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Filed pursuant to Rule 424(b)(3)
Registration No. 333-11811
PROSPECTUS
OFFER TO EXCHANGE
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006
FOR ALL OUTSTANDING 10 1/2% SENIOR SUBORDINATED NOTES DUE 2006
OF
ELDORADO RESORTS LLC
AND
ELDORADO CAPITAL CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON FEBRUARY
19, 1997 UNLESS EXTENDED.
Eldorado Resorts LLC, a Nevada limited-liability company (the "Company"),
and Eldorado Capital Corp., a Nevada corporation ("Capital" and, together with
the Company, the "Issuers"), hereby offer (the "Exchange Offer"), upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
$1,000 principal amount of its 10 1/2% Senior Subordinated Notes due 2006 (the
"Exchange Notes") for each $1,000 principal amount of its outstanding 10 1/2%
Senior Subordinated Notes due 2006 (the "Private Notes"), of which
$100,000,000 in aggregate principal amount was issued on July 31, 1996 and is
outstanding as of the date hereof. The form and terms of the Exchange Notes
are the same as the form and terms of the Private Notes except that (i) the
exchange will have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a registration statement of which
this Prospectus is a part (the "Registration Statement"), and therefore, the
Exchange Notes will not bear legends restricting the transfer thereof and (ii)
holders of the Exchange Notes will not be entitled to certain rights of
holders of the Private Notes under the Registration Rights Agreement (as
defined herein), which rights will terminate upon the consummation of the
Exchange Offer. The Exchange Notes will evidence the same indebtedness as the
Private Notes (which they replace) and will be entitled to the benefits of an
indenture dated as of July 31, 1996 governing the Private Notes and the
Exchange Notes (the "Indenture"). The Private Notes and the Exchange Notes are
sometimes referred to herein collectively as the Notes. See "The Exchange
Offer" and "Description of Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at
the rate of 10 1/2% per annum and the interest thereon will be payable semi-
annually in arrears on February 15 and August 15 of each year, commencing
August 15, 1997. Interest on the Exchange Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance of the Private Notes.
The Exchange Notes will be redeemable, in whole or in part, at the option of
the Issuers, at any time after August 15, 2001 at the respective redemption
prices set forth herein, plus accrued and unpaid interest and Liquidated
Damages (as defined herein), if any, to the redemption date. In addition, on
or prior to August 15, 1999, the Issuers may, at their option, use the net
proceeds of one or more Public Equity Offerings (as defined herein) to redeem
up to an aggregate of 33% of the Notes originally issued at the redemption
prices set forth herein plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date. Upon a Change of Control (as defined
herein), each holder of Exchange Notes has the right to require the Issuers to
repurchase such holder's Exchange Notes at a price equal to 101% of their
principal amount plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of repurchase. Furthermore, subject to certain conditions,
the Issuers will be obligated to make an offer to repurchase the Exchange
Notes at 100% of their principal amount, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of repurchase, with the net cash
proceeds of certain sales or other dispositions of assets.
The Notes will be general unsecured obligations of the Issuers, subordinated
in right of payment to all existing and future Senior Debt (as defined herein)
of the Issuers, including all borrowings of the Company under the Credit
Facility (as defined herein). See "Risk Factors--Subordination of Notes." As
of September 30, 1996, the aggregate amount of outstanding Senior Debt of the
Company was $27.3 million and no subsidiary of either of the Issuers had any
indebtedness outstanding. The Notes will be unconditionally guaranteed (the
"Guarantees") on a senior unsecured basis by certain future Restricted
Subsidiaries (as defined herein).
The Issuers will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on February 19,
1997, unless the Exchange Offer is extended by the Issuers in their sole
discretion (the "Expiration Date"). Tenders of Private Notes may be withdrawn
at any time prior to the Expiration Date. Private Notes may be tendered only
in integral multiples of $1,000. The Exchange Offer is subject to certain
customary conditions. See "The Exchange Offer--Conditions."
---------------
SEE RISK FACTORS BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE GAMING CONTROL
BOARD HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR
THE INVESTMENT MERITS OF THE EXCHANGE NOTES OFFERED HEREBY. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus is January 17, 1997
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Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Issuers believe that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Issuers to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of either of the Issuers within the meaning of
Rule 405 under the Securities Act), without compliance with the registration
and prospectus delivery provisions of the Securities Act; provided that the
holder is acquiring the Exchange Notes in the ordinary course of its business
and is not participating, and had no arrangement or understanding with any
person to participate, in the distribution of the Exchange Notes. Holders of
Private Notes wishing to accept the Exchange Offer must represent to the
Issuers, as required by the Registration Rights Agreement, that such
conditions have been met. The Issuers believe that none of the registered
holders of the Private Notes is an affiliate (as such term is defined in Rule
405 under the Securities Act) of either of the Issuers.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of marketing-making activities
or other trading activities. The Issuers have indicated their intention to
make this Prospectus (as it may be amended or supplemented) available to any
broker-dealer for use in connection with any such resale for a period of 180
days after the date of effectiveness of the Registration Statement (as defined
herein), unless extended pursuant to the terms of the Registration Rights
Agreement (as defined herein). See "Plan of Distribution."
The Issuers will not receive any proceeds from, and have agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection
with this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUERS ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Exchange Notes will be available initially only in book-entry form. The
Issuers expect that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, The Depository Trust Company ("DTC"
or the "Depositary") and registered in its name or in the name of Cede & Co.,
as its nominee. Beneficial interests in the global notes representing the
Exchange Notes will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary and its participants. After the
initial issuance of such global notes, Exchange Notes in certificated form
will be issued in exchange for the global notes only in accordance with the
terms and conditions set forth in the Indenture. See "Description of Notes--
Book Entry; Delivery and Form."
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Reference is hereby made to
"Risk Factors" which contains material information that holders of Private
Notes should consider prior to participating in the Exchange Offer. As used
herein, the term "Reno Market" means the combined markets of Reno and Sparks,
Nevada.
Eldorado Resorts LLC (the "Company") was formed to be the successor to
Eldorado Hotel Associates Limited Partnership (the "Predecessor Partnership")
pursuant to an exchange of all of the then currently outstanding partnership
interests in the Predecessor Partnership for membership interests in the
Company (the "Reorganization"). The Reorganization was effective on July 1,
1996. See "Material Agreements--The Reorganization." Eldorado Capital Corp., a
Nevada corporation ("Capital"), was incorporated with the sole purpose of
serving as co-issuer of the Notes in order to facilitate the offering thereof.
THE COMPANY
The Company owns and operates the Eldorado Hotel & Casino (the "Eldorado"), a
premier hotel/casino and entertainment facility in Reno, Nevada. The Company
has established the Eldorado as a luxury destination resort by creating a
sophisticated, elegant atmosphere unique in the Reno Market and providing
unsurpassed personal service and cuisine, a dynamic gaming environment and a
wide variety of amenities attractive to multiple market segments. The Eldorado
is centrally located in downtown Reno and is easily accessible both to vehicle
traffic from Interstate 80, the principal highway linking Reno to its primary
visitor markets in northern California, and to pedestrian traffic from nearby
casinos. For the twelve months ended September 30, 1996, the Eldorado generated
$40.0 million in EBITDA (as described in footnote 6 to Summary Consolidated
Financial Data) on net revenues of $152.9 million. In addition to owning the
Eldorado, the Company's 77%-owned subsidiary, Eldorado Limited Liability
Company, a Nevada limited-liability company ("ELLC"), owns a 50% joint venture
interest, along with a wholly-owned subsidiary of Circus Circus Enterprises,
Inc. ("Circus Circus"), in the Silver Legacy Resort Casino (the "Silver
Legacy"), a major themed hotel/casino located adjacent to the Eldorado. The
remaining 23% of ELLC is owned by the principal equityholders of the Company.
