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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED APRIL 25, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission file number 0-20538
ISLE OF CAPRI CASINOS, INC.
(Exact name of registrant as specified in its charter)
41-1659606
Delaware (I.R.S. Employer-
(State or other jurisdiction of Identification No.)
incorporation or organization)
39530
711 Washington Loop, Biloxi, (Zip Code)
Mississippi
(Address of principal executive
offices)
Registrant's telephone number, including area code (228) 436-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 Par Value Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting and non-voting stock held by non-
affiliates/1/ of the Company is $125,555,481, based on the last reported sale
price of $6.750 per share on June 25, 1999 on The Nasdaq Stock Market;
multiplied by 18,600,812 shares of Common Stock outstanding and held by non-
affiliates of the Company on such date.
As of June 25, 1999, the Company had a total of 23,579,662 shares of Common
Stock outstanding.
Part of Form 10-K
Document into which Incorporated
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Isle of Capri Casinos, Inc.'s Definitive Proxy
Statement for its Annual Meeting of Stockholders
to be held Part III
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/1/ Affiliates for the purpose of this item refer to the directors, executive
officers and/or persons owning 10% or more of the Company's common stock, both
of record and beneficially; however, this determination does not constitute an
admission of affiliate status for any of these individual stockholders.
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INDEX
PAGE
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PART I.................................................................... 1
ITEM 1. Business........................................................ 1
ITEM 2. Properties...................................................... 24
ITEM 3. Legal Proceedings............................................... 26
ITEM 4. Submission of Matters to a Vote of Security Holders............. 26
PART II................................................................... 27
ITEM 5. Market for Registrant's Common Equity and Related Stockholder's
Matters................................................................ 27
ITEM 6. Selected Financial Data......................................... 28
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 30
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk..... 39
ITEM 8. Index to Consolidated Financial Statements...................... 40
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 69
PART III.................................................................. 69
ITEM 10. Director and Executive Officers of the Registrant.............. 69
ITEM 11. Executive Compensation......................................... 69
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management............................................................. 69
ITEM 13. Certain Relationships and Related Transactions................. 69
PART IV................................................................... 69
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.................................................................... 69
Signatures................................................................ 70
PART I
ITEM 1. Business
Overview
We are a leading developer, owner and operator of branded gaming and related
lodging and entertainment facilities in growing markets in the United States.
We wholly own and operate four gaming facilities located in Lake Charles and
Bossier City, Louisiana and Biloxi and Vicksburg, Mississippi. We also own a
57% interest in and operate a gaming facility in Black Hawk, Colorado, which
opened on December 30, 1998. Each of these five gaming facilities operates
under the name "Isle of Capri" and features our distinctive tropical island
theme. In addition, we wholly own and operate a pari-mutuel harness racing
facility in Pompano Beach, Florida and own a 50% interest in and operate
gaming activities aboard a cruise ship based in New Orleans, Louisiana. For
the fiscal year ended April 25, 1999, we had total revenue of $480.4 million
and EBITDA of $109.2 million. We were incorporated in Delaware in February
1990 under the name of Kana Corporation, and in 1992 our name was changed to
Casino America, Inc. On September 28, 1998, our name was changed to Isle of
Capri Casinos, Inc.
Strategy
Our business strategy, which has been implemented in our existing
operations, emphasizes the standardized operation and development of value-
oriented gaming facilities and complementary amenities with a tropical island
theme using the "Isle of Capri Casino" brand name. We believe that the
consistent use of the Isle of Capri Casino name and associated theme has
created a readily identifiable brand image connoting excitement, quality and
value, complemented by an emphasis on customer service and non-gaming
entertainment amenities. We seek to identify slot-oriented customers and
active casino patrons through the use of database marketing and generate
repeat visitors to our gaming facilities. We believe that our strategy fosters
customer loyalty, enhances our ability to compete effectively in existing
markets, and facilitates the consistent, efficient and cost-effective
development of gaming facilities in new markets. We also believe that good
community relations are fundamental to our success and, as a result, we take
an active role in community activities in each jurisdiction in which we have
gaming facilities.
We have historically identified and entered new gaming markets which we
believe provide attractive long-term opportunities. We anticipate that most of
our near-term focus will be expanding existing facilities and pursuing new
development opportunities. We have recently added hotels at the Isle-Bossier
City and the Isle-Vicksburg in order to compete effectively in our markets and
provide customers with a complete resort experience designed to increase a
customer's length of stay at and use of our facilities. We are currently
developing casino and hotel facilities in Tunica County, Mississippi and
Coahoma County, Mississippi, and we currently plan to construct additional
lodging facilities or other amenities at the Isle-Black Hawk, the Isle-Lake
Charles and the Isle-Biloxi. We also expect to continue reviewing gaming
opportunities in new markets on the basis of demographic, regulatory,
competitive and other factors.
Marketing
We attract customers to our casinos by designing and implementing marketing
and promotional programs that emphasize our Isle Style tropical island theme
and generate loyal customers. We have developed an extensive proprietary
database of primarily slot-oriented customers that allows us to create
effective targeted marketing and promotional programs, merchandise giveaways,
game tournaments and other special events, such as Capri Cruises. These
programs are designed to reward customer loyalty, attract new customers to our
properties and maintain high recognition of our "Isle of Capri" brand.
As of April 25, 1999, our database contained approximately 2.9 million
members, of whom approximately 1.8 million receive regular mailings. To
develop this database, we offer all of our customers membership in the
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Island Gold Players Club, which allows them to earn points based on play and
redeem these points for casino cash tokens, prizes and complimentary services
at any Isle of Capri casino. Island Gold Players Club members receive a card
that, when inserted into a slot machine or presented at a gaming table at the
issuing facility, allows us to track their gaming preferences, maximum,
minimum and total amount wagered and frequency of visits. Players are
classified in groups according to these characteristics. Our database is used
for direct mailings, giveaways and other promotional events that are tailored
to these specific groups of players. We have effectively used our database to
encourage repeat visits, increase customers' length of stay and improve our
operating results.
We place significant emphasis on attracting local residents and seek to
maintain a strong local identity in each market in which we operate by
initiating and supporting community and special events. We use radio and
television media to promote the "Isle of Capri" brand name and attract
customers to our properties. To further enhance Isle Style, we have engaged a
well-known actor to narrate our radio and television advertisements.
Current Operations
Here is an overview of our existing casino properties:
Isle-Lake Charles Isle-Bossier City Isle-Biloxi Isle-Vicksburg Isle-Black Hawk
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Date opened............. July 29, 1995 May 20, 1994 August 1, 1992 August 9, 1993 December 30, 1998
Casino square footage... 48,900 20,000 32,500 27,000 43,000
Slot machines........... 1,836 1,079 1,212 793 1,089
Table games............. 90 45 40 28 14
Hotel rooms............. 241 539 367 124 --
Parking spaces.......... 2,000 1,200 1,300 1,100 1,100
The Isle-Lake Charles
The Isle-Lake Charles, which commenced operations on July 29, 1995, is one
of two riverboat gaming facilities that operates two riverboats in the Lake
Charles, Louisiana market and one of three gaming facilities in southwest
Louisiana. Lake Charles is the closest gaming market to Houston, Texas, a
metropolitan area with a population of approximately 4.2 million that is
located approximately 140 miles west of Lake Charles.
The Isle-Lake Charles is located on a 19-acre site along the Calcasieu River
adjacent to Interstate 10 in Calcasieu Parish, one mile from the City of Lake
Charles. Our Crown riverboat has 24,700 square feet of gaming space with 892
slot machines and 41 table games on three levels. Our Grand Palais riverboat
has 24,200 square feet of gaming space with 944 slot machines and 49 table
games on two levels. Each of our riverboats has a large bar and foyer and the
Grand Palais riverboat has a top level which is not yet utilized. Lake Charles
is the only market in which we are required to cruise. However, because we
have two riverboats, one riverboat is always dockside, allowing us to offer
our customers continuous boarding.
The Isle-Lake Charles offers on-site accommodations to our customers through
the Inn at the Isle, a 241-room hotel, and provides free valet and self-
parking for more than 2,000 vehicles, including approximately 1,400 spaces in
an attached parking garage from which patrons can access the pavilion by
elevator. The lighted rooftop rotunda of the Isle-Lake Charles' pavilion is
topped by the Isle of Capri parrot which is 145 feet above the ground and
visible from Interstate 10. We believe that these amenities help us attract a
significant portion of the overnight visitors from Texas.
The Isle-Lake Charles also includes a 105,000 square foot land-based
pavilion. The pavilion is based on a tropical island theme and includes rock
formations, waterfalls, water arches with jets of water shooting up to 30 feet
in the air, ponds with porcelain sea life, flower beds landscaped in the shape
of playing card suits and an arcade. The pavilion provides panoramic views of
the lake and the city of Lake Charles and has separate entrances to the
riverboats. The pavilion offers customers a wide variety of non-gaming
amenities, including an 80-seat Farraddays' restaurant, a 489-seat Calypso's
buffet, a 40-seat Tradewinds deli, Caribbean Cove, which
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features free, live entertainment and can accommodate 180 customers, a Banana
Cabana souvenir gift shop and an Island Gold Players Club booth. The pavilion
also has a 16,000 square foot activity center comprised of a 1,100-seat
special events center designed for live boxing, televised pay-per-view events,
concerts, banquets and other events, meeting facilities and administrative
offices.
The Lake Charles market, excluding a nearby Native American-owned casino,
had gaming revenues of $299.7 million in 1998. We believe that the Isle-Lake
Charles attracts customers primarily from southeast Texas, including Houston,
Beaumont, Galveston, Orange and Port Arthur and local area residents.
Approximately 490,000 and 1.6 million people live within 50 and 100 miles,
respectively, of the Isle-Lake Charles.
We plan to begin construction of a new on-site 250-room deluxe hotel in the
second half of calendar 1999. We believe the availability of quality overnight
accommodations will attract a different segment of customers and increase
their length of stay at our facility.
The Isle-Bossier City
The Isle-Bossier City, which commenced operations on May 20, 1994, is one of
four dockside gaming facilities currently operating in the Bossier
City/Shreveport, Louisiana market. Bossier City/Shreveport is the closest
gaming market to Dallas/Ft. Worth, Texas, a metropolitan area with a
population of approximately 4.5 million that is located approximately 190
miles west of Bossier City/Shreveport.
The Isle-Bossier City is located on a 38-acre site along the Red River
approximately one-quarter mile off Interstate 20 and has a dockside riverboat
casino, a land-based entertainment pavilion and a parking garage. We opened
our new on-site 305-room deluxe hotel in late June 1999. We also own and
operate a 234-room hotel two miles from the Isle-Bossier City. The casino has
approximately 20,000 square feet of gaming space on three levels with 1,079
slot machines, 45 table games and a video poker bar. The approximately 72,200
square foot land-based pavilion features towering palm trees, exotic rock
formations and a waterfall. The pavilion offers a wide variety of non-gaming
amenities, including a 107-seat Farraddays' restaurant, a 352-seat Calypso's
buffet, a 40-seat Tradewinds deli, Caribbean Cove, which features free, live
entertainment and can accommodate 550 customers, a Banana Cabana souvenir gift
shop, an entertainment lounge area, a large nine-screen television wall
featuring sporting events, an Island Gold Players Club booth and
administrative offices. The Isle-Bossier City has on-site parking for 1,200
cars, of which 940 are accommodated in an attached parking garage. Additional
overflow parking is available nearby on weekends.
