutive securities such as stock options. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):
Three Months ended September 30, ----------------------------------- 2000 1999 ---------------- ---------------- Per Share Per Share Shares Amount Shares Amount ------ --------- ------ --------- Net Income Basic..................... 9,436 $ 0.06 9,436 $ 0.08 Effect of dilutive stock options............ 46 - 67 - ----- ------ ----- ------ Diluted................... 9,482 $ 0.06 9,503 $ 0.08 ====== ======= ====== =======
Nine Months ended September 30, ----------------------------------- 2000 1999 ---------------- ---------------- Per Share Per Share Shares Amount Shares Amount ------ --------- ------ --------- Net Income Basic..................... 9,436 $ 0.16 9,436 $ 0.14 Effect of dilutive stock options............ 43 - 64 - ----- ------ ----- ------ Diluted................... 9,479 $ 0.16 9,500 $ 0.14 ====== ======= ====== =======
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 and their inclusion would be antidilutive. -7-
Three Months ended September 30, ----------------------------------- 2000 1999 ---------------- ---------------- Options to purchase shares of common stock (in thousands)... 16 10 Exercise prices................. $5.50-$6.00 $7.56 Expiration dates................ 6/03-2/10 7/09
Nine Months ended September 30, ----------------------------------- 2000 1999 ---------------- ---------------- Options to purchase shares of common stock (in thousands)... 24 10 Exercise prices................. $5.25-$6.00 $7.56 Expiration dates................ 6/03-2/10 7/09
-8- ITEM 2. 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, and expansion of Indian casinos in California, 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, changes in federal or state tax laws or the administration of such laws. RESULTS OF OPERATIONS Comparison of Operating Results for the Three Month Periods Ended September 30, 2000 and 1999 For the three month period ended September 30, 2000, the Company earned $582 thousand, or $0.06 per share, on net revenues of $26.6 million, compared to earnings of $748 thousand, or $0.08 per share, on net revenues of $23.6 million for the three months ended September 30, 1999. The Company's income from operations totaled $3.0 million in the 2000 third quarter, compared to $2.9 million in the 1999 third quarter. Net revenues for the third quarter constitute a new third quarter record for the Company; however, third quarter net income and earnings per share were impacted primarily due to a 53.2% increase in depreciation and amortization and a 20.2% increase in interest expense when compared to last year's third quarter, both as a direct result of the Atlantis expansion. Casino revenues totaled $15.8 million in the third quarter of 2000, a 15.3% increase from $13.7 million in the 1999 third quarter, reflecting increases in both slot and table game win. Slot revenues were up 17.6% in the third quarter of 2000 compared to the third quarter of 1999 due to an increase in the volume of slot machine play. Table game revenues were up 10.1% in the third quarter of 2000 compared to the third quarter of 1999 primarily due to an increase in table game play. Casino operating expenses remained relatively constant at 43.9% of casino revenues in the 2000 third quarter compared to 43.3% in the 1999 third quarter. Food and beverage revenues for the 2000 third quarter totaled $8.1 million, an increase of 8.7% compared to $7.5 million for the 1999 third quarter, due primarily to the operation of one new restaurant and beverage lounge, and an increase in the hotel guest traffic created by the new hotel rooms. While food and beverage operating margins remained relatively constant, reported food and beverage operating expenses during the 2000 third -9- quarter amounted to 61.7% of food and beverage revenues, down from 65.7% for the third quarter of 1999, which was primarily caused by classifying certain food and beverage costs in accordance with accounting requirements prescribed by the Securities and Exchange Commission. Hotel revenues in the 2000 third quarter increased 10.9% to $5.6 million from $5.1 million in the 1999 third quarter, as a result of phasing in 106 additional new hotel rooms during the 1999 third quarter, a slight decrease in the average daily room rate, and an occupancy rate increase of 7.5 percentage points. The Atlantis' average daily room rate ("ADR") was $62.68 for the 2000 third quarter compared to $63.83 in the third quarter of 1999. During the third quarter of 2000, the Atlantis experienced a 94.5% occupancy rate, up from an 87.0% occupancy rate for the same period in 1999. Hotel operating expenses in the 2000 third quarter were 31.0% of hotel revenues, compared to 27.7% for the same quarter in 1999, due to increased payroll and operating costs. Other revenues in the 2000 third quarter totaled $968 thousand, up 16.7% from $830 thousand