The Eldorado was established in 1973 and has undergone several significant
expansions and improvements, including substantial additions in 1979, 1985,
1989 and 1995. As a result of these expansions, the Eldorado is one of the
largest and most elegant properties in the Reno Market. As of September 30,
1996, the Eldorado offered approximately 81,500 square feet of gaming space
with 1,989 slot machines and 84 table games, three hotel towers with a total of
817 rooms, including 137 suites, seven dining venues, parking for 1,138
vehicles and approximately 12,400 square feet of convention space. For the year
ended December 31, 1995, the Eldorado achieved a 93.8% average hotel occupancy
rate. The Company is currently further improving and expanding the Eldorado
through the development of a Parisian-style bistro, a state-of-the-art 500-seat
showroom and a full-service health spa.
The Company's business strategy draws upon management's two decades of
experience successfully operating the Eldorado. A key element of the Company's
strategy is to provide patrons with unsurpassed personal service that is
designed to foster customer loyalty and generate repeat business. This
dedication to service is supported by a variety of high quality amenities,
including well-appointed hotel rooms and suites and numerous critically
acclaimed dining venues. Additionally, the Company seeks to attract customers
from multiple market segments by providing a well-balanced gaming environment
which contains a mix of slot machines and table games attractive to both
middle-income and premium-play customers. The success of the Eldorado is
evidenced
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by its superior gaming utilization. For the twelve months ended September 30,
1996, the Eldorado generated 12.6% of the Reno Market's gaming revenues
(exclusive of race and sports wagers and keno) while operating only 8.0% of the
Reno Market's gaming capacity, giving the Eldorado 158% of its "fair share" of
the Reno Market's gaming revenues.
As part of its strategy to further enhance its position as a market leader,
in 1993 the Company teamed with Circus Circus to develop the Silver Legacy, the
first newly constructed major hotel/casino in the Reno Market since 1978 and
its first themed mega-resort. The Silver Legacy opened in July 1995 and
encompasses two city blocks in downtown Reno adjacent to the Eldorado and
Circus Circus-Reno. The Silver Legacy's design is based upon Nevada's silver
mining heritage and the legend of Sam Fairchild, a fictitious silver baron who
"struck it rich" on the site of the hotel/casino. The Company's management
believes that the Silver Legacy is a "must see" attraction for visitors to the
Reno Market. As of September 30, 1996, the Silver Legacy featured 1,711 hotel
rooms and suites, approximately 88,500 square feet of casino space with 2,212
slot machines and 87 table games and parking for approximately 1,800 vehicles.
The Eldorado, Silver Legacy and Circus Circus-Reno properties are connected
in a "seamless" manner by 200-foot wide skyway corridors. These enclosed
corridors serve as entertainment bridgeways between the three properties and
house restaurants and custom retail shops. The Eldorado, Silver Legacy and
Circus Circus-Reno comprise the heart of the Reno Market's prime gaming area
and room base, providing the most extensive and the broadest variety of gaming,
entertainment, lodging and dining amenities in the Reno area, with an aggregate
of over 4,100 rooms, approximately 5,900 slot machines and 250 table games, 16
restaurants and enough parking to accommodate approximately 4,600 vehicles. The
Company's management believes that the centralized location and critical mass
of these three properties, together with the ease of access between the
facilities, provide the Eldorado with significant advantages over other
freestanding hotel/casinos in the Reno Market.
The Company has a very broad and experienced management team that includes,
among others, Donald Carano and several members of his immediate family. Donald
Carano, the Chief Executive Officer and a member of the Board of Managers of
the Company, co-founded the Eldorado in 1973 and has been the driving force
behind its development. In addition to Donald Carano, each of the Company's
other eight senior executives has in excess of 10 years of operating experience
in the gaming industry. Management believes that its family-oriented, hands-on
approach has enabled the Company to operate the Eldorado successfully for over
two decades. In addition to their roles in management of the Company, members
of the Carano family beneficially own 63% of the Company.
Reno is the second largest city in Nevada and is located in northern Nevada
at the base of the Sierra Nevada mountain range, approximately 140 miles east
of Sacramento, California and 225 miles east of San Francisco, California. The
Reno Market is the third largest gaming market in the United States after Las
Vegas, Nevada and Atlantic City, New Jersey and generated over $900 million in
gaming revenues for the twelve months ended September 30, 1996. According to
the Nevada State Gaming Control Board (the "Nevada Gaming Board"), while gaming
revenues in the Reno Market grew at a 4% compound annual growth rate from 1985
to 1995, for the period of August 1, 1995 to September 30, 1996, during which
the Silver Legacy was in operation, the Reno Market's gaming revenues increased
by approximately 5.8% over the comparable prior period. Reno is a destination
resort market which attracts visitors for an average of 2.5 nights. Visitors
are attracted to the Reno area for its wide variety of gaming amenities and its
numerous other summer and winter recreational activities. Principal feeder
markets for the Reno Market include northern California and the Pacific
Northwest. Hotel occupancy rates for the Reno Market increased in 1995 to 86.0%
from 84.4% in 1994, despite a 13.2% increase in hotel room capacity. A large
portion of the increased room capacity was due to the opening of the Silver
Legacy, which management expects will continue to broaden the appeal of the
Reno Market to potential visitors. Visitors were also attracted to the Reno
Market in 1995 by the opening of the National Bowling Stadium, which is located
approximately one block from the Eldorado and Silver Legacy. The National
Bowling Stadium will
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host national bowling tournaments two out of every three years through 2009.
The first of these tournaments was held in Reno in 1995 and according to the
Reno Sparks Convention and Visitors Authority (the "Visitors Authority")
attracted nearly 228,000 guests who infused approximately $230 million into the
local economy. In addition, the Reno/Tahoe International Airport has
experienced steady and significant growth over the last five years, with the
number of airline passenger arrivals to the airport increasing from 1.5 million
in 1990 to over 2.9 million in 1995, representing a compound annual growth rate
of approximately 14%. Management believes that the opening of the Silver Legacy
and the National Bowling Stadium and the continued expansion of airflight
service to the Reno/Tahoe International Airport will positively impact the
future growth of the Reno Market.
The Issuers' principal executive offices reside inside the Eldorado, which is
located at 345 North Virginia Street, Reno, Nevada 89501, and its telephone
number is (702) 786-5700.