The 305-room Isle of Capri Casino Bossier City Hotel facility is directly
accessible from the casino through the atrium. The hotel offers spacious rooms
and provides amenities, including banquet facilities, arcade, child care
facilities, meeting rooms, a heated pool and exercise facilities with a hot
tub.
The Bossier City/Shreveport market had gaming revenue of $594.4 million in
1998. We believe that the Isle-Bossier City attracts customers primarily from
the local area, northeastern Texas and the Dallas/Ft. Worth metropolitan area.
Approximately 540,000 and 1.8 million people live within 50 and 100 miles,
respectively, of the Isle-Bossier City.
The Isle-Biloxi
The Isle-Biloxi, which commenced operations on August 1, 1992, was the first
gaming facility to open in Mississippi. Biloxi is the closest gaming market to
Mobile, Alabama, a metropolitan area with a population of approximately
600,000, that is located approximately 60 miles east of Biloxi. The Isle-
Biloxi is located at the eastern end of a cluster of facilities known as
"Casino Row" and is the first property reached by visitors coming from
Alabama, Florida and Georgia via Highway 90.
The Isle-Biloxi's eight-acre facility consists of a 50,000 square foot
dockside casino containing 32,500 square feet of gaming space with 1,212 slot
machines and 40 table games on two levels, an adjacent land-based
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pavilion, a 367-room hotel and on-site parking for 1,300 vehicles. The 32,000
square foot, 50-foot high pavilion offers a wide variety of non-gaming
amenities, including a 119-seat Farraddays' restaurant, a 280-seat Calypso's
buffet, an 88-seat Tradewinds deli, Caribbean Cove, an open-air lounge area
that can accommodate 116 customers and a Fantasy Isle Arcade of arcade games
for all ages. Calypso's and Farraddays' provide panoramic views of the Gulf of
Mexico and Deer Island. Caribbean Cove is located at the center of the
pavilion and is surrounded by a dramatic fountain and an entertainment stage.
The entertainment area features a stage and sound system used for special
events. Musical performances in the pavilion are scheduled six days a week
providing a Caribbean feel to Calypso's, Tradewinds and the hotel lobby.
Headliner entertainment appears monthly in the Flamingo Bay Ballroom with a
portion of the seating reserved for loyal customers.
The 367-room Isle of Capri Crowne Plaza Resort hotel facility is directly
accessible from the casino through the atrium. The hotel is included in the
Crowne Plaza and Holiday Inn Worldwide reservation system. The hotel offers
spacious rooms, most with balconies overlooking a marina, and provides
amenities, including meeting rooms, full room service, a heated pool and
exercise facilities with a hot tub, a dry sauna and massage therapy.
The Mississippi Gulf Coast market had gaming revenue of $813.2 million in
1998. On February 5, 1999, Beau Rivage Resort and AirTran announced that the
two companies entered a joint marketing partnership to provide daily non-stop
jet service between the Gulfport/Biloxi Regional Airport and southeastern
cities, including Dallas/Fort Worth, Houston, Ft. Lauderdale, Tampa and
AirTran's hub, Atlanta. The new service began on March 15, 1999 and increased
the daily flights arriving at the Gulfport/Biloxi Regional Airport from 21 to
28. The additional flights have increased the amount of incoming seat
availability from approximately 1,224 to approximately 1,950 per day, an
approximately 60% increase in daily seat availability.
We believe that the Isle-Biloxi attracts customers from the local area,
Alabama, Florida, Georgia and southeastern Louisiana, including New Orleans
and Baton Rouge. There are approximately 660,000 and 2.9 million people
residing within 50 to 100 miles, respectively, of the Isle-Biloxi.
The Mississippi Gulf Coast hotel market consists of approximately 16,000
hotel/motel rooms. The Isle-Biloxi's hotel occupancy is consistently in excess
of 90%. A number of our competitors in the Mississippi Gulf Coast market have
purchased existing hotels in the area, have built or are presently building or
upgrading their facilities or have announced plans to build or upgrade
additional hotels. More than 4,000 additional hotel/motel rooms have been
added over the past year or are currently under construction in this market.
Subject to amending our existing lease with the City of Biloxi, our
expansion plans for the Isle-Biloxi include replacing our existing casino and
constructing an approximately 1,000-space parking garage and a podium
containing entertainment and retail space. The podium will be constructed to
support either a time-share facility, which may be developed by a joint
venture, or additional hotel rooms.
The Isle-Vicksburg
The Isle-Vicksburg, which commenced operations on August 9, 1993, was the
first of four dockside gaming facilities to open in the Vicksburg, Mississippi
market. Vicksburg is the closest gaming market to Jackson, Mississippi, a
metropolitan area with a population of approximately 420,000 that is located
approximately 40 miles east of Vicksburg.
The Isle-Vicksburg is located on an 18-acre site along the Mississippi
River, approximately one mile north of Interstate 20, and consists of a 27,000
square foot dockside casino, a new on-site 124-room hotel and a 12,000 square
foot land-based pavilion. The casino has two levels with a total of 793 slot
machines and 28 table games. The Isle-Vicksburg provides on-site parking for
900 vehicles.
The land-based pavilion offers customers a wide variety of non-gaming
amenities, including a 67-seat Farraddays' restaurant, a 277-seat Calypso's
buffet, a Tradewinds deli, live entertainment, a Banana Cabana souvenir gift
shop, an Island Gold Players Club booth and a reception area. Customers have
easy access to the
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second level of the casino from the land-based pavilion by either escalator or
a wide stairway, both of which provide panoramic views of the Mississippi
River through a wall of windows.
In February 1999, we opened a new on-site 124-room hotel at the Isle-
Vicksburg, which has 69 deluxe rooms with balconies overlooking the
Mississippi River. The hotel is located on the bank of the Mississippi River,
adjacent to the casino. The Isle-Vicksburg's 67-space recreational vehicle
park is located approximately one-half mile from the casino and provides off-
site parking for 200 vehicles.
The Vicksburg market had gaming revenue of $202.2 million in 1998. We
believe that the Isle-Vicksburg attracts customers primarily from Vicksburg
and Jackson, Mississippi, northeastern Louisiana and tourists from other
locales. Approximately 530,000 and 1.5 million people live within 50 and 100
miles, respectively, of the Isle-Vicksburg. Vicksburg, a river port city best
known as the site of an historic Civil War battle and the home of the
Vicksburg National Military Park and Cemetery, drew more than 1.0 million
visitors in 1998.
The Isle-Black Hawk
On December 30, 1998, we opened our 57%-owned Isle-Black Hawk. This land-
based casino is the first casino reached by customers arriving from Denver,
Colorado, a metropolitan area with a population of approximately 2.2 million
that is located approximately 40 miles east of Black Hawk/Central City. The
Isle-Black Hawk is the largest of the 29 gaming facilities currently operating
in the Black Hawk/Central City market.
The Isle-Black Hawk is located on an approximately 9.4-acre site which is
readily accessible from Highway 119 and contains 43,000 square feet of gaming
space on a single floor with 1,089 slot machines, 14 table games and on-site
covered parking for 1,100 vehicles. The Isle-Black Hawk offers customers a
wide variety of non-gaming amenities, including a 52-seat Farraddays'
restaurant, a 254-seat Calypso's buffet, a 36-seat Tradewinds deli, a Banana
Cabana souvenir gift shop and a 4,000 square foot event center that can be
used for meetings and entertainment.
Isle of Capri Casinos, Inc. manages the Isle-Black Hawk for a fee which is
equal to two percent of revenue (after deducting one-half of gaming taxes)
plus ten percent of operating income, not to exceed four percent of revenue,
as defined.
The Black Hawk/Central City market had gaming revenue of $366.0 million in
1998. We believe that the Isle-Black Hawk's customers are primarily "day
trippers" from Denver, Boulder, Fort Collins and Golden, Colorado and
Cheyenne, Wyoming.
There are less than 200 hotel rooms in the Black Hawk/Central City market.
We plan to begin construction of an on-site 235-room hotel in the summer of
1999. The hotel is expected to be funded through operating cash flow, loans
and equity contributions from us and perhaps the minority owner.
Other Operations
Pompano Park
In 1995, we acquired Pompano Park, a harness racing track located in Pompano
Beach, Florida, midway between Miami and West Palm Beach. Pompano Park is the
only racetrack licensed to conduct harness racing in Florida. During 1998,
Pompano Park conducted 182 live racing programs. Pompano Park also offers
daily "full card" simulcasting and wagering on other harness races and
operates a 15-table limited stakes poker room with a $10 maximum win.
Pompano Park is conveniently located off of Interstate 95 and the Florida
Turnpike on a 220-acre owned facility. Pompano Park can accommodate up to
14,500 customers and has 4,000 parking spaces and 980 horse stalls. The six-
story, air-conditioned facility includes a box seat area, a 218,400 square
foot clubhouse, a large
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grandstand, a 1,200-seat dining area from which the races can be viewed, five
concession stands, five bars and a 165-seat Player's Lounge cafeteria.
We believe that Pompano Park would be an attractive location for casino-
style gaming if such gaming were to be legalized in Florida.
Capri Cruises
On April 20, 1998, we formed Capri Cruises, a joint venture with Commodore
Cruise Lines. We own a 50% interest in the joint venture and operate the
casino on the Enchanted Capri cruise ship, which is based in the Port of New
Orleans. The cruise ship offers two and five night cruises for up to 550
passengers. We provide discounted and complimentary cruises on the Enchanted
Capri to many of our Island Gold Players Club members.
Competition
General
We face intense competition in each of the markets in which we operate. Our
existing gaming facilities compete directly with other gaming properties in
Louisiana, Mississippi and Colorado. We expect this competition to increase as
new gaming operators enter our markets, existing competitors expand their
operations, gaming activities expand in existing jurisdictions and gaming is
legalized in new jurisdictions. Several of our competitors have substantially
better name recognition, marketing and financial resources than we do. We
cannot predict with any certainty the effects of existing and future
competition on our operating results.
We also compete with other forms of gaming and entertainment such as online
computer gambling, bingo, pull tab games, card parlors, sports books, pari-
mutuel or telephonic betting on horse racing and dog racing, state-sponsored
lotteries, jai-alai, video lottery terminals, video poker terminals and, in
the future, may compete with in-flight gaming or gaming at other venues.
We also compete with gaming operations in other gaming jurisdictions such as
Las Vegas, Nevada and Atlantic City, New Jersey. Our competition also includes
casinos located on Native American reservations throughout the United States,
which have the advantages of being land-based and exempt from certain state
and federal taxes. Some Native American tribes are either in the process of
establishing or are considering the establishment of gaming at additional
locations. Expansion of existing gaming jurisdictions and the development of
new gaming jurisdictions and casinos on Native American-owned lands will
increase competition for our existing and future operations. In addition,
increased competition could limit new opportunities for us or result in the
saturation of certain gaming markets.
Louisiana Markets
Louisiana, unlike certain other jurisdictions, does not permit license
holders to operate a second boat out of the same location without a gaming
license for each boat. In addition to existing competition, the granting of
additional gaming licenses in the Lake Charles or Bossier City/Shreveport
market or the relocation of existing licenses from elsewhere in the state of
Louisiana to either market would increase competition for us. The last
available gaming license in Louisiana could be awarded to an operator in
either the Lake Charles or Bossier City/Shreveport market. The Chairman of the
Louisiana Gaming Control Board has indicated that he plans to ask the
Louisiana Gaming Control Board to consider accepting applications for this
license. If the Louisiana Gaming Control Board begins accepting applications
for this license, the last gaming license would likely be awarded before the
first half of calendar 2000. Because a significant number of the Isle-Lake
Charles' and the Isle-Bossier City's customers reside in Texas, legalization
of casino gaming in Texas would have a material adverse effect on our
operating results.