in the 1999 third quarter, primarily due to the opening of a logo gift shop during the 1999 third quarter. Other expenses decreased slightly as a percentage of other revenues, decreasing to 38.4% in the 2000 third quarter from 38.9% in the 1999 third quarter. Selling, general and administrative expenses were $6.9 million in the 2000 third quarter or 26.1% of net revenues, compared to $6.4 million or 27.2% of net revenues in the third quarter of 1999. The decrease in these expenses as a percentage of revenues reflects certain economies of scale achieved from the Atlantis expansion. Interest expense for the 2000 third quarter totaled $2.1 million, up 20.2% from $1.8 million in the third quarter of 1999. The increase reflects an increase in interest rates. Comparison of Operating Results for the Nine Month Periods Ended September 30, 2000 and 1999 For the nine months ended September 30, 2000, the Company earned $1.5 million, or $0.16 per share, on net revenues of $74.2 million, compared to earnings of $1.4 million, or $0.14 per share, on net revenues of $57.1 million during the nine months ended September 30, 1999. Operating income for the 2000 nine month period totaled $8.6 million, compared to $5.4 million for the same period in 1999. In the first nine months of 2000, net revenues reflect a record high for any of the Company's comparable nine month periods; however, net income was impacted by a 72.1% increase in depreciation and amortization and a 91.5% increase in interest expense, when compared to last year's nine month period, which can be attributed directly to the Atlantis expansion. Casino revenues for the first nine months of 2000 totaled $45.4 million, an increase of 27.4% from $35.6 million for the first nine months of 1999, driven by increases in both slot and table game win. Slot revenues were up 26.2% in the first nine months of 2000 compared to the first nine months of -10- 1999 due to an increase in the volume of slot machine play and an increase in the average number of slot machines for the nine month period. Table game revenues for the nine months ended September 30, 2000 increased 31.5% compared to the same period in 1999, primarily due to an increase in table game drop and an increase in the average number of table games for the nine month period. Also, a new poker room was added as a part of the Atlantis expansion in the third quarter of 1999 generating revenue for nine months in 2000 compared to a little over two months in 1999. Casino operating expenses amounted to 42.2% of casino revenues for the nine months ended September 30, 2000, compared to 43.7% for the nine month period ending September 30, 1999, primarily due to a decrease in operating costs. Food and beverage revenues totaled $22.3 million for the nine months ended September 30, 2000, an increase of 25.0% from the $17.8 million for the nine months ended September 30, 1999, due primarily to the addition of two new restaurants, an additional beverage lounge, expansion of the buffet restaurant, and an increase in the number of guest checks due principally to the newly expanded hotel. Food and beverage operating expenses remained constant at 62.1% of food and beverage revenues for the nine months ended September 30, 2000, and September 30, 1999. Hotel revenues for the first nine months of 2000 increased 32.5% to $14.4 million from $10.8 million for the first nine months of 1999. The increase reflects a 27.3% increase in room nights available during the nine month period of 2000 compared to the same period in 1999 and an increased occupancy rate. The Atlantis experienced a 92.6% occupancy rate for the 2000 nine month period, compared to an 88.2% occupancy rate for the 1999 nine month period. The average daily room rate ("ADR") was $55.15 for the nine month period in 2000, down slightly compared to $56.53 for the same period in 1999. Hotel operating expenses for the nine month period ended September 30, 2000 increased to 34.6% of hotel revenues, compared to 28.2% for the first nine months of 1999. This increase in operating expenses as a percentage of hotel revenues resulted from increased payroll and operating costs for the expanded hotel and additional amenities. Other revenues increased 25.6% to $2.7 million for the 2000 nine month period compared to $2.1 million for the same period in 1999, reflecting the opening of a logo gift shop in August 1999. Other expenses as a percentage of revenue remained fairly constant for the nine month period in 2000 at 38.7%, compared to 38.6% for the same period of 1999. Selling, general and administrative expenses were $19.0 million in the first nine months of 2000, or 25.5% of net revenues, compared to $16.8 million or 29.4% of net revenues in the first nine months of 1999. The decrease in these expenses as a percentage of revenues reflects the fact that certain payroll and operating costs have not increased to the same extent as revenues have