THE EXCHANGE OFFER
The Exchange Offer.......... The Issuers are hereby offering to exchange
$1,000 principal amount of Exchange Notes for
each $1,000 principal amount of Private Notes
that are properly tendered and accepted. The
Issuers will issue Exchange Notes on or promptly
after the Expiration Date. As of the date hereof,
there is $100,000,000 aggregate principal amount
of Private Notes outstanding.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Issuers believe that the
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Private Notes may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a
broker-dealer who purchases such Exchange Notes
directly from the Issuers to resell pursuant to
Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an
affiliate of either of the Issuers within the
meaning of Rule 405 under the Securities Act),
without compliance with the registration and
prospectus delivery provisions of the Securities
Act; provided that the holder is acquiring
Exchange Notes in the ordinary course of its
business and is not participating, and had no
arrangement or understanding with any person to
participate, in the distribution of the Exchange
Notes. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Private
Notes, where such Private Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange
Notes. See "The Exchange Offer--Resale of the
Exchange Notes."
Registration Rights The Private Notes were sold by the Issuers on
Agreement................... July 31, 1996 to Bear, Stearns & Co. Inc.,
Wasserstein Perella Securities, Inc. and BA
Securities, Inc., as the initial purchasers (the
"Initial Purchasers"), pursuant to a Purchase
Agreement dated July 25, 1996, between the
Issuers and the Initial Purchasers (the "Purchase
Agreement"). Pursuant to the Purchase Agreement,
the Issuers and the Initial Purchasers entered
into a Registration Rights Agreement dated as of
July 31, 1996 (the "Registration Rights
Agreement"), which grants
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the holders of the Private Notes certain exchange
and registration rights. The Exchange Offer is
intended to satisfy such rights, which will
terminate upon the consummation of the Exchange
Offer. The holders of the Exchange Notes will not
be entitled to any exchange or registration
rights with respect to the Exchange Notes. See
"The Exchange Offer--Termination of Certain
Rights."
Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on February 19, 1997, unless the
Exchange Offer is extended by the Issuers in
their sole discretion, in which case the term
Expiration Date shall mean the latest date and
time to which the Exchange Offer is extended. See
"The Exchange Offer--Expiration Date; Extensions;
Amendments."
Accrued Interest on the
Exchange Notes and the
Private Notes............... The Exchange Notes will bear interest from the
most recent date to which interest has been paid
or, if no interest has been paid, from the date
of original issuance of the Private Notes. See
"The Exchange Offer--Interest on the Exchange
Notes."
Conditions to the Exchange
Offer....................... The Exchange Offer is subject to certain
customary conditions that may be waived by the
Issuers. The Exchange Offer is not conditioned
upon any minimum aggregate principal amount of
Private Notes being tendered for exchange. See
"The Exchange Offer--Conditions."
Procedures for Tendering
Private Notes...............
Each holder of Private Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Private Notes
and any other required documentation to Fleet
National Bank, as exchange agent (the "Exchange
Agent"), at the address set forth herein. By
executing the Letter of Transmittal, the holder
will represent to and agree with the Issuers
that, among other things, (i) the Exchange Notes
to be acquired by such holder of Private Notes in
connection with the Exchange Offer are being
acquired by such holder in the ordinary course of
its business, (ii) such holder has no arrangement
or understanding with any person to participate
in a distribution of the Exchange Notes, (iii)
that if such holder is a broker-dealer registered
under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing
the Exchange Notes, such holder will comply with
the registration and prospectus delivery
requirements of the Securities Act in connection
with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot
rely on the position of the staff of the
Commission set forth in no-action letters (see
"The Exchange Offer--Resale of the Exchange
Notes"), (iv) such holder understands that a
secondary resale transaction described in clause
(iii) above and any resales of Exchange Notes
obtained by such holder in exchange for Private
Notes acquired by such holder directly from the
Issuers should be covered by an effective
registration statement
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containing the selling security holder
information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission
and (v) such holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of
either of the Issuers. If the holder is a broker-
dealer that will receive Exchange Notes for its
own account in exchange for Private Notes that
were acquired as a result of market-making
activities or other trading activities, such
holder will be required to acknowledge in the
Letter of Transmittal that such holder will
deliver a prospectus in connection with any
resale of such Exchange Notes; however, by so
acknowledging and by delivering a Prospectus,
such holder will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. See "The Exchange Offer--
Procedures for Tendering."
Special Procedures for
Beneficial Owners........... Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Private Notes in
the Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender
on such owner's own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering such owner's Private
Notes, either make appropriate arrangements to
register ownership of the Private Notes in such
owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time
and may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer--
Procedures for Tendering."
Guaranteed Delivery
Procedures.................. Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
other documentation required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes
according to the guaranteed delivery procedures
set forth under "The Exchange Offer--Guaranteed
Delivery Procedures."
Acceptance of the Private
Notes and Delivery of the
Exchange Notes.............. Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Issuers
will accept for exchange any and all Private
Notes that are properly tendered in the Exchange
Offer prior to the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer will
be delivered on the earliest practicable date
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Withdrawal Rights........... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders."
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Certain Federal Income Tax
Considerations.............. The exchange of Private Notes for Exchange Notes
will be treated as a "non-event" for federal in-
come tax purposes because the Exchange Notes will
not be considered to differ materially from
the Private Notes. As a result, no material fed-
eral income tax consequences will result to hold-
ers exchanging Private Notes for Exchange Notes.
See "Certain Federal Income Tax Considerations."
Exchange Agent.............. Fleet National Bank is serving as the Exchange
Agent in connection with the Exchange Offer.
THE EXCHANGE NOTES
The Exchange Offer applies to $100,000,000 aggregate principal amount of the
Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture. For further
information and for definitions of certain capitalized terms used below, see
"Description of the Notes."
Securities Offered.......... $100.0 million aggregate principal amount of 10
1/2% Senior Subordinated Notes due 2006.
Issuers..................... The Exchange Notes will be joint and several
obligations of Eldorado Resorts LLC and Eldorado
Capital Corp.
Maturity.................... August 15, 2006.
Interest Payment Dates...... February 15 and August 15 of each year,
commencing August 15, 1997, to holders of record
on the immediately preceeding February 1 and
August 1.
Optional Redemption......... The Exchange Notes are redeemable at the option
of the Issuers, in whole or in part, at any time
after August 15, 2001, at the redemption prices
set forth herein plus accrued and unpaid interest
and Liquidated Damages, if any, to the redemption
date. In addition, on or prior to August 15,
1999, the Issuers may redeem up to 33% in
aggregate principal amount of the Exchange Notes
originally issued at a redemption price equal to
110% of the principal amount thereof plus accrued
and unpaid interest and Liquidated Damages, if
any, to the date of redemption with the net
proceeds of one or more Public Equity Offerings
(as defined herein). See "Description of Notes--
Optional Redemption."
Special Redemption.......... The Exchange Notes are subject to redemption
requirements imposed by gaming laws and
regulations of the state of Nevada. See
"Description of Notes--Gaming Redemption."
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Ranking..................... The Exchange Notes will be general unsecured
obligations of the Issuers, subordinated in right
of payment to all existing and future Senior Debt
of the Issuers, including all borrowings of the
Company under the Credit Facility. As of
September 30, 1996, the aggregate amount of
outstanding Senior Debt of the Company was
$27.3 million and no subsidiary of either of the
Issuers had any indebtedness outstanding. See
"Capitalization" and "Description of Notes--
Subordination."