The Isle-Lake Charles
The Isle-Lake Charles is one of two riverboat gaming facilities in the Lake
Charles, Louisiana market that each operates two riverboats from a single
facility. The Isle-Lake Charles, with its location at the western end of
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the Lake Charles gaming market, is the first gaming facility reached by
patrons arriving from Texas. The Isle-Lake Charles' riverboat competitor,
Players International, operates two riverboats and a 268-room hotel at a
facility approximately two miles from the Isle-Lake Charles. A land-based,
Native American-owned casino with approximately 71,000 square feet of gaming
space, a 223-room hotel and 150 recreational vehicle parking spaces is
operating in Kinder, Louisiana, approximately 35 miles northeast of the Isle-
Lake Charles. Customers from Texas must travel a total of approximately 70
miles more per round trip to visit the casino in Kinder. Riverboats in the
Lake Charles market are subject to cruising requirements, which makes the
land-based casino in Kinder more desirable to many gaming customers. However,
one of our boats at the Isle-Lake Charles is dockside at all times, allowing
us to offer continuous boarding.
The Isle-Bossier City
The Isle-Bossier City is one of four facilities currently operating in the
Bossier City/Shreveport market, a non-cruising gaming market. Despite opening
a new on-site hotel, the Isle-Bossier City will face increased competition
from existing competitors if they add to or enhance their existing facilities.
All of the facilities were opened between April 1994 and October 1996. In
January 1998, Horseshoe Gaming opened a 606-room hotel at its casino and
replaced its riverboat with a larger vessel. This 62,400 square foot, four-
deck riverboat has approximately 30,000 square feet of gaming space, making it
the largest in the Bossier City/Shreveport market. Hollywood Park, through its
Casino Magic subsidiary, opened a 188-room hotel in December 1998 and operates
a 20,000 square foot riverboat casino. Harrah's recently began construction on
a 500-room hotel at its property in Shreveport where it currently operates a
20,000 square foot riverboat casino. Hollywood Casino recently received
approval for a $185 million riverboat casino, hotel and entertainment complex
in Shreveport, although no financing for the project has been announced.
Legislation was adopted in the 1997 legislative session and approved by the
voters in Bossier Parish, Louisiana that, subject to passage of tax
legislation, would allow up to 15,000 square feet of slot machines at
Louisiana Downs, a thoroughbred racing facility located approximately six
miles east of the Isle-Bossier City. In the 1998 legislative session, the
legislature failed to adopt a tax rate. However, during the 1999 legislative
session a bill was passed which, through the creation of a special taxing
district, purports to satisfy the requirement for assessment of a tax on slot
operations at Louisiana Downs prior to the commencement of slot operations. If
slot operations open at Louisiana Downs, the Isle-Bossier City's operating
results could be adversely affected.
Mississippi Markets
Because Mississippi law does not limit the number of gaming licenses that
may be granted, there may be increases in the number of gaming facilities,
which could have a material adverse effect on our Mississippi properties.
The Isle-Biloxi
Twelve gaming facilities are located along the Mississippi Gulf Coast. Nine
gaming facilities are located in Biloxi, two gaming facilities are located in
Gulfport, approximately 10 miles east of Biloxi, and one gaming facility is
located in Bay St. Louis, approximately 30 miles east of Biloxi.
Intense competition on the Mississippi Gulf Coast has already contributed to
the permanent closure of four gaming facilities and reorganizations at two
other gaming facilities in the area. On March 16, 1999, Mirage Resorts, Inc.,
opened Beau Rivage, a $680.0 million, 1,780 room resort and casino with 78,000
square feet of gaming space and a 50,000 square foot meeting center. Beau
Rivage is located approximately two miles west of the Isle-Biloxi. Full House
Resorts has entered into a licensing agreement with Hard Rock Cafe for the
development of a Hard Rock Hotel & Casino adjacent to the Beau Rivage. Full
House Resorts has announced that it expects the facility to open in 2001 and
to include a 400 to 450-room hotel, a Hard Rock Live concert venue and a
signature Hard Rock Cafe.
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Because a significant number of the Isle-Biloxi's customers reside in
Alabama, legalization of gaming in Alabama would increase competition and have
a material adverse effect on the Isle-Biloxi.
We believe that the location of the Isle-Biloxi has several significant
competitive advantages. The Isle-Biloxi is located on "Casino Row", a cluster
of three casinos at the eastern end of Highway 90, affording visitors the
convenience and visual impact of three gaming facilities located within
walking distance. "Casino Row" is the first area reached by visitors from
Alabama, Florida and Georgia.
The Isle-Vicksburg
The Isle-Vicksburg is one of four gaming facilities currently operating in
the Vicksburg, Mississippi area. The Isle-Vicksburg is the second largest
casino in the Vicksburg area. We opened a 124-room on-site hotel in February
1999. Two of our competitors have an on-site hotel and our third competitor
has a hotel adjacent to its site. Lady Luck Gaming owns a site in Vicksburg
and has at various times announced plans to develop a casino and hotel at the
site.
Other local casino competition includes one gaming facility in Natchez,
Mississippi, two gaming facilities in Greenville, Mississippi and a land-
based, Native American-owned casino near Philadelphia, Mississippi. These
casinos are located within a range of 60-125 miles from Vicksburg and 70-90
miles from Jackson.
Mississippi statutes limit gaming to the Mississippi River and navigable
waters within counties bordering the Mississippi River. However, there have
been several attempts to expand gaming as far east of the Mississippi River as
possible. We expect these efforts to continue. An appeal of the Mississippi
Gaming Commission's decision denying site approval of Horseshoe Gaming's
proposed casino in eastern Warren County on the Big Black River, between the
Isle-Vicksburg and its primary market of Jackson, is pending in the
Mississippi Supreme Court. If gaming sites are approved in the eastern part of
Warren County, the Isle-Vicksburg would be materially adversely affected.
We believe that the Isle-Vicksburg enjoys certain competitive advantages in
the Vicksburg gaming market based on its convenient location and its new 124-
room on-site hotel, which has 69 deluxe rooms with balconies overlooking the
Mississippi River. The Isle-Vicksburg is located approximately one mile from
an exit off Interstate 20 that provides easy access from Jackson and the
surrounding areas. Only one competitor is located closer to Interstate 20 than
the Isle-Vicksburg. The Isle-Vicksburg also offers ample parking both on-site
and immediately adjacent to the facility. We also believe that the Isle-
Vicksburg's gaming and non-gaming facilities and distinctive tropical island
theme provide one of the most exciting and spacious gaming environments in the
Vicksburg market.
The Isle-Black Hawk
Competition in the Black Hawk/Central City, Colorado market is intense. Of
the 29 gaming facilities currently operating in the Black Hawk/Central City
market, seven have over 400 gaming positions and two offer a variety of hotel
accommodations. These seven gaming facilities all have on-site parking and
have established high-profile brand names in the local market.
New construction, development projects and expansion plans are in process at
other casino facilities. Riviera Black Hawk acquired a 300,000 square foot
site next to the Isle-Black Hawk and is developing a facility and has
announced that it will have 1,000 slot machines and a 550-space covered
parking garage. This facility is scheduled to open in early 2000. Another
competitor is constructing a nearby casino, which is also scheduled to open in
2000.
We believe that the Isle-Black Hawk's large casino, covered self-service
parking, dining amenities and unique tropical island theme give us an
advantage in the Black Hawk/Central City market. Our casino is the closest
casino in Black Hawk to the highway and is the largest casino in the Black
Hawk/Central City market.
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Recent Transactions
We recently refinanced substantially all of our existing debt, other than
certain non-recourse debt incurred by the subsidiaries that own and operate
the Isle-Black Hawk, in order to reduce borrowing rates, extend debt
maturities and improve our financial flexibility. The refinancing consisted of
the following:
. Offering of Senior Subordinated Notes. On April 23, 1999, we issued
$390.0 million principal amount of 8 3/4% senior subordinated notes
due 2009. We used the net proceeds of this offering to fund the
repurchase of our existing 12 1/2% senior secured notes due 2003 and
to repay certain other indebtedness. In connection with the offering
and sale of these notes, we entered into an amendment to the
indenture governing our 12 1/2% Senior Secured Notes due 2003, to
eliminate most of the financial and restrictive covenants in the
indenture. We effected a covenant defeasance of the remaining 12 1/2%
senior secured notes by depositing sufficient funds with the trustee
to redeem the remaining outstanding notes on August 1, 2000, the
earliest possible redemption date. The first priority liens that
secure the 12 1/2% senior secured notes were released as a result of
the defeasance of those notes.
. New Senior Credit Facility. Simultaneously with the $390 million note
offering, we entered into a new $175.0 million, five-year senior
credit facility comprised of a $50.0 million term loan and a $125.0
million undrawn revolver. Our new senior credit facility is secured
by liens on substantially all of our assets and guaranteed by all of
our significant restricted subsidiaries. We used the initial
borrowings under our new senior credit facility to repay certain
existing debt, for working capital and for other general corporate
purposes. We plan to use future borrowings under our new senior
credit facility to finance expansion projects and for working capital
and general corporate purposes.
Recent Developments
Tunica County, Mississippi
In March 1999, we acquired, for $9.5 million, the original Harrah's casino
facility located in Tunica County, Mississippi. The Tunica gaming market
generated gaming revenue of $966.7 million in 1998 and is the fifth largest
gaming market in the United States. It is the closest gaming market to the
Memphis, Tennessee metropolitan area, which has a population of approximately
1.1 million and is located approximately 30 miles northeast of Tunica County.
We are in the process of investing an additional amount of approximately $24.0
million to equip, renovate and open this facility as an Isle of Capri casino.
We plan to open the Isle-Tunica in July 1999 with approximately 875 slot
machines, 15 table games and our three trademark restaurants. We also plan to
invest approximately $40.0 million to construct an on-site hotel with up to
250 rooms and two live entertainment theaters with combined seating for 2,000
people. Construction of the hotel and theaters is scheduled to begin in the
second half of calendar 1999. We have entered into a letter of intent with a
company affiliated with entertainer Wayne Newton to form a joint venture to
operate the theaters.
The Tunica gaming market is extremely competitive. We will compete with nine
dockside gaming facilities in this market. Of these facilities, six are closer
to the Memphis, Tennessee metropolitan area, from which most customers come.
The Isle-Tunica will be the smallest facility in the Tunica gaming market in
terms of gaming square footage and number of positions and, at the time we
open the Isle-Tunica, the Isle-Tunica will be the only facility without a
hotel.
Coahoma County, Mississippi
In 1998, we acquired an option to purchase approximately 138 acres of land
in Coahoma County, Mississippi, which is readily accessible from Highway 49,
and have received site and development approval from the Mississippi Gaming
Commission to develop a gaming entertainment facility on this site. We plan to
invest approximately $60.0 million to develop, in phases, a casino and related
lodging and entertainment facilities containing approximately 930 slot
machines, 24 table games, our three trademark restaurants and a hotel with
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approximately 225 rooms. We must obtain additional permits to develop this
site, including approval from the Army Corps of Engineers, and plan to
commence operations at the Isle-Coahoma in 2000.
Coahoma County, Mississippi is located approximately 130 miles southeast of
Little Rock, Arkansas and 70 miles south of Memphis, Tennessee, across the
river from Helena, Arkansas. Lady Luck Gaming is the only gaming operator
currently in Coahoma County and operates two casinos having a total of
approximately 50,000 square feet of gaming space. Lady Luck Gaming also owns
and operates a 173-room hotel and a 314-room hotel at its site, and a 120-room
hotel in Helena, Arkansas.