increased because of certain economies of scale from the Atlantis expansion. Interest expense for the first nine months of 2000 totaled $6.4 million, up 91.5% from $3.3 million in the first nine months of 1999, reflecting an increase in average outstanding debt primarily from the Atlantis expansion and an increase in interest rates. Because the Atlantis expansion was in operation in the first nine months of 2000, the Company did not capitalize -11- any interest costs; however, during the first nine months of 1999, while construction was still in progress, $1.1 million in interest costs were capitalized. OTHER FACTORS AFFECTING CURRENT AND FUTURE RESULTS The recent constitutional amendment approved by California voters allowing the expansion of Indian casinos in certain areas of California will have an impact on casino revenues in Nevada in general, and many analysts have predicted the impact will be more significant on the Reno-Lake Tahoe market. The extent of this impact is difficult to predict, but the Company believes that the impact on the Company will be mitigated to an extent due to the Atlantis' emphasis on Reno area residents as a significant base of its business. However, if other Reno area casinos suffer business losses due to increased pressure from California Indian casinos, they may intensify their marketing efforts to Reno area residents as well. The Company also believes that unlimited land-based casino gaming in or near any major metropolitan area in the Atlantis' key non-Reno marketing areas, such as San Francisco or Sacramento, could have a material adverse effect on its business. The gaming industry represents a significant source of tax revenues to the State of Nevada. A recent proposal in Nevada, which may be discussed in the 2001 Nevada legislative session, would increase the tax on gaming revenues from 6.25% to as high as 11.25%. If enacted, this proposal would have a material adverse impact on the Company's results of operations. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 2000, net cash provided by operating activities totaled $9.2 million. Net cash used in investing activities for the same period totaled $2.7 million, which consisted primarily of acquisitions of property and equipment at the Atlantis. Net cash used in financing activities totaled $6.4 million, as the Company used funds to reduce long-term debt. At September 30, 2000 the Company had cash of $6.5 million compared to $5.8 million at September 30, 1999. The Company has an $80.0 million construction and reducing revolving credit facility with a group of banks (the "Credit Facility"). The principal terms of the Credit Facility are summarized in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. At September 30, 2000, the outstanding balance of the Credit Facility was $76.5 million. The Company believes that its existing cash balances, cash flow from operations, and borrowings available under the Credit Facility, will provide the Company with sufficient resources to fund its operations, meet its existing debt obligations, and fulfill 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 -12- 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. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Description ----------- ----------- 10.01 Agreement dated November 3, 1999 between Golden Road Motor Inn, Inc. and First Security Leasing Company of Nevada. 10.02 Agreement dated November 3, 1999 between Golden Road Motor Inn, Inc. and First Security Leasing Company of Nevada. 27.01 Financial Data Schedule (b) Reports on Form 8-K None -13- SIGNATURES Pursuant to the requirements 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: November 13, 2000 By:/s/Ben Farahi ------------------------------------ Ben Farahi, Co-Chairman of the Board, Secretary, Treasurer and Chief Financial Officer(Principal Financial Officer and Duly Authorized Officer)
-14- EXHIBIT INDEX Exhibit No. Description Page No. - ----------- ------------ ------- 10.01 Agreement dated November 3, 1999 between Golden 16 Road Motor Inn, Inc. and First Security Leasing Company of Nevada. 10.02 Agreement dated November 3, 1999 between Golden 34 Road Motor Inn, Inc. and First Security Leasing Company of Nevada. 27.01 Financial Data Schedule 49
-15- EX-27 4 fds3q00.xfd EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from registrant's condensed consolidated financial statements as of September 30, 2000 and the accompanying notes to condensed consolidated financial statements and is qualified in its entirety by reference to such financial statements and notes to financial statements. 9-MOS Jan-01-2000 Dec-31-2000 Sep-30-2000 6,533,089 0 4,805,480 945,346 1,143,300 14,809,604 147,860,671 35,517,254 127,875,370 21,360,207 0 0 0 95,363 27,278,517 127,875,370 0 74,206,406 0 39,026,634 7,574,260 0 6,358,809 2,288,813 783,514 1,505,299 0 0 0 1,505,299 0.16 0.16
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