Guarantees.................. The Notes will be guaranteed by certain future
Restricted Subsidiaries (as defined herein). Such
guarantees will be subordinated to all existing
and future Senior Debt of any guarantors. See
"Description of Notes--Certain Covenants--
Subsidiary Guarantees."
Repurchase at the Option of
Holders..................... Upon a Change of Control (as defined herein),
each holder of Exchange Notes will have the right
to require the Issuers to purchase such holder's
Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages, if any, to the repurchase date. The
Issuers' ability to make such a repurchase may be
limited by their financial condition at such
time, covenants in Senior Debt documents, their
inability to obtain any required consents from
their lenders or their inability to finance such
a repurchase. "Risk Factors--Change of Control."
In addition, the Issuers will be required to
offer to purchase certain of the Exchange Notes
at 100% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, to the date of repurchase, with
the proceeds of certain asset sales. See
"Description of Notes--Repurchase at the Option
of Holders."
Mandatory Redemption........ The Issuers are not required to make any
mandatory redemption or sinking fund payments
prior to maturity of the Exchange Notes. See
"Description of Notes--Mandatory Redemption."
Certain Covenants........... The Indenture pursuant to which the Exchange
Notes will be issued (the "Indenture") contains
certain covenants that, among other things, limit
the ability of the Issuers and any Restricted
Subsidiaries to incur additional indebtedness,
pay dividends or make other distributions, create
certain liens, enter into certain transactions
with affiliates, utilize proceeds from asset
sales, issue or sell equity interests of
subsidiaries or enter into certain mergers and
consolidations. See "Description of Notes--
Certain Covenants."
Eldorado Capital Corp. ..... Eldorado Capital Corp. is a wholly-owned
subsidiary of the Company whose sole purpose is
to serve as a co-issuer of the Notes.
RISK FACTORS
For a discussion of certain factors that should be considered in connection
with the Exchange Offer, see "Risk Factors."
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The summary consolidated financial data set forth below has been derived from
the consolidated financial statements of the Predecessor Partnership. The
consolidated statement of income data for each year in the three-year period
ended December 31, 1995 and the consolidated balance sheet data at December 31,
1994 and 1995 are derived from the audited financial statements of the
Predecessor Partnership, which are contained elsewhere in this Prospectus. The
consolidated statement of income data for the thirteen-month period ended
December 31, 1991 and for the year ended December 31, 1992 and the consolidated
balance sheet data at December 31, 1991, 1992 and 1993 are derived from the
audited financial statements of the Predecessor Partnership, which are not
contained herein. Consolidated statement of income data is presented for the
thirteen-month period ended December 31, 1991 because of a change in fiscal
year by the Predecessor Partnership. The consolidated financial data as of and
for the nine-month periods ended September 30, 1995 and 1996 are derived from
consolidated financial statements that are unaudited but which, in the opinion
of management, include all adjustments, consisting only of normal and recurring
adjustments, necessary for a fair presentation of the Company's financial
condition and results of operations. The summary consolidated financial data
are not necessarily indicative of the Company's future results of operations or
financial condition and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's consolidated financial statements, including the notes thereto, and
the other financial and statistical information appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THIRTEEN- YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
MONTH -------------------------------------- ---------------------------
PERIOD ENDED SEPTEMBER 30, SEPTEMBER 30,
DEC. 31, 1991 1992 1993 1994 1995 1995 1996
------------- -------- -------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Net revenues............ $133,069 $131,460 $137,057 $138,198 $145,522 $107,815 $115,181
Equity in net income
(loss) of
subsidiary(1).......... -- -- -- -- (3,208) (4,093) 1,808
Abandonment loss(2)..... -- -- -- -- (1,862) -- --
Operating income........ 34,961 36,122 35,474 33,889 28,525 22,075 24,906
Interest expense, net... (8,038) (6,575) (5,181) (3,254) (5,336) (2,963) (7,692)
Minority interest in net
(income) loss of
subsidiary(3).......... -- -- -- -- 745 951 (420)
Net income(4)........... 26,923 29,547 30,293 30,635 23,934 20,063 16,794
OTHER DATA:
EBITDA(5)(6)............ $ 41,341 $ 42,730 $ 42,715 $ 41,214 $ 41,761 $ 32,460 $ 30,728
Net cash provided by
(used in):
Operating activities... 34,762 36,691 32,002 38,786 36,345 30,608 18,550
Investing activities... (14,409) (17,112) (10,478) (37,045) (62,791) (56,646) (15,123)
Financing activities... (20,429) (19,753) (21,876) (1,205) 27,208 22,733 (3,534)
Capital expenditures.... 14,816 17,847 10,562 12,053 57,451 51,209 17,677
Ratio of earnings to
fixed charges.......... 4.1x 5.3x 6.2x 6.1x 3.6x 4.0x 3.0x
OPERATING DATA(7):
Number of hotel
rooms(8)............... 783 783 783 783 817 783 817
Average hotel occupancy
rate................... 90.2% 92.2% 93.0% 93.7% 93.8% 95.3% 94.7%
Casino square
footage(8)............. 61,500 61,500 61,500 61,500 76,500 76,500 81,500
Number of slot
machines(8)............ 1,557 1,546 1,568 1,597 1,904 1,906 1,989
Number of table
games(8)............... 84 77 77 71 84 77 84
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
-------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $ 6,085 $ 5,176 $ 4,824 $ 5,360 $ 6,122 $ 6,015
Total assets............ 109,541 119,011 129,645 160,384 215,592 231,074
Total debt.............. 65,392 65,645 61,469 79,064 123,630 127,272
Partners' equity(9)..... 35,659 45,206 57,799 69,634 74,768 85,362
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, TWELVE MONTHS ENDED
DECEMBER 31, 1995 1996 SEPTEMBER 30, 1996
------------------ ----------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
PRO FORMA DATA(10):
Cash interest expense... $12,522 $ 9,415 $12,539
Net income.............. 16,505 14,817 17,872
EBITDA/Cash interest
expense................ 3.3x 3.3x 3.2x
Total debt/EBITDA....... 3.0x N/A 3.2x
Ratio of earnings to
fixed charges.......... 2.3x 2.5x 2.4x
</TABLE>
- -------
See footnotes to Summary Consolidated Financial Data
10
<PAGE>
FOOTNOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
(1) Equity in net income (loss) of subsidiary represents ELLC'S 50% joint
venture interest in the Circus and Eldorado Joint Venture, a Nevada
general partnership (the "Silver Legacy Joint Venture"). The equity in net
income (loss) of subsidiary for the year ended December 31, 1995 and the
nine months ended September 30, 1995 includes the impact of ELLC's share
of the $9.9 million of pre-opening expenses that were incurred by the
Silver Legacy Joint Venture.
(2) Abandonment loss equals the net book value of property disposed of as a
result of the expansion of the Eldorado and represents the undepreciated
value of such property.
(3) Minority interest in net (income) loss of subsidiary represents the 23%
minority interest partners' share of ELLC's 50% joint venture interest in
the Silver Legacy Joint Venture. The minority interest in ELLC is owned by
the Company's equityholders.