This property will also compete to a lesser extent with gaming facilities in
Tunica County. Because a number of this property's customers will be drawn
from Arkansas, legalization of gaming in Arkansas would have a material
adverse effect on this project.
Future Developments
We recently adopted an expansion program, which we refer to as the
Millennium Expansion Plan, which we believe will be instrumental in driving
our continued growth. In addition to development of the Isle-Tunica and the
Isle-Coahoma, the Millennium Expansion Plan includes continued development of
additional Isle Style amenities at our existing facilities, including the
following:
. Construction of an on-site 250-room deluxe hotel at the Isle-Lake
Charles;
. Construction of a larger casino, an approximately 1,000 space parking
garage and podium containing entertainment and retail space at the
Isle-Biloxi. The podium will be constructed to support the future
development of a proposed time-share facility, which may be developed
through a joint venture, or additional hotel rooms; and
. Construction of an on-site 235-room hotel at the Isle-Black Hawk.
Subject to obtaining necessary approvals, including amending our lease with
the City of Biloxi, we expect that the components of the Millennium Expansion
Plan will be completed over the next 24 months.
Employees
As of April 25, 1999, we employed approximately 6,000 people. None of our
employees are subject to a collective bargaining agreement. We believe that
our relationship with our employees is satisfactory.
Regulatory Matters
Louisiana
In July 1991, Louisiana enacted legislation permitting certain types of
gaming activity on certain rivers and waterways in Louisiana. The legislation
granted authority to supervise riverboat gaming activities to the Louisiana
Riverboat Gaming Commission and the Riverboat Gaming Enforcement Division of
the Louisiana State Police. The Louisiana Riverboat Gaming Commission was
authorized to hear and determine all appeals relative to the granting,
suspension, revocation, condition or renewal of all licenses, permits and
applications. In addition, the Louisiana Riverboat Gaming Commission
established regulations concerning authorized routes, duration of excursions,
minimum levels of insurance, construction of riverboats and periodic
inspections. The Riverboat Gaming Enforcement Division of the Louisiana State
Police was authorized to investigate applicants and issue licenses,
investigate violations of the statute and conduct continuing reviews of gaming
activities.
In May 1996, regulatory oversight of riverboat gaming was transferred to the
Louisiana Gaming Control Board, which is comprised of nine voting members
appointed by the governor. The Louisiana Gaming Control Board now oversees all
licensing matters for riverboat casinos, land-based casinos, video poker and
certain aspects of Native American gaming other than those responsibilities
reserved to the Louisiana State Police.
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The Louisiana Gaming Control Board is empowered to issue up to 15 licenses
to conduct gaming activities on a riverboat of new construction in accordance
with applicable law. However, no more than six licenses may be granted to
riverboats operating from any one parish.
The Louisiana State Police continues to be involved broadly in gaming
enforcement and reports to the Louisiana Gaming Control Board. Louisiana law
permits the Louisiana State Police, among other things, to continue to (1)
conduct suitability investigations, (2) audit, investigate and enforce
compliance with standing regulations, (3) initiate enforcement and
administrative actions and (4) perform "all other duties and functions
necessary for the efficient, efficacious, and thorough regulation and control
of gaming activities and operations under the Louisiana Gaming Control Board's
jurisdiction."
Louisiana gaming law specifies certain restrictions relating to the
operation of riverboat gaming, including the following:
. except in Bossier City/Shreveport, gaming is not permitted while a
riverboat is docked, other than the 45 minutes between excursions and
during times when dangerous weather or water conditions exist;
. except in Bossier City/Shreveport, each round-trip riverboat cruise
may not be less than three nor more than eight hours in duration,
subject to specific exceptions;
. agents of the Louisiana State Police are permitted on board at any
time during gaming operations;
. gaming devices, equipment and supplies may only be purchased or
leased from permitted suppliers;
. gaming may only take place in the designated gaming area while the
riverboat is on a designated river or waterway;
. gaming equipment may not be possessed, maintained or exhibited by any
person on a riverboat except in the specifically designated gaming
area or in a secure area used for inspection, repair or storage of
such equipment;
. wagers may be received only from a person present on a licensed
riverboat;
. persons under 21 are not permitted in designated gaming areas;
. except for slot machine play, wagers may be made only with tokens,
chips or electronic cards purchased from the licensee aboard a
riverboat;
. licensees may only use docking facilities and routes for which they
are licensed and may only board and discharge passengers at the
riverboat's licensed berth;
. licensees must have adequate protection and indemnity insurance;
. licensees must have all necessary federal and state licenses,
certificates and other regulatory approvals prior to operating a
riverboat; and
. gaming may only be conducted in accordance with the terms of the
license and Louisiana law.
To receive a gaming license in Louisiana, an applicant must be found to be a
person of good character, honesty and integrity and a person whose prior
activities, criminal record, if any, reputation, habits and associations do
not (1) pose a threat to the public interest of the State of Louisiana or to
the effective regulation and control of gaming or (2) create or enhance the
dangers of unsuitable, unfair or illegal practices, methods and activities in
the conduct of gaming or the carrying on of business and financial
arrangements of gaming activities. In addition, the Louisiana Gaming Control
Board will not grant a license unless it finds that:
. the applicant can demonstrate the capability, either through
training, education, business experience or a combination of the
preceding, to operate a gaming operation;
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. the proposed financing of the riverboat and the gaming operations is
adequate for the nature of the proposed operation and is from a
suitable and acceptable source;
. the applicant demonstrates a proven ability to operate a vessel of
comparable size, capacity and complexity to a riverboat so as to
ensure the safety of its passengers;
. the applicant submits with its application for a license a detailed
plan of design of the riverboat;
. the applicant designates the docking facilities to be used by the
riverboat;
. the applicant shows adequate financial ability to construct and
maintain a riverboat; and
. the applicant has a good faith plan to recruit, train and upgrade
minorities in all employment classifications.
An initial license to conduct riverboat gaming operations is valid for a
term of five years and legislation passed in the 1999 legislative session,
provides for renewals every five years thereafter. Legislation was passed
during the 1999 regular legislative session, which, if not vetoed by the
governor, would increase the license renewal terms to five years. A gaming
license is deemed to be a privilege under Louisiana law and, as such, may be
denied, revoked, suspended, conditioned or limited at any time by the
Louisiana Gaming Control Board.
The Isle-Bossier City was issued its initial gaming license by the Riverboat
Gaming Enforcement Division of the Louisiana State Police on December 22, 1993
and the Isle-Lake Charles was issued its initial gaming license by the
Louisiana Gaming Control Board on March 14, 1995. The license to operate the
Grand Palais was issued to a previous owner and the Grand Palais ceased
operations as a result of its bankruptcy. Isle of Capri acquired the Grand
Palais and has been advised by the chief counsel to the Louisiana Gaming
Control Board that it will treat the running of the five-year license period
as having been suspended from June 6, 1995 until July 12, 1996, the date on
which gaming operations recommenced on the Grand Palais. The legal effect of
this communication is unclear. Louisiana gaming law provides that a renewal
application for the period succeeding the initial five-year term of an
operator's license must be made to the Louisiana Gaming Control Board on an
annual basis. The application for renewal consists of a statement under oath
of any and all changes in information, including financial information,
provided in the previous application. The transfer of a license or an interest
in a license is prohibited.
Certain persons affiliated with a riverboat gaming licensee, including
directors and officers of the licensee, directors and officers of any holding
company of the licensee involved in gaming operations, persons holding 5% or
greater interests in the licensee and persons exercising influence over a
licensee, are subject to the application and suitability requirements of
Louisiana gaming law.
The sale, purchase, assignment, transfer, pledge or other hypothecation,
lease, disposition or acquisition by any person of securities which represent
5% or more of the total outstanding shares issued by a licensee is subject to
the approval of the Louisiana Gaming Control Board. A security issued by a
licensee must generally disclose these restrictions. Prior approval from the
Louisiana Gaming Control Board is required for the sale, purchase, assignment,
transfer, pledge or other hypothecation, lease, disposition or acquisition of
any ownership interest of 5% or more of any non-corporate licensee or for the
transfer of any "economic interest" of 5% or more of any licensee or
affiliated gaming person. An "economic interest" is defined as any interest
whereby a person receives or is entitled to receive, by agreement or
otherwise, a profit, gain, thing of value, loan, credit, security interest,
ownership interest or other benefit.
Fees payable to the state for conducting gaming activities on a riverboat
include (1) $50,000 per riverboat for the first year of operation and $100,000
per year per riverboat thereafter, plus (2) 18.5% of net gaming proceeds. A
statute also authorizes local governing authorities to levy boarding fees.
Isle of Capri has development agreements with the local governing authorities
in the jurisdictions in which it operates pursuant to which it makes payments
in lieu of boarding fees.
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A licensee must notify and/or seek approval from the Louisiana Gaming
Control Board in connection with any withdrawals of capital, loans, advances
or distributions in excess of 5% of retained earnings for a corporate
licensee, or of capital accounts for a partnership or limited liability
company licensee, upon completion of any such transaction. The Louisiana
Gaming Control Board may issue an emergency order for not more than ten days
prohibiting payment of profits, income or accruals by, or investments in, a
licensee. Riverboat gaming licensees and their affiliated gaming persons must
notify the Louisiana Gaming Control Board 60 days prior to the receipt by any
such persons of any loans or extensions of credit or modifications thereof.
The Louisiana Gaming Control Board is required to investigate the reported
loan, extension of credit or modification thereof and to determine whether an
exemption exists on the requirement of prior written approval and, if such
exemption is not applicable, to either approve or disapprove the transaction.
If the Louisiana Gaming Control Board disapproves of a transaction, the
transaction cannot be entered into by the licensee or affiliated gaming
person. Isle of Capri is an affiliated gaming person of its subsidiaries which
hold the licenses to conduct riverboat gaming at the Isle-Bossier City and the
Isle-Lake Charles.
The failure of a licensee to comply with the requirements set forth above
may result in the suspension or revocation of that licensee's gaming license.
Additionally, if the Louisiana Gaming Control Board finds that the individual
owner or holder of a security of a corporate license or intermediary company
or any person with an economic interest in a licensee is not qualified under
Louisiana law, the Louisiana Gaming Control Board may require, under penalty
of suspension or revocation of the license, that the person not:
. receive dividends or interest on securities of the corporation;
. exercise directly or indirectly a right conferred by securities of
the corporation;
. receive remuneration or economic benefit from the licensee; or
. continue its ownership or economic interest in the licensee.
A licensee must periodically report the following information to the
Louisiana Gaming Control Board, which is not confidential and is available for
public inspection: (1) the licensee's net gaming proceeds from all authorized
games, (2) the amount of net gaming proceeds tax paid and (3) all quarterly
and annual financial statements presenting historical data, including annual
financial statements that have been audited by an independent certified public
auditor.
During the 1996 special session of the Louisiana legislature, legislation
was passed which provided for local option elections to be held in November
1996 which gave voters in each parish within the state the opportunity to
decide whether the various forms of gaming permitted under Louisiana law,
including riverboat gaming, were permissible in each parish. In November 1996,
voters in Calcasieu and Bossier parishes, the parishes in which the Isle-Lake
Charles and Isle-Bossier City are located, voted favorably to permit the
continuation of riverboat gaming.