(4) The Predecessor Partnership was not subject to U.S. federal income taxes,
as the partners included their respective shares of partnership taxable
income in their income tax returns. For each period shown, the Predecessor
Partnership made distributions to its partners, a portion of which was to
reimburse the partners for such tax liability. As a limited-liability
company, the Company is not subject to income tax liability. Therefore,
holders of membership interests will include their respective shares of
the Company's taxable income in their income tax returns and the Company
will continue to make distributions for such tax liabilities.
(5) The Company pays management fees to Recreational Enterprises, Inc. and
Hotel Casino Management, Inc., the owners of 55% and 29% of the Company's
equity interests, respectively. The management fees paid to Recreational
Enterprises, Inc. and Hotel Casino Management, Inc. are included in
selling, general and administrative expenses and totalled $3.2 million and
$2.5 million for the nine months ended September 30, 1995 and 1996,
respectively, and $4.6 million, $3.8 million and $4.3 million for the
years ended December 31, 1993, 1994 and 1995, respectively. Historically,
the salaries of senior executive officers and certain other key employees
of the Company were not directly incurred by the Company but were paid
from a portion of the management fees paid to Recreational Enterprises,
Inc. As of July 1, 1996, the aggregate annual salaries of such senior
executive officers and other key employees have become payroll obligations
of the Company. In connection with the issuance of the Private Notes, the
Company entered into a Management Agreement (as defined herein) with
Recreational Enterprises, Inc. and Hotel Casino Management, Inc. providing
that future management fees paid to Recreational Enterprises, Inc. and
Hotel Casino Management, Inc. will not exceed 1.5% of the Company's annual
net revenues. See "Material Agreements--Management Agreement." Assuming
reallocation of such salaries and the payment of management fees pursuant
to the Management Agreement (assuming aggregate annual reallocated
salaries at the 1996 levels of $2.3 million per year (which includes
assumed aggregate bonuses of $0.3 million which may or may not be paid at
the discretion of the Chief Executive Officer) and the payment of
management fees of the full 1.5% of annual net revenues, in each case, for
all periods presented), (i) the aggregate of such salaries and management
fees would have totalled $4.4 million, $4.4 million and $4.5 million for
the years ended December 31, 1993, 1994 and 1995, respectively, and (ii)
the Company's pro forma net income would have been higher by $0.2 million
for the year ended December 31, 1993 and would have been $0.6 million and
$0.2 million lower for the years ended December 31, 1994 and 1995,
respectively.
(6) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. For the year ended December 31, 1995, EBITDA was adjusted to
exclude ELLC's equity in net loss of its subsidiary of $3.2 million and
abandonment loss of $1.9 million. For the nine months ended September 30,
1996, EBITDA was adjusted to exclude ELLC's equity in net income of its
subsidiary of $1.8 million. EBITDA as presented may not be comparable to
EBITDA of other entities as other entities may not calculate EBITDA in the
same manner. EBITDA should not be construed as an alternative to operating
income or net income (as determined in accordance with generally accepted
accounting principles) as an indicator of the Company's operating
performance, or as an alternative to cash flows generated by operating,
investing and financing activities (as determined in accordance with
generally accepted accounting principles) as an indicator of cash flows or
a measure of liquidity. EBITDA is presented solely as supplemental
disclosure because management believes that it is a widely used measure of
operating performance in the gaming industry.
(7) Excludes the operating data of the Silver Legacy.
(8) As of the end of each period presented.
(9) Effective upon consummation of the Reorganization, partners' equity was
reclassified as members' equity.
(10) Gives pro forma effect to the issuance of the Private Notes and the
application of the net proceeds therefrom, as if such transactions had
occurred as of the beginning of each period presented. Cash interest
expense represents the interest expense on the Private Notes of $10.5
million, $7.9 million and $10.5 million, interest expense on the Credit
Facility of $1.6 million, $1.1 million and $1.5 million, plus other
interest expense not related to the Private Notes or the Credit Facility
of $0.4 million, $0.4 million, and $0.5 million, in each case for the year
ended December 31, 1995, the nine months ended September 30, 1996 and the
twelve months ended September 30, 1996, respectively. Cash interest
expense excludes the impact of any capitalized interest or amortization of
loan costs.
11
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information contained in this Prospectus, before
participating in the Exchange Offer.
COMPETITION
The Company competes for customers primarily on the basis of location, range
and pricing of amenities and overall atmosphere. Of the 48 casinos currently
operating in the Reno Market, the Company competes principally with the eight
hotel/casinos that, like the Company, each generate over $36 million in annual
gaming revenues, including Circus Circus-Reno and the Silver Legacy. To a
lesser extent, the Company also competes with hotel/casinos located in Las
Vegas and Laughlin, Nevada, in the Lake Tahoe area and in other parts of the
United States and with state sponsored lotteries, on-and-off track wagering,
card clubs, riverboat and Native American gaming ventures and other forms of
legalized gaming.
Since the 1980's, legalized gaming opportunities have proliferated
throughout the United States. Riverboat, dockside or land-based gaming is
currently legal in ten states and gaming on Native American-owned land is
legal in at least 23 states, including California, Washington and Oregon. In
addition, California (from where the Reno Market drew approximately 47% of its
visitors in 1995) allows other non-casino style gaming, including pari-mutuel
wagering, a state-sponsored lottery, card clubs, bingo and off-track betting.
The Company believes that the expansion of casino gaming on Native American
lands in California, and to a lesser extent in Washington and Oregon, could
have a material adverse affect on the Company's operations. Furthermore, while
the Company believes that the continued spread of legalized gaming may in the
future present the Company with opportunities for expansion (subject to
available financing), increased legalized gaming in other states, particularly
in areas close to Nevada, such as California, Washington and Oregon, could
adversely affect the Company's operations. See "Business--Competition."
A substantial number of customers travel to both the Reno Market and the
Lake Tahoe market during their visits. Consequently, the Company believes that
its success is influenced to some degree by the success of the Lake Tahoe
market. While the Company does not anticipate a decline in the popularity of
either the Reno Market or the Lake Tahoe market as tourist destination areas
in the foreseeable future, any such decline could adversely affect the
Company's operations.
According to statistics published by the Visitors Authority, there were
approximately 14,241 hotel rooms and approximately 5,221 motel rooms in the
Reno Market at the end of 1995. In addition, according to the Visitors
Authority, several hotel/casino projects are currently proposed or under
construction in the Reno Market which are expected to add approximately 2,690
rooms by the end of the decade. While management believes that growth in the
Reno Market's room base and gaming capacity will benefit the Company, there
can be no assurance that such growth will not exceed market demand and thereby
adversely affect the Company's financial condition or results of operations.