During the 1996 special session of the Louisiana legislature, legislation
was also enacted placing on the ballot for a state-wide election a
constitutional amendment limiting the expansion of gaming. In October 1996,
voters passed the constitutional amendment. As a result, local option
elections are required before new or additional forms of gaming can be brought
into a parish.
Proposals to amend or supplement Louisiana's riverboat gaming statute are
frequently introduced in the Louisiana State legislature. There is no
assurance that changes in Louisiana gaming law will not occur or that such
changes will not have a material adverse effect on Isle of Capri's business in
Louisiana.
Mississippi
In June 1990, Mississippi enacted legislation legalizing dockside casino
gaming for counties along the Mississippi River, which is the western border
for most of the state, and the Gulf Coast, which is the southern
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border for most of the state. The legislation gave each of those counties the
opportunity to hold a referendum on whether to allow dockside casino gaming
within its boundaries.
Gaming vessels in Mississippi must be located on the Mississippi River, on
navigable waters in eligible counties along the Mississippi River or in the
waters lying south of the counties along the Mississippi Gulf Coast.
Mississippi law permits unlimited stakes gaming on permanently moored vessels
on a 24-hour basis and does not restrict the percentage of space which may be
utilized for gaming. There are no limitations on the number of gaming licenses
which may be issued in Mississippi.
The ownership and operation of gaming facilities in Mississippi are subject
to extensive state and local regulation intended to:
. prevent unsavory or unsuitable persons from having any direct or
indirect involvement with gaming at any time or in any capacity;
. establish and maintain responsible accounting practices and
procedures for gaming operations;
. maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record
keeping and making periodic reports;
. provide a source of state and local revenues through taxation and
licensing fees;
. prevent cheating and fraudulent practices; and
. ensure that gaming licensees, to the extent practicable, employ
Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Gaming Commission. Changes in Mississippi laws or regulations may
limit or otherwise materially affect the types of gaming that may be conducted
in Mississippi and such changes, if enacted, could have an adverse effect on
Isle of Capri and its Mississippi gaming operations.
Isle of Capri is registered as a publicly traded holding company under the
Mississippi Gaming Control Act. Isle of Capri's gaming operations in
Mississippi are subject to regulatory control by the Mississippi Gaming
Commission, the state tax commission and various other local, city and county
regulatory agencies (collectively referred to as the "Mississippi Gaming
Authorities"). Subsidiaries of Isle of Capri have obtained gaming licenses
from the Mississippi Gaming Authorities to operate the Isle-Biloxi and the
Isle-Vicksburg and have applications pending for gaming licenses for the Isle-
Tunica and the Isle-Coahoma. Isle of Capri's future gaming operations outside
of Mississippi are also subject to approval by the Mississippi Gaming
Commission.
The licenses held by Isle of Capri's Mississippi gaming operations have
terms of two years and are not transferable. The Isle-Biloxi received a third
gaming license in April 1998 and the Isle-Vicksburg obtained a third gaming
license in January 1999. There is no assurance that new licenses can be
obtained at the end of each two-year period of a license. The Isle-Tunica and
the Isle-Coahoma will have to obtain licenses before gaming operations can
begin at these locations. Moreover, the Mississippi Gaming Commission may, at
any time, and for any cause it deems reasonable, revoke, suspend, condition,
limit or restrict a license or approval to own shares of stock in the
subsidiaries of Isle of Capri that operate in Mississippi.
Substantial fines for each violation of Mississippi's gaming laws or
regulations may be levied against Isle of Capri, its subsidiaries and the
persons involved. A violation under a gaming license held by a subsidiary of
Isle of Capri operating in Mississippi may be deemed a violation of all the
other licenses held by Isle of Capri.
Isle of Capri and each of its Mississippi gaming subsidiaries must
periodically submit detailed financial, operating and other reports to the
Mississippi Gaming Commission and/or the state tax commission. Numerous
transactions, including substantially all loans, leases, sales of securities
and similar financing transactions entered into by any subsidiary of Isle of
Capri operating a casino in Mississippi, must be reported to or approved by
the
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Mississippi Gaming Commission. In addition, the Mississippi Gaming Commission
may, in its discretion, require additional information about the operations of
Isle of Capri.
Certain officers and employees of Isle of Capri and the officers, directors
and certain key employees of Isle of Capri's Mississippi gaming subsidiaries
must be found suitable or be licensed by the Mississippi Gaming Commission.
Isle of Capri believes that all required findings of suitability related to
the Isle-Biloxi and the Isle-Vicksburg have been applied for or obtained,
although the Mississippi Gaming Commission in its discretion may require
additional persons to file applications for findings of suitability. Isle of
Capri will have to obtain findings of suitability related to the Isle-Tunica
and the Isle-Coahoma. In addition, any person having a material relationship
or involvement with Isle of Capri may be required to be found suitable or
licensed, in which case those persons must pay the costs and fees associated
with such investigation. The Mississippi Gaming Commission may deny an
application for a finding of suitability for any cause that it deems
reasonable. Changes in certain licensed positions must be reported to the
Mississippi Gaming Commission. In addition to its authority to deny an
application for a finding of suitability, the Mississippi Gaming Commission
has jurisdiction to disapprove a change in a licensed position. The
Mississippi Gaming Commission has the power to require Isle of Capri and any
of its Mississippi gaming subsidiaries to suspend or dismiss officers,
directors and other key employees or to sever relationships with other persons
who refuse to file appropriate applications or whom the authorities find
unsuitable to act in such capacities.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension under certain circumstances. The Mississippi Gaming
Commission will refuse to issue a work permit to a person who has been
convicted of a felony, committed certain misdemeanors or knowingly violated
the Mississippi Gaming Control Act, and it may refuse to issue a work permit
to a gaming employee for any other reasonable cause.
At any time, the Mississippi Gaming Commission has the power to investigate
and require the finding of suitability of any record or beneficial stockholder
of Isle of Capri. Mississippi law requires any person who individually or in
association with others acquires, directly or indirectly, beneficial ownership
of more than 5% of Isle of Capri's common stock to report the acquisition to
the Mississippi Gaming Commission, and such person may be required to be found
suitable. In addition, any person who, individually or in association with
others, becomes, directly or indirectly, a beneficial owner of more than 10%
of Isle of Capri's common stock, as reported to the U.S. Securities and
Exchange Commission, must apply for a finding of suitability by the
Mississippi Gaming Commission and must pay the costs and fees that the
Mississippi Gaming Commission incurs in conducting the investigation.
The Mississippi Gaming Commission has generally exercised its discretion to
require a finding of suitability of any beneficial owner of more than 5% of a
registered publicly-traded holding company's stock. However, the Mississippi
Gaming Commission has adopted a policy that generally permits certain
institutional investors to own beneficially up to 10% of a registered public
company's stock without a finding of suitability. If a stockholder who must be
found suitable is a corporation, partnership or trust, it must submit detailed
business and financial information, including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. Isle of Capri believes that compliance by
Isle of Capri with the licensing procedures and regulatory requirements of the
Mississippi Gaming Commission will not affect the marketability of Isle of
Capri's securities. Any person found unsuitable and who holds, directly or
indirectly, any beneficial ownership of Isle of Capri's securities beyond such
time as the Mississippi Gaming Commission prescribes may be guilty of a
misdemeanor. Isle of Capri is subject to disciplinary action if, after
receiving notice that a person is unsuitable to be a stockholder or to have
any other relationship with Isle of Capri or its subsidiaries operating
casinos in Mississippi, Isle of Capri:
. pays the unsuitable person any dividend or other distribution upon
its voting securities;
. recognizes the exercise, directly or indirectly, of any voting rights
conferred by its securities;
15
. pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific
circumstances; or
. fails to pursue all lawful efforts to require the unsuitable person
to divest himself of the securities, including, if necessary, the
immediate purchase of the securities for cash at a fair market value.
Isle of Capri may be required to disclose to the Mississippi Gaming
Commission upon request the identities of the holders of any of Isle of
Capri's debt securities. In addition, under the Mississippi Gaming Control
Act, the Mississippi Gaming Commission may, in its discretion, (1) require
holders of Isle of Capri's securities, including the notes, to file
applications, (2) investigate such holders and (3) require such holders to be
found suitable to own such securities. Although the Mississippi Gaming
Commission generally does not require the individual holders of obligations
such as the notes to be investigated and found suitable, the Mississippi
Gaming Commission retains the discretion to do so for any reason, including
but not limited to a default, or where the holder of the debt instrument
exercises a material influence over the gaming operations of the entity in
question. Any holder of debt securities required to apply for a finding of
suitability must pay all investigative fees and costs of the Mississippi
Gaming Commission in connection with such an investigation.
The Mississippi regulations provide that a change in control of Isle of
Capri may not occur without the prior approval of the Mississippi Gaming
Commission. Mississippi law prohibits Isle of Capri from making a public
offering of its securities without the approval of the Mississippi Gaming
Commission if any part of the proceeds of the offering is to be used to
finance the construction, acquisition or operation of gaming facilities in
Mississippi, or to retire or extend obligations incurred for one or more such
purposes. The Mississippi Gaming Commission has the authority to grant a
continuous approval of securities offerings and has granted such approval for
Isle of Capri, subject to an annual renewal.
Regulations of the Mississippi Gaming Commission prohibit certain
repurchases of securities of publicly traded corporations registered with the
Mississippi Gaming Commission, including holding companies such as Isle of
Capri, without prior approval of the Mississippi Gaming Commission.
Transactions covered by these regulations are generally aimed at discouraging
repurchases of securities at a premium over market price from certain holders
of greater than 3% of the outstanding securities of the registered publicly
traded corporation. The regulations of the Mississippi Gaming Commission also
require prior approval for a "plan of recapitalization" as defined in such
regulations.
Isle of Capri must maintain in the State of Mississippi current stock
ledgers, which may be examined by the Mississippi Gaming Authorities at any
time. If any securities are held in trust by an agent or by a nominee, the
record holder may be required to disclose the identity of the beneficial owner
to the Mississippi Gaming Authorities. A failure to make such disclosure may
be grounds for finding the record holder unsuitable. Isle of Capri must render
maximum assistance in determining the identity of the beneficial owner.
Mississippi law requires that certificates representing shares of Isle of
Capri common stock bear a legend to the general effect that the securities are
subject to the Mississippi Gaming Control Act and regulations of the
Mississippi Gaming Commission. The Mississippi Gaming Commission has the
authority to grant a waiver from the legend requirement, which Isle of Capri
has obtained. The Mississippi Gaming Authorities, through the power to
regulate licenses, have the power to impose additional restrictions on the
holders of Isle of Capri's securities at any time.
The Mississippi Gaming Commission has enacted a regulation requiring that,
as a condition to licensure or license renewal, an applicant must provide a
plan to develop infrastructure facilities amounting to 25% of the cost of the
casino and a parking facility capable of accommodating 500 cars. In 1999, the
Mississippi Gaming Commission approved amendments to this regulation that
increased the infrastructure development requirement from 25% to 100% for new
casinos (or upon acquisition of a closed casino), but grandfathered existing
licensees and development plans approved prior to the effective date of the
new regulation (including the Isle-Tunica and the Isle-Coahoma).
"Infrastructure facilities" include any of the following:
16
. a 250-room or larger hotel of at least a two-star rating as defined
by the current edition of the Mobil Travel Guide;
. theme parks;
. golf courses;
. marinas;
. entertainment facilities;
. tennis complexes; and
. any other facilities approved by the Mississippi Gaming Commission.
Parking facilities, roads, sewage and water systems or civic facilities are
not considered "infrastructure facilities." The Mississippi Gaming Commission
may reduce the number of rooms required in a hotel if it is satisfied that
sufficient rooms are available to accommodate the anticipated number of
visitors.
License fees and taxes are payable to the State of Mississippi and to the
counties and cities in which a Mississippi Gaming Subsidiary's respective
operations will be conducted. The license fee payable to the state of
Mississippi is based upon gross revenue of the licensee (generally defined as
gaming receipts less payout to customers as winnings) and equals 4% of gross
revenue of $50,000 or less per month, 6% of gross revenue over $50,000 and
less than $134,000 per calendar month, and 8% of gross revenue over $134,000
per calendar month. The foregoing license fees are allowed as a credit against
the licensee's Mississippi income tax liability for the year paid.
Additionally, a licensee must pay a $5,000 annual license fee and an annual
fee based upon the number of games it operates. The gross revenue imposed by
the Mississippi communities and counties in which Isle of Capri's casino
operations are located equals 0.4% of gross revenue of $50,000 or less per
calendar month, 0.6% of gross revenue over $50,000 and less than $134,000 per
calendar month and 0.8% of gross revenue over $134,000 per calendar month.
These fees have been imposed in, among other cities and counties, Biloxi,
Vicksburg, Tunica County and Coahoma County. Certain Local and Private Laws of
the State of Mississippi may impose fees or taxes on the Mississippi Gaming
Subsidiaries in addition to the fees described above.
The Mississippi Gaming Commission requires, as a condition of licensure or
license renewal, that casino vessels on the Mississippi Gulf Coast that are
not self-propelled must be moored to withstand a Category 4 hurricane with 155
mile-per-hour winds and 15-foot tidal surge. Isle of Capri believes that all
of its Mississippi Gaming Subsidiaries currently meet this requirement. A 1996
Mississippi Gaming Commission regulation prescribes the hurricane emergency
procedure to be used by the Mississippi Gulf Coast casinos.
The sale of food or alcoholic beverages at Isle of Capri's Mississippi
gaming locations is subject to licensing, control and regulation by the
applicable state and local authorities. The agencies involved have full power
to limit, condition, suspend or revoke any such license, and any such
disciplinary action could (and revocation would) have a material adverse
effect upon the operations of the affected casino or casinos. Certain officers
and managers of Isle of Capri and its Mississippi gaming subsidiaries must be
investigated by the Alcoholic Beverage Control Division of the State Tax
Commission in connection with liquor permits that have been issued. The
Alcoholic Beverage Control Division of the State Tax Commission must approve
all changes in licensed positions.
During 1998, certain anti-gaming groups proposed referenda that, if adopted,
would have banned gaming in Mississippi and required that gaming entities
cease operations within two years after the ban. The referenda were declared
illegal by Mississippi courts on constitutional and procedural grounds. A
revised initiative has been submitted to the Secretary of State and could be
placed on the ballot for the November 2000 election.
Colorado
The State of Colorado created the Division of Gaming (the "Division") within
the Department of Revenue to license, implement, regulate and supervise the
conduct of limited gaming under the Colorado Limited Gaming
17
Act. The Director of the Division, under the supervision of a five-member
Colorado Limited Gaming Control Commission (the "Colorado Commission"), has
been granted broad power to ensure compliance with the Colorado gaming
regulations (the "Colorado Regulations"). The Director may inspect, without
notice, impound or remove any gaming device. He may examine and copy any
licensee's records, may investigate the background and conduct of licensees
and their employees, and may bring disciplinary actions against licensees and
their employees. He may also conduct detailed background investigations of
persons who loan money to Isle of Capri or its Colorado gaming subsidiaries.
The Colorado Commission is empowered to issue five types of gaming and
gaming-related licenses. The licenses are revocable and non-transferable. The
failure or inability of Isle of Capri or any of its Colorado gaming
subsidiaries to maintain necessary gaming licenses will have a material
adverse effect on the operating results of Isle of Capri. All persons employed
by Isle of Capri and its Colorado gaming subsidiaries and involved, directly
or indirectly, in gaming operations in Colorado also are required to obtain a
Colorado gaming license. All licenses must be renewed annually, except those
for key and support employees, which must be renewed every two years.
As a general rule, under the Colorado Regulations, it is a criminal
violation for any person to have a legal, beneficial, voting or equitable
interest, or right to receive profits, in more than three retail gaming
licenses in Colorado. The Colorado Commission has ruled that a person does not
have an interest in a licensee for purposes of the multiple license
prohibition if:
. such person has less than a five percent (5%) interest in an
institutional investor which has an interest in a publicly traded
licensee or publicly traded company affiliated with a licensee (such
as Isle of Capri);
. a person has a five percent (5%) or more financial interest in an
institutional investor, but the institutional investor has less than
a five percent (5%) interest in a publicly traded licensee or
publicly traded company affiliated with a licensee;
. an institutional investor has less than a five percent (5%) financial
interest in a publicly traded licensee or publicly traded company
affiliated with a licensee;
. an institutional investor possesses securities in a fiduciary
capacity for another person, and does not exercise voting control
over five percent (5%) or more of the outstanding voting securities
of a publicly traded licensee or of a publicly traded company
affiliated with a licensee;
. a registered broker or dealer retains possession of securities of a
publicly traded licensee or of a publicly traded company affiliated
with a licensee for its customers in street name or otherwise, and
exercises voting rights for less than five percent (5%) of the
publicly traded licensee's voting securities or of a publicly traded
company affiliated with a licensee;
. a registered broker or dealer acts as a market maker for the stock of
a publicly traded licensee or of a publicly traded company affiliated
with a licensee and possesses a voting interest in less than five
percent (5%) of the stock of the publicly traded licensee or of a
publicly traded company affiliated with a licensee;
. an underwriter is holding securities of a publicly traded licensee or
of a publicly traded company affiliated with a licensee as part of an
underwriting for no more than 90 days if it exercises voting rights
of less than five percent (5%) of the outstanding securities of a
publicly traded licensee or of a publicly traded company affiliated
with a licensee;
. a stock clearinghouse holds voting securities for third parties, if
it exercises voting rights with respect to less than five percent
(5%) of the outstanding securities of a publicly traded licensee or
of a publicly traded company affiliated with a licensee; or
. a person owns less than five percent (5%) of the voting securities of
the publicly traded licensee or publicly traded company affiliated
with a licensee.
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Hence, Isle of Capri's and its stockholders' business opportunities in
Colorado are limited to such interests that comply with the statute and the
Colorado Commission's rule.
In addition, pursuant to the Colorado Regulations, no manufacturer or
distributor of slot machines may have an interest in any casino operator,
allow any of its officers to have such an interest, employ any person if such
person is employed by a casino operator, or allow any casino operator or
person with a substantial interest therein to have an interest in a
manufacturer's or distributor's business. The Colorado Commission has ruled
that a person does not have a "substantial interest" if it directly or
indirectly has less than five percent (5%) of such voting securities of a
publicly traded licensee or publicly traded affiliated company of a licensee.
In other contexts, counsel for the Division has informed counsel for Isle of
Capri that, for purposes of the manufacturer/operator vertical integration
rule and the horizontal three-license rule described above, the Division has
taken the position that only a person deemed to have "beneficial ownership"
(as defined in the rules and regulations of the U.S. Securities and Exchange
Commission under Section 13(d) of the U.S. Securities Exchange Act of 1934) of
shares of the publicly traded holding company (or licensee) will be deemed to
have an "interest" under the vertical integration rule or "ownership interest"
under the horizontal rule. However, the Division has not passed on this issue
with respect to Isle of Capri, and neither the Colorado Commission nor the
Colorado legislature has addressed this issue. As a result, there is no
assurance that the Division, the Colorado Commission or the Colorado
legislature will not apply a more restrictive interpretation in this instance.
Under the Colorado Regulations, any person or entity having any direct or
indirect interest in a gaming licensee or an applicant for a gaming license,
including, without limitation, Isle of Capri and its stockholders, may be
required to supply the Colorado Commission with substantial information,
including background information, source of funding information, a sworn
statement that such person or entity is not holding his interest for any other
party, and fingerprints. Such information, investigation and licensing as an
"associated person" automatically will be required of all persons (other than
certain institutional investors discussed below) which directly or indirectly
own ten percent (10%) or more of a direct or indirect legal, beneficial or
voting interest in Black Hawk LLC, through their ownership in Isle of Capri.
Such persons must report their interest and file appropriate applications
within 45 days after acquiring such interest.
Persons directly or indirectly having a five percent (5%) or more interest
(but less than 10%) in Black Hawk LLC, through their ownership in Isle of
Capri, must report their interest to the Colorado Commission within ten (10)
days after acquiring such interest and may be required to provide additional
information and to be found suitable. If certain institutional investors
provide certain information to the Colorado Commission, such investors, at the
Colorado Commission's discretion, may be permitted to own up to 14.99% of
Black Hawk LLC, through their ownership in Isle of Capri, before being
required to be found suitable. All licensing and investigation fees will have
to be paid by the person in question. The associated person investigation fee
currently is $53 per hour.
The Colorado Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee, and
to investigate the moral character, honesty, integrity, prior activities,
criminal record, reputation, habits and associations of (1) all persons
licensed pursuant to the Colorado Limited Gaming Act; (2) all officers,
directors and stockholders of a licensed privately held corporation; (3) all
officers, directors and stockholders holding either a five percent (5%) or
greater interest or a controlling interest in a licensed publicly traded
corporation; (4) all general partners and all limited partners of a licensed
partnership; (5) all persons which have a relationship similar to that of an
officer, director or stockholder of a corporation (such as members and
managers of a limited liability company); (6) all persons supplying financing
or loaning money to any licensee connected with the establishment or operation
of limited gaming and (7) all persons having a contract, lease or ongoing
financial or business arrangement with any licensee, where such contract,
lease or arrangement relates to limited gaming operations, equipment, devices
or premises.
In addition, under the Colorado Regulations, every person who is a party to
a "gaming contract" with an applicant for a license, or with a licensee, upon
the request of the Colorado Commission or the Director, must
19
promptly provide to the Colorado Commission or Director all information which
may be requested concerning financial history, financial holdings, real and
personal property ownership, interests in other companies, criminal history,
personal history and associations, character, reputation in the community and
all other information which might be relevant to a determination whether a
person would be suitable to be licensed by the Colorado Commission. Failure to
provide all information requested constitutes sufficient grounds for the
Director or the Colorado Commission to require a licensee or applicant to
terminate its "gaming contract" (as defined below) with any person who failed
to provide the information requested. In addition, the Director or the
Colorado Commission may require changes in "gaming contracts" before an
application is approved or participation in the contract is allowed. A "gaming
contract" is defined as an agreement in which a person does business with or
on the premises of a licensed entity.
The Colorado Commission and the Division have interpreted the statute and
regulations to permit the Colorado Commission to investigate and license any
lenders to Isle of Capri or its Colorado gaming subsidiaries. In any event,
such lenders may not be able to exercise certain of their rights and remedies
without prior approval of the Colorado gaming authorities.
An application for licensure or suitability may be denied for any cause
deemed reasonable by the Colorado Commission or the Director, as appropriate.