LEVERAGE AND DEBT SERVICE
The Company has substantial fixed debt service in addition to operating
expenses. The Company used the net proceeds from the issuance of the Private
Notes to repay a portion of the Former Credit Facility (as defined herein)
and, concurrently with the closing of the issuance of the Private Notes,
amended the Former Credit Facility to provide for a senior secured revolving
credit facility of $50 million (the Former Credit Facility as amended is
hereinafter referred to as the "Credit Facility"). See "Material Agreements--
Description of the Credit Facility." As of September 30, 1996, the Company's
total consolidated long-term debt (excluding current portion) was $125.8
million, consisting of the Private Notes, $19.5 million outstanding under the
Credit Facility and $6.3 million of other long-term debt. The degree to which
the Company is leveraged could have important consequences to the holders of
the Notes, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or other purposes may be impaired,
12
<PAGE>
(ii) the Company's flexibility in planning for or reacting to changes in
market conditions may be limited and (iii) the Company may be vulnerable in
the event of a downturn in its business. The refinancing effected by the
application of the proceeds of the issuance of Private Notes reduced the
Company's principal repayment obligations for the near future; however, under
the terms of the Indenture and the Credit Facility, the Company may continue
to incur additional indebtedness.
The Credit Facility and the Indenture contain certain restrictive covenants
including, among other things, limitations on the ability of the Company and
certain of its subsidiaries to incur additional indebtedness, to create liens
and other encumbrances, to make certain payments and investments, to enter
into transactions with affiliates to sell or otherwise dispose of assets and
to merge or consolidate with another entity. Although the covenants are
subject to various exceptions which are designed to allow the Company to
operate without undue restraint, there can be no assurance that such covenants
will not adversely affect the Company's ability to finance future operations
or capital needs or engage in other activities which may be in the interest of
the Company. In addition, the Company is required under the Credit Facility to
maintain certain financial ratios. The Company's ability to comply with such
provisions will be dependent upon its future performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond the Company's control. Accordingly, no
assurance can be given that the Company will maintain a level of operating
cash flow that will permit it to service its obligations and to satisfy the
financial covenants in the Credit Facility. A breach of any of these covenants
or the inability of the Company to comply with the required financial ratios
could result in a default under the Credit Facility, which would entitle the
lenders thereunder to accelerate the maturity of the Credit Facility, and
could result in cross-defaults permitting the acceleration of other
indebtedness of the Company, including the Notes. Such an event would
adversely affect the Company's ability to make payments on the Notes. See
"Material Agreements--Description of the Credit Facility" and "Description of
Notes."
SUBORDINATION OF EXCHANGE NOTES
The Exchange Notes will be unsecured and subordinated to the prior right of
payment of all existing and future Senior Debt of the Issuers, including
obligations under the Credit Facility. Subject to certain limitations, the
Indenture will permit the Issuers to incur additional indebtedness, including
Senior Debt. See "Description of Notes--Certain Covenants--Incurrence of
Indebtedness." In addition, the indebtedness under the Credit Facility will
become due prior to the maturity of the Exchange Notes. As a result of the
subordination provisions contained in the Indenture, in the event of a
liquidation or insolvency, the assets of the Issuers will be available to pay
obligations on the Exchange Notes only after all Senior Debt has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on
any or all of the Exchange Notes then outstanding. See "Material Agreements--
Description of the Credit Facility" and "Description of Notes."
GAMING REGULATION
The Company's gaming operations, and the ownership of securities in the
Company, are subject to extensive regulation by the Nevada Gaming Commission
(the "Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada
Board") and various local governmental authorities (the "Local Authorities"
and, together with the Nevada Commission and the Nevada Board, the "Nevada
Gaming Authorities"). If it were determined that the Nevada Gaming Control Act
or any regulations promulgated thereunder (collectively, the "Nevada Act")
were violated by the Company, the Eldorado or the Silver Legacy, the gaming
licenses held by the violating entity could be limited, conditioned, suspended
or revoked, subject to compliance with certain statutory and regulatory
procedures. The Nevada Gaming Authorities have broad authority with respect to
licensing and registration of entities and individuals involved in gaming
operations, including holders of the Company's outstanding securities. The
Nevada Gaming Authorities may, among other things, revoke the license of any
entity licensed as a gaming corporation or the registration of any entity
registered as a holding company of a gaming corporation, and may also revoke
the license of any individual licensed as an officer, director, control person
or shareholder of a licensed or registered entity. Revocation of the gaming
licenses held by the Company would result in a material adverse effect on the
business of the Company.
13
<PAGE>
The Company will be required to disclose to the Nevada Gaming Authorities
the identities of the holders of the Notes. In addition, the Nevada Commission
has authority under the Nevada Act, in its discretion, to (i) require holders
of debt securities of licensed companies to file applications, (ii)
investigate such holders and (iii) require such holders to be found suitable
to own such debt securities. If the Nevada Commission determines that a person
is unsuitable to own such securities, then pursuant to the regulations of the
Nevada Commission, the Company may be subject to sanctions, including the loss
of its approvals, if, without the prior approval of the Nevada Commission, it
(i) pays to the unsuitable person any dividend, interest or any distribution
whatsoever, (ii) recognizes any voting right by such unsuitable person in
connection with such securities, (iii) pays the unsuitable person remuneration
in any form or (iv) makes any payments to the unsuitable person by way of
principal, redemption, conversion, exchange, liquidation or similar
transaction. The Indenture provides that if a holder or beneficial owner of a
Note is required to be found suitable and is not found suitable, the Company
will have the right (i) to require the holder or owner to dispose of its Notes
within 30 days or such earlier period as may be ordered by the Nevada
Commission or (ii) to redeem the holder's or owner's Notes within 30 days or
such earlier period as may be prescribed by the Nevada Commission at the
lesser of the principal amount thereof or the price at which the holder or
owner acquired the Notes, together with, in either case, accrued interest to
the date of finding of unsuitability by the Nevada Commission. See
"Description of Notes--Gaming Redemption."
In addition, any future public offering of debt or equity securities by the
Company, including the Exchange Offer and any offering the proceeds of which
are intended to be used to pay for construction of, or to acquire an interest
in, any gaming facilities in Nevada, to finance the gaming operations of an
affiliated company or to retire or extend obligations incurred for any such
purposes, requires the prior approval of the Nevada Commission.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, the Company would have to sever all
relationships with such person. Furthermore, the Nevada Commission may require
the Company to terminate the employment of any person who refuses to file
appropriate applications. Either result could materially adversely affect the
gaming operations of the Company.
POSSIBLE LEGISLATION
The California State Assembly and the California Senate each have recently
passed separate bills which would legalize electronic gaming devices and
nonhouse banked card games at casinos located on Native American lands in
California and would create a new agency within the California Attorney
General's office that would regulate legal gaming in California. None of these
bills has been passed in final form by the legislature. The Company believes
that the expansion of casino gaming on Native American lands, or otherwise, in
California could have a material adverse effect on the Company's operations.
In August 1996, President Clinton signed a bill creating the National
Gambling Impact and Policy Commission to conduct a comprehensive study of all
matters relating to the economic and social impact of gaming in the United
States. The legislation provides that, not later than two years after the
enactment of such legislation, the commission must issue a report to the
President and to Congress containing its findings and conclusions, together
with recommendations for legislation and administrative actions. Any such
recommendations, if enacted into law, could adversely impact the gaming
industry and have a material adverse effect on the Company's business or
results of operations.
Additionally, from time to time, certain federal legislators have proposed
the imposition of a federal tax on gaming revenues. Any such tax could have a
material adverse effect on the Company's financial condition or results of
operations.