Specifically, the Colorado Commission and the Director must deny a license to
any applicant who (1) fails to prove by clear and convincing evidence that the
applicant is qualified; (2) fails to provide information and documentation
requested; (3) fails to reveal any fact material to qualification, or supplies
information which is untrue or misleading as to a material fact pertaining to
qualification; (4) has been, or is any director, officer, general partner,
stockholder, limited partner or other person who has a financial or equity
interest in the applicant who has been, convicted of certain crimes, including
the service of a sentence upon conviction of a felony in a correctional
facility, city or county jail, or community correctional facility or under the
state board of parole or any probation department within ten years prior to
the date of the application, gambling-related offenses, theft by deception or
crimes involving fraud or misrepresentation, is under current prosecution for
such crimes (during the pendency of which license determination may be
deferred), is a career offender or a member or associate of a career offender
cartel, or is a professional gambler or (5) has refused to cooperate with any
state or federal body investigating organized crime, official corruption or
gaming offenses.
If the Colorado Commission determines that a person or entity is unsuitable
to own interests in Isle of Capri, then Isle of Capri and any of its Colorado
gaming subsidiaries may be sanctioned, which may include the loss by Isle of
Capri and its Colorado gaming subsidiaries of their respective approvals and
licenses.
The Colorado Commission does not need to approve in advance a public
offering of securities but rather requires a filing of notice and additional
documents with regard to such public offering prior to such public offering.
Under the regulations, the Colorado Commission may, in its discretion, require
additional information and prior approval of such public offering.
In addition, the Colorado Regulations prohibit a licensee or affiliated
company thereof, such as Isle of Capri, from paying dividends, interest or
other remuneration to any unsuitable person, or recognizing the exercise of
any voting rights by any unsuitable person. Further, Isle of Capri may
repurchase the shares of anyone found unsuitable at the lesser of the cash
equivalent to the original investment in Isle of Capri or the current market
price. The Colorado Regulations also require anyone with a material
involvement with a licensee, including a director or officer of a holding
company such as Isle of Capri, to file for a finding of suitability if
required by the Colorado Commission.
In addition to its authority to deny an application for a license or
suitability, the Colorado Commission has jurisdiction to disapprove a change
in corporate position of a licensee and may have such authority with respect
to any entity which is required to be found suitable by the Colorado
Commission. The Colorado Commission has the power to require Isle of Capri and
its Colorado gaming subsidiaries to suspend or dismiss managers, officers,
directors and other key employees or sever relationships with other persons
who refuse to file appropriate applications or whom the authorities find
unsuitable to act in such capacities; and may have such power with respect to
any entity which is required to be found suitable.
20
A person or entity may not sell, lease, purchase, convey or acquire a
controlling interest in Isle of Capri without the prior approval of the
Colorado Commission. Isle of Capri may not sell any interest in its Colorado
gaming subsidiaries without the prior approval of the Colorado Commission.
The Isle-Black Hawk must meet certain architectural requirements, fire
safety standards and standards for access for disabled persons. The Isle-Black
Hawk also must not exceed certain gaming square footage limits as a total of
each floor and the full building. The casino at the Isle-Black Hawk may
operate only between 8:00 a.m. and 2:00 a.m. and may permit only individuals
21 years or older to gamble in the casino. It may permit only slot machines,
blackjack and poker, with a maximum single bet of $5.00. The Isle-Black Hawk
may not provide credit to its gaming patrons.
The Colorado Regulations permit gaming only in a limited number of cities
and certain commercial districts.
The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds. Effective July 1, 1999, the Colorado Commission has set
a gaming tax rate of .25% on adjusted gross gaming proceeds of up to and
including $2 million, 2% over $2 million up to and including $4 million, 4%
over $4 million up to and including $5 million, 11% over $5 million up to and
including $10 million, 16% over $10 million up to and including $15 million
and 20% on adjusted gross gaming proceeds in excess of $10 million. Black Hawk
has imposed an annual device fee of $750 per gaming device and may revise the
same from time to time. The Colorado Commission may revise the gaming tax or
device fee at any time, but has been considering such provisions only
annually.
The sale of alcoholic beverages is subject to licensing, control and
regulation by the Colorado Liquor Agencies. All persons who directly or
indirectly own 10% or more of Black Hawk LLC, through their ownership of Isle
of Capri, must file applications and possibly be investigated by the Colorado
Liquor Agencies. The Colorado Liquor Agencies also may investigate those
persons who, directly or indirectly, loan money to or have any financial
interest in liquor licensees. All licenses are revocable and not transferable.
The Colorado Liquor Agencies have the full power to limit, condition, suspend
or revoke any such license and any such disciplinary action could (and
revocation would) have a material adverse effect upon the operating results of
Isle of Capri. The Isle-Black Hawk holds a retail gaming tavern license.
Accordingly, a person with an interest in Black Hawk LLC may not have an
interest in a hotel and restaurant license.
Florida
On June 15, 1995, the Florida Department of Business and Professional
Regulation, acting through its division of pari-mutuel wagering (the "Florida
Division"), issued its final order approving Pompano Park as a pari-mutuel
wagering permit holder for harness and quarter horse racing at Pompano Park.
The Florida Division approved Pompano Park's license to conduct a total of 184
live evening races for the season beginning July 1, 1998 to June 30, 1999.
Although Isle of Capri does not presently intend to conduct quarter horse
racing operations at Pompano Park, it may do so in the future, subject to
Florida Division approval. The Florida Division must approve any transfer of
10% or more of stock of a pari-mutuel racing permit holder such as Pompano
Park.
Chapter 550 of the Florida Statute and the applicable rules and regulations
thereunder (the "Florida Statute") establishes license fees, the tax structure
on pari-mutuel permit holders and minimum purse requirements for breeders and
owners. The Florida Division may revoke or suspend any permit or license upon
the willful violation by the permit holder or licensee of any provision of the
Florida Statute. Instead of suspending or revoking a permit or license, the
Florida Division may impose various civil penalties on the permit holder or
licensee. Penalties may not exceed $1,000 for each count or separate offense.
Pursuant to a Florida Division order and recent enactments to the Florida
Statute, Pompano Park is also authorized to conduct full-card pari-mutuel
wagering on: (1) simulcast harness races from outside Florida throughout the
racing season and (2) night thoroughbred races within Florida if the
thoroughbred permit holder
21
has decided to simulcast night races. Pompano Park has been granted the
exclusive right in Florida to conduct full-card simulcasting of harness racing
on days during which no live racing is held at Pompano Park. However, on non-
race days, Pompano Park must offer to rebroadcast its simulcast signals to
pari-mutuel facilities that are not thoroughbred parks. In addition, Pompano
Park may transmit its live races into any dog racing or jai alai facility in
Florida, including Dade and Broward counties, for intertrack wagering. The
Florida Statute establishes the percentage split between Pompano Park and the
other facilities receiving such signals. Recent legislation in Florida
provided certain reductions in applicable tax and license fees related to
intertrack wagering on broadcasts of simulcast harness racing and thoroughbred
racing. Isle of Capri believes that simulcast rights at Pompano Park and the
recent changes in the Florida Statute are important to Pompano Park's
operating results.
Effective January 1, 1997, the Florida Statute permits pari-mutuel
facilities to be licensed by the Florida Division to operate card rooms in
those counties in which a majority vote of the County Commission has been
obtained and a local ordinance has been adopted. Card rooms can only be
operated at pari-mutuel facilities on days that the facility is running live
races. The hours of operation extend from two hours before post time of the
first live race to two hours after the conclusion of the last live race.
Thoroughbred racing facilities must choose between operating card rooms or
simulcasting night races from outside the state, but may not do both. If
racing facilities elect to simulcast night races, they are required to
retransmit the night simulcast signal to certain other pari-mutuel facilities,
including Pompano Park.
The card room operator is the "house" and must deal the cards. The house can
charge a fee per player or establish a "rake" for each game. The only card
games that have been authorized are "nonbanking" games, such as games in which
the house is not allowed to play against the players. The winnings of any
player in a single round, hand or game may not exceed $10.00 and all card
games must be played with tokens or chips.
Card rooms may be operated and managed on behalf of the pari-mutuel permit
holder by card room management companies that hold a special license from the
Florida Division. All employees of the card room management company and the
card room operator need to obtain a specific $50.00 occupational license from
the Florida Division before they can work in the card room. There is no
statutory limit on the number of card tables allowed in a card room. However,
the annual license fee for the first card table is $1,000 and $500 for each
table thereafter. A card room's annual occupational license fee is $250.
Each card room operator is required to pay a tax of 10% of his monthly gross
receipts from card room operations. "Gross receipts" is defined as the total
amount of money received by a card room from any person to participate in
authorized games. At least 50% of the monthly "net proceeds," if any, at
Pompano Park must be distributed as follows: 47% to supplement purses for
harness racing and 3% to supplement breeders' awards during the next ensuing
race meet. "Net proceeds" are the total amount of gross receipts received by a
card room operator from card room operations, less direct operating expenses
as defined in the Florida Statute.
Non-Gaming Regulation
Isle of Capri is subject to certain federal, state and local safety and
health, employment and environmental laws, regulations and ordinances that
apply to non-gaming businesses generally, such as the Clean Air Act, Clean
Water Act, Occupational Safety and Health Act, Resource Conservation Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act
and the Oil Pollution Act of 1990. Isle of Capri has not made, and does not
anticipate making, material expenditures with respect to such environmental
laws and regulations. However, the coverage and attendant compliance costs
associated with such laws, regulations and ordinances may result in future
additional costs to Isle of Capri's operations. For example, in 1990 the U.S.
Congress enacted the Oil Pollution Act of 1990 to consolidate and rationalize
mechanisms under various oil spill response laws. The Department of
Transportation has promulgated regulations requiring owners and operators of
certain vessels to establish through the Coast Guard evidence of financial
responsibility for clean-up of oil pollution. This requirement has been
satisfied by proof of adequate insurance.
The riverboats operated by the Isle-Lake Charles and the Isle-Bossier City
must comply with U.S. Coast Guard requirements as to boat design, on-board
facilities, equipment, personnel and safety and hold U.S. Coast
22
Guard Certificates of Documentation and Inspection. The U.S. Coast Guard
requirements also set limits on the operation of the riverboats and require
licensing of certain personnel involved with the operation of the riverboats.
Loss of a riverboat's Certificate of Documentation and Inspection could
preclude its use as a riverboat casino. Each of Isle of Capri's riverboats is
inspected annually and, every five years, is subject to drydocking for
inspection of its hull, which could result in a temporary loss of service.
Permanently moored vessels such as the Isle-Biloxi's and the Isle-
Vicksburg's casino barges are not required to hold Certificates of
Documentation and Inspection from the U.S. Coast Guard. However, the
Mississippi Gaming Commission has engaged third parties to inspect and certify
all casino barges with respect to stability and single compartment flooding
integrity. Isle of Capri's casino barges in Mississippi must be inspected
every two years. Isle of Capri's casino barges in Mississippi must also meet
the fire safety standards of the Mississippi Fire Prevention Code and the Life
Safety Code and the Standards for the Construction and Fire Protection of
Marine Terminals, Piers and Wharfs of the National Fire Protection
Association. Isle of Capri would incur additional costs if either of its
Mississippi gaming facilities were not in compliance with one or more of these
regulations.
Isle of Capri is also subject to certain federal, state and local
environmental laws, regulations and ordinances that apply to non-gaming
businesses generally, such as the Clean Air Act, Clean Water Act, Resource
Conservation Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act and the Oil Pollution Act of 1990. The coverage
and attendant compliance costs associated with these laws, regulations and
ordinances may result in future additional costs to our operations.
Regulations adopted by the Financial Crimes Enforcement Network of the U.S.
Treasury Department require us to report currency transactions in excess of
$10,000 occurring within a gaming day, including identification of the patron
by name and social security number. Substantial penalties can be imposed
against Isle of Capri if it fails to comply with these regulations.
All shipboard employees of Isle of Capri, even those who have nothing to do
with its operation as a vessel, such as dealers, waiters and security
personnel, may be subject to the Jones Act which, among other things, exempts
those employees from state limits on workers' compensation awards.
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ITEM 2. Properties.
Isle-Lake Charles
We own approximately 2.7 acres and lease approximately 16.25 acres of land
in Calcasieu Parish, Louisiana for use in connection with the Isle-Lake
Charles. The initial term of this lease expires in March 2000 and we have the
option to renew it for seventeen additional terms of five years each. Rent
under the Isle-Lake Charles lease is currently $1.2 million per year and is
subject to increases based on the Consumer Price Index and construction of
hotel facilities on the property.
Isle-Bossier City
We own approximately 38 acres of land in Bossier City, Louisiana for use in
connection with the Isle-Bossier City and own a 234-room hotel on
approximately 10.5 acres of land located 2.5 miles east of the Isle-Bossier
City.
Isle-Biloxi
We lease the Biloxi berth from the Biloxi Port Commission at an annual rent
of the greater of $500,000 or 1% of the gross gaming revenue net of state and
local gaming taxes. The lease terminates on July 1, 2004 and we have the
option to renew it for seven additional terms of five years each subject to
increases based on the cost of living index.
We lease our land-based facilities from the City of Biloxi at an annual rent
of $500,000 per year, plus 3% of the Isle-Biloxi's gross gaming revenues, net
of state and local gaming taxes and fees, in excess of $25.0 million. The
lease terminates on July 1, 2004, but it is renewable at our option for five
additional terms of five years each and a sixth option renewal term,
concluding on January 31, 2034, subject to rent increases based on the
Consumer Price Index. In April 1994, we entered into an addendum to this lease
which requires us to pay 4% of our gross non-gaming revenue, net of sales tax,
complimentaries and discounts.
In April 1994, in connection with the construction of a hotel, we entered
into a lease for additional land adjoining the Isle-Biloxi. This lease with
the City of Biloxi is for an initial term of 25 years, with options to renew
for six additional terms of ten years each and a final option period
concluding December 31, 2085. Annual rent is $404,000, plus 4% of gross non-
gaming revenue, as defined in the lease, and renewals are subject to rent
increases based on the Consumer Price Index.
We are a party to a lease for the exclusive use of approximately 133 parking
spaces and the additional use of 169 spaces in another parking lot on property
adjacent to the Isle-Biloxi. This lease expires on November 30, 2000. We have
also entered into a joint venture arrangement to sublease property containing
a two-level parking garage next to the Isle-Biloxi. The annual rent under this
lease is currently approximately $169,000. This lease terminates on November
30, 2000.
Isle-Vicksburg
We own approximately 13.1 acres of land in Vicksburg, Mississippi for use in
connection with the Isle-Vicksburg. We own an additional 13 acres of land in
Vicksburg on which we operate off-site parking and a recreational vehicle
park. We also entered into a lease for approximately five acres of land
adjacent to the Isle-Vicksburg to be used for additional parking.
Isle-Black Hawk
Black Hawk LLC owns approximately 9.1 acres of land in Black Hawk, Colorado
for use in connection with the Isle-Black Hawk. Black Hawk LLC also leases one
quarter acre from us.
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Pompano Park
We own approximately 220 acres at Pompano Park.
Isle-Tunica
We lease approximately 122 acres of land in Tunica County, Mississippi for
use in connection with the Isle-Tunica. The initial lease term is five years
and we have the option to renew the lease for seven additional terms of five
years. Base rent for each lease year equals the greater of 2% of gross gaming
revenue or $800,000. Once gross gaming revenue exceeds $40.0 million during
any lease year, the base rent in the following months of such year shall be
increased by an amount equal to 2% of such excess. The landlord is entitled to
receive additional rent based on excess available cash, as defined in the
lease.
Isle-Coahoma
In June 1998, we acquired an option to purchase approximately 138 acres of
land in Coahoma County, Mississippi for the development of the Isle-Coahoma.
The option expires in October 2000.
Other
We own 1.6 acres and lease 1.3 acres of land in Cripple Creek, Colorado. The
lease has an initial term of 25 years and expires in February 2020, with
options to renew for seven additional terms of ten years each. Annual rent
under this lease is currently $280,000 and will increase at a rate of $10,000
per year with a maximum increase of $300,000, subject to periodic increases
thereafter based on the Consumer Price Index. We also have an option to
purchase the leased land.
We own one additional riverboat casino and one floating pavilion that are
currently held for development or sale. We own or lease all of our gaming and
non-gaming equipment.
25
ITEM 3. Legal Proceedings.
One of our subsidiaries has been named, along with numerous manufacturers,
distributors and gaming operators, including many of the country's largest
gaming operators, in a consolidated class action lawsuit pending in Las Vegas,
Nevada. These gaming industry defendants are alleged to have violated the
Racketeer Influenced and Corrupt Organizations Act by engaging in a course of
fraudulent and misleading conduct intended to induce people to play their
gaming machines based upon a false belief concerning how those gaming machines
actually operate and the extent to which there is actually an opportunity to
win on any given play. The suit seeks unspecified compensatory and punitive
damages. A motion for certification of the class is currently pending before
the court and no discovery as to the merits of the alleged claims has begun.
We are unable at this time to determine what effect, if any, the suit would
have on our financial position or results of operations. However, the gaming
industry defendants are committed to defend vigorously all claims asserted in
the consolidated action.
In February 1998, the Isle-Vicksburg was named as a defendant in an action
brought by an individual who owns property adjacent to the Big Black River in
the eastern part of Warren County, Mississippi and several other parties. Also
named as defendants in the action are two other operators in the Vicksburg
market and one of the largest banks in the State of Mississippi. The amended
complaint alleges that the defendants entered into an agreement to conduct a
campaign opposing a gaming application for a site next to property owned by
the plaintiffs. The plaintiffs allege that because of this agreement trade was
improperly restrained and competition in the gaming business was reduced. The
plaintiffs further allege that the defendants conspired for the purpose of
injuring the plaintiffs' property rights. The plaintiffs seek compensatory and
punitive damages in the amount of $238.0 million. We have denied the
allegations contained in the amended complaint and intend to vigorously defend
all claims and allegations in the action. A trial date has been set for
October 18, 1999.
In May 1998, we were named as a defendant in an action brought by several
persons who had a contractual right to acquire property in Cripple Creek,
Colorado which they sold to one of our subsidiaries in 1995. The plaintiffs
allege that we breached our purported agreement to construct a casino facility
on the property by the end of 1995. In December 1998, our motion to dismiss
the complaint was granted by the United States District Court in Denver,
Colorado. The plaintiffs have appealed this decision to the Tenth Circuit
Court of Appeals. We intend to vigorously defend all claims and allegations in
the action.
In August 1997, a lawsuit was filed which seeks to nullify a contract to
which Louisiana Riverboat Gaming Partnership is a party. Pursuant to the
contract, Louisiana Riverboat Gaming Partnership pays a fixed amount plus a
percentage of revenue to various local governmental entities, including the
city of Bossier and the Bossier Parish School Board, in lieu of payment of a
per-passenger boarding fee. Summary judgment in favor of Louisiana Riverboat
Gaming Partnership was granted on June 4, 1998. That judgment was not appealed
and is now final. On June 11, 1998, a similar suit was filed and is currently
pending. We intend to vigorously defend this suit.
We are engaged in various other litigation matters and have a number of
unresolved claims. Although the ultimate liability of this litigation and
these claims cannot be determined at this time, we believe that they will not
have a material adverse effect on our consolidated financial position or
results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders.
In April 1999, we completed a tender offer for our outstanding $315.0
million principal amount of 12 1/2% senior secured notes due 2003. We
solicited consents to amend the indenture relating to the 12 1/2% senior
secured notes. Holders of more than 99% of the outstanding 12 1/2% senior
secured notes tendered their notes to us and consented to amendments to the
indenture governing those notes. An amended indenture was executed on April
21, 1999 upon consummation of the tender offer and eliminated most of the
financial and restrictive covenants in the indenture governing the 12 1/2%
senior secured notes.
26
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information. The following table presents the high and low bid
quotations for our Common Stock as reported on the Nasdaq National Market for
the fiscal periods indicated. The quotations reflect interdealer prices,
without retail mark-up or commissions, and may not necessarily represent
actual transactions.
High Low
---- ----
Fiscal Year Ended April 26, 1998
First Quarter................................................. 2.81 1.94
Second Quarter................................................ 3.66 1.97
Third Quarter................................................. 3.19 2.38
Fourth Quarter................................................ 3.31 2.56
Fiscal Year Ended April 25, 1999
First Quarter................................................. 4.13 3.00
Second Quarter................................................ 3.63 1.75
Third Quarter................................................. 4.25 2.44
Fourth Quarter................................................ 6.50 3.88
Fiscal Year Ending April 30, 2000
First Quarter (through June 25, 1999)......................... 7.69 5.75
(b) Holders of Common Stock. As of June 25, 1999, there were 1,013 holders
of record of the Common Stock.
(c) Dividends. Isle of Capri has never paid any dividends with respect to
its Common Stock and the current policy of the Board of Directors is to retain
earnings to provide for the growth of the company. In addition, our senior
credit facility and the indenture governing our senior subordinated notes
limits our ability to pay dividends. See "Item 8--Index to Consolidated
Financial Statements--Isle of Capri Casinos, Inc.--Notes to Consolidated
Financial Statements--Note 7." Consequently, no cash dividends are expected to
be paid on our Common Stock in the foreseeable future. Further, there can be
no assurance that our current and proposed operations will generate the funds
needed to declare a cash dividend or that we will have legally available funds
to pay dividends. In addition, we may fund part of our operations in the
future from indebtedness, the terms of which may prohibit or restrict the
payment of cash dividends. If a holder of Common Stock is disqualified by the
regulatory authorities from owning such shares, such holder will not be
permitted to receive any dividends with respect to such stock. See "Item
1--Business--Regulatory Matters."
27
ITEM 6. Selected Financial Data.
The following table presents our selected consolidated financial data for
the five most recent fiscal years. This data is from our audited consolidated
financial statements and the notes to those statements. Because the data in
this table does not provide all of the data contained in our financial
statements, including the related notes, you should read "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, including the related notes, contained
elsewhere in this document, and other data we have filed with the U.S.
Securities and Exchange Commission.
Fiscal Year Ended
----------------------------------------------------
April 30, April 30, April 27, April 26, April 25,
1995(1) 1996(1) 1997(1) 1998 1999
--------- --------- --------- --------- ---------
(dollars in millions)
Income Statement Data:
Revenue:
Casino..................... $ 117.6 $ 123.9 $ 322.7 $ 388.2 $ 424.4
Pari-mutuel commissions and
fees...................... -- 15.1 19.4 22.6 21.4
Rooms, food, beverage and
other..................... 9.9 19.0 31.3 30.0 34.6
------- -------- -------- -------- --------
Total revenue............ 127.5 158.0 373.4 440.8 480.4
Operating expenses:
Gaming taxes............... 13.9 15.1 61.8 78.6 86.9
Casino, rooms, food,
beverage and other........ 84.1 115.3 246.5 267.5 284.3
Valuation charge(2)........ -- 9.3 7.0 -- 5.1
Restructuring charge(3).... -- 2.5 -- -- --
Accrued litigation
settlement (reversal)(4) -- -- -- -- (4.2)
Preopening expenses(5)..... 0.5 1.3 2.5 -- 3.3
Depreciation and
amortization.............. 8.9 12.1 27.1 33.6 36.3
------- --------