14
<PAGE>
DEPENDENCE ON KEY MARKETS AND PEDESTRIAN TRAFFIC IN DOWNTOWN RENO
The Visitors Authority reports that visitors from California, Washington,
Oregon and Canada accounted for approximately 47%, 12%, 7% and 7%,
respectively, of the visitors to the Reno Market in 1995. Accordingly, the
Company is dependent for its revenues primarily upon the gaming activities of
customers visiting the Reno Market from these areas. A decline in the Reno
Market's gaming revenues generally or in the economy of the Reno Market, a
decline in the economies in California, Washington, Oregon, Canada or
elsewhere or a decline in the number of gaming customers traveling to the Reno
Market for any reason, including increased competition from other gaming areas
(including Native American gaming in California, Washington and Oregon), could
have a material adverse effect on the Company's results of operations. See "--
Seasonality; Quarterly Fluctuations in Operating Results" and "Business--
Competition."
Additionally, management is aware of proposals for the potential rerouting
of train tracks throughout the Reno metropolitan area. Such rerouting could
increase the frequency of trains travelling through downtown Reno and could
cause interruptions in normal pedestrian traffic patterns and flow. Any
interruption in pedestrian traffic patterns and flow could result in a decline
in the number of visitors to the Eldorado. The Company is unable to estimate
the impact that future construction or the increase in the frequency of trains
traveling through downtown Reno would have on its results of operations.
CONTROL BY AND DEPENDENCE ON KEY PERSONNEL
Donald Carano controls the Company through his direct and indirect equity
ownership of the Company and is a member of the Board of Managers and the
Chief Executive Officer of the Company. As a result, Mr. Carano has the power
to elect a majority of the Board of Managers, appoint new management and
control all aspects of the daily operations of the Company and the Eldorado.
The Company is dependent on the retention of, and continued performance by,
Mr. Carano. The Company believes that the sudden loss of the services of Mr.
Carano could have a material adverse effect on the Company. The Company does
not have an employment contract with Mr. Carano and the Company does not
maintain key-man insurance policies on Mr. Carano or on any other officer of
the Company.
POTENTIAL CONFLICTS OF INTEREST
Donald Carano and Robert Jones, the Chief Financial Officer of the Company,
are members of the Silver Legacy Joint Venture's Executive Committee, which
oversees the management of the operations of the Silver Legacy. Therefore, Mr.
Carano's and Mr. Jones's decisions relating to the daily operations of the
Company, in addition to Mr. Carano's equity ownership in the Company, could
conflict with their respective positions on the Silver Legacy's Executive
Committee to the extent that their actions in such capacities are not
beneficial to both the Eldorado and the Silver Legacy. See "Management" and
"Security Ownership of Certain Beneficial Owners and Management."
Additionally, Gary Carano, the General Manager of the Silver Legacy and a
member of the Board of Managers of the Company, and Glenn Carano, the Director
of Marketing of the Silver Legacy, each indirectly own a 10.1% interest in
Recreational Enterprises, Inc., which owns a 55% equity interest in the
Company. See "Security Ownership of Certain Beneficial Owners and Management."
Accordingly, Gary Carano's and Glenn Carano's decisions relating to the
management of the Silver Legacy could conflict with Gary Carano's position as
a member of the Company's Board of Managers and both of their respective
positions as equityholders in the Company to the extent that their actions in
such capacities are not beneficial to both the Eldorado and the Silver Legacy.
The potential for the conflicts of interest described above may be
exacerbated by the fact that the Eldorado and the Silver Legacy are connected
by a skyway corridor. No specific procedures for resolving these conflicts of
interest have been developed and there can be no assurance that effective
procedures for addressing such matters can be developed.
15
<PAGE>
Donald Carano is the Chief Executive Officer of and beneficially owns stock,
along with Gene, Gregg and Cindy Carano (the Director of Hotel and Retail
Operations of the Eldorado), in Recreational Enterprises, Inc., which, in
addition to its ownership interest in the Company, engages in other business
activities. These members of the Carano family, as well as Rhonda Carano (the
Director of Advertising and Public Relations of the Eldorado), provide
services and devote a portion of their time and attention to business
activities of Recreational Enterprises, Inc. which are unrelated to the
business of the Company. Furthermore, Donald Carano is currently a general
partner of the Ferrari Carano Vineyards and Winery, a California general
partnership (the "Ferrari Carano Winery"), which is owned by Recreational
Enterprises, Inc. and the Carano family. Additionally, Donald Carano and
Recreational Enterprises, Inc. collectively own a 50% equity interest in the
Pioneer Inn Hotel Casino, a small hotel/casino located in downtown Reno. Mr.
Carano spends approximately one-third of his time on matters relating to the
Ferrari Carano Winery and, from time to time, devotes a portion of his
attention to other business ventures, including, to a minimal extent, the
Pioneer Inn Hotel Casino. In addition, Mr. Carano is "of counsel" to the law
firm of McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP, but is
not involved in the active practice of law. See "Management--Compensation
Committee Interlocks and Insider Participation."
SEASONALITY; QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
Historically, hotel/casino operations in the Reno Market have been subject
to seasonal variations. Traditionally, the strongest operating results occur
in the third quarter and the weakest results have occurred during the period
from November through February when weather conditions have adversely affected
operating results. For example, during the winter months of 1994-1995 and
1995-1996, the Reno Market and surrounding areas experienced greater than
normal snowfall, making travel to the Reno Market more difficult. This
resulted in significant declines in traffic on major highways, particularly on
routes to and from northern California, and caused a downturn in customer
volume. Consequently, during those periods the revenues and cash flows at
hotel/casinos in the Reno Market, including the Eldorado, were adversely
affected. Furthermore, according to the Visitors Authority, 57% of visitors to
the Reno Market in 1995 arrived by some form of ground transportation.
Therefore, normal winter weather is expected to cause the Company's operating
results to be seasonally affected and severe winter weather may have a
material adverse effect on the Company's operating results. Additionally, the
Company expects that flooding in the greater Reno area and in several of the
Reno Market's primary feeder markets, including northern California, during
December 1996 and January 1997 will adversely affect the Company's operating
results for the fourth quarter of 1996 and the first quarter of 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality."
In addition, the Company's financial results for the first half of 1995 were
positively impacted by the presence of bowlers competing in tournaments
sponsored by the American Bowling Congress (the "ABC") which were held at the
National Bowling Stadium. The Visitors Authority has entered into contracts
with each of the ABC and the Women's International Bowling Congress (the
"WIBC") which obligate each of the ABC and the WIBC to hold a National
Championship Bowling Tournament at the National Bowling Stadium once every
three years. The contracts were structured so that there will be a National
Championship Bowling Tournament in Reno two out of every three years between
1995 and 2009. However, while the Company expects that the National Bowling
Stadium will host tournaments sponsored by other bowling organizations,
neither the ABC nor the WIBC sponsored a tournament in Reno in 1996.
Consequently, the Company expects some negative impact in its operating
results and cash flow for the year ended 1996 and in other years in which
neither of these associations stages a tournament in Reno. See "Business--Reno
Market."
CHANGE OF CONTROL
In the event of a Change of Control, each holder of Notes will have the
right, at the holder's option, to require the Issuers to purchase all or a
portion of such holder's Notes in accordance with the terms of the Indenture.
The occurrence of a Change of Control could result in a default under the
Credit Facility or other Senior Debt. In addition, the Issuers' ability to pay
cash to the holders of the Notes upon any such event may be limited by the
Issuers' financial condition at the time of such event or by financial
covenants that may be contained in the Senior Debt. If the Issuers are
required to seek the consent of their lenders to repurchase the Notes and are
unable to obtain such consents or are unable to refinance the borrowings that
contain such prohibition, the inability of the Issuers to repurchase Notes
would constitute an Event of Default under the
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Indenture, which, in turn, would constitute a default under the Credit
Facility or other Senior Debt. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the holders of
Notes. See "--Subordination of Notes" and "Description of Notes--Repurchase at
the Option of Holders."
CAPITAL CALLS UNDER THE SILVER LEGACY JOINT VENTURE AGREEMENT
The Silver Legacy was developed pursuant to the Agreement of Joint Venture
of Circus and Eldorado Joint Venture (the "Joint Venture Agreement") dated as
of March 1, 1994, between ELLC and Galleon, Inc., a wholly-owned subsidiary of
Circus Circus ("Circus Sub"). Under the Joint Venture Agreement, ELLC may be
required to make certain additional capital contributions to defray certain
net losses incurred by the Silver Legacy Joint Venture. No assurance can be
given that ELLC will maintain a level of operating cash flow that will permit
it to satisfy any such additional capital contribution requirements. If ELLC
fails to make a required additional capital contribution, Circus Sub may loan
directly to the Silver Legacy Joint Venture the amount of the additional
capital contribution that ELLC has failed to pay or may contribute the amount
of such additional capital contribution on behalf of ELLC, which contributed
amount would be considered a loan to ELLC and would be required to be repaid
by ELLC from the cash distributions it receives pursuant to the Joint Venture
Agreement. If ELLC's loan were not repaid to Circus Sub within two years,
ELLC's interest in the Silver Legacy Joint Venture could be purchased by
Circus Sub. In addition, if ELLC were in default at any time on any two
required additional capital contributions, ELLC's interest in the Silver
Legacy Joint Venture could be purchased by Circus Sub. The Company is not
liable for the payment of any additional capital contribution owed by ELLC.
See "Material Agreements--Silver Legacy Joint Venture Agreement."
IMPACT OF SILVER LEGACY/RECENT OPERATING RESULTS
The opening of the Silver Legacy has had a mixed effect on the Eldorado's
results of operations. During peak periods, the Eldorado has benefited from
the critical mass of, and the seamless connection between, the Eldorado, the
Silver Legacy and Circus Circus-Reno properties. Management believes that, in
slower periods, the Eldorado has been negatively impacted by the Silver
Legacy, as that facility attracts a greater share of the gaming patrons due to
its larger room base. From August 1, 1995 through September 30, 1996, the
Eldorado's gaming revenues increased by $4.6 million, or 3.8%, over the
comparable prior period. However, while the Eldorado was able to increase its
gaming revenues during this period despite competition from the Silver Legacy,
the Company's EBITDA (as described in footnote 7 to Selected Consolidated
Financial Data) declined due to additional operating and marketing costs.
In addition to the impact of the Silver Legacy, harsh winter conditions in
the Reno area, the absence of a major bowling tournament in 1996, the
increased costs associated with operating the larger Eldorado facility and
increased interest expense each had a negative impact on the Company's
operating performance for the nine month period ended September 30, 1996. For
the nine months ended September 30, 1996, the Company's net income declined to
$16.8 million from $20.1 million in the comparable year period, primarily due
to the increase in interest expense (which was not capitalized) associated
with the issuance of the Private Notes on July 31, 1996, and EBITDA (as
described in footnote 7 to Selected Consolidated Financial Data) decreased to
$30.7 million as compared to $32.5 million generated in the comparable prior
year period. In addition, the Company's EBITDA (as described in footnote 7 to
Selected Consolidated Financial Data) for the year ended December 31, 1995
increased to $41.8 million from $41.2 million for the year ended December 31,
1994 and decreased from $42.7 million in each of the years ended December 31,
1993 and 1992. No assurance can be given that the Company's EBITDA (as
described in footnote 7 to Selected Consolidated Financial Data) will increase
or will regain levels achieved in prior years. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
ENVIRONMENTAL MATTERS
As is the case with any owner or operator of real property, the Company is
subject to a variety of federal, state and local governmental regulations
relating to the use, storage, discharge, emission and disposal of hazardous
materials. Federal, state and local environmental laws and regulations also
impose liability on potentially responsible parties, including the owners or
operators of real property, to clean up, or contribute to
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the cost of cleaning up, sites at which hazardous wastes or materials were
disposed of or released. The Company does not have environmental liability
insurance to cover such events.
Certain of the Company's properties and former properties, including the
Silver Legacy property, had or have varying degrees of petroleum contamination
in the soil and/or groundwater. In each instance where such petroleum
contamination has been identified, investigation or remediation activities
have been undertaken or are ongoing. The possibility exists that additional
contamination, as yet unknown, may exist at these or other of the Company's
properties. In addition, under the terms of an Environmental Indemnity, dated
May 30, 1995 (the "Environmental Indemnity"), the Company has agreed jointly
and severally with Circus Circus to indemnify, defend and hold harmless the
agents and lenders under the Silver Legacy Joint Venture's bank credit
facility from and against any and all Environmental Losses (as defined in the
Environmental Indemnity) suffered or incurred on the premises of the Silver
Legacy or arising through the ownership, use, occupancy or operation thereof.
Generally, liability under the Environmental Indemnity covers the period prior
to the date the lenders foreclose on and take possession of the real property
securing their loans to the Silver Legacy Joint Venture. The agents and
lenders are not required to seek payments from the Silver Legacy Joint Venture
before pursuing payments from the Company and Circus Circus for Environmental
Losses. In all cases, the Company believes that the contamination arose from
activities of prior owners or occupants, or from offsite sources and not as a
result of any actions or operations conducted by the Company.
As to the petroleum contamination identified on the Silver Legacy property,
the Company is currently seeking reimbursement and indemnification from
Chevron Company USA. The possibility exists that other responsible parties may
be identified for this or other sites, and the Company will determine whether
to seek contribution or reimbursement from such parties. In addition,
reimbursement for some of the expenditures has been, and further reimbursement
may be, obtained from the State of Nevada Petroleum Fund which has been
established to reimburse parties for costs incurred in clean-up of underground
storage tank related contamination.
The Company's properties and former properties also lie within the proposed
Central Truckee Meadows Remediation District, encompassing much of the City of
Reno, which will address groundwater contaminated with solvents as identified
by the Nevada Division of Environmental Protection. The Company does not
believe that it has contributed to this solvent contamination. The Company has
not been required to conduct any remediation or investigation of this matter
nor to contribute toward any costs associated therewith. However, the
possibility remains that funding of the investigation or remediation of this
regional groundwater issue could result in a special assessment on the
Company's properties or former properties among others within the Remediation
District. The possibility exists that the entire area of contamination, or a
portion thereof, could be listed under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980.
Asbestos has been determined to be present in the sheetrock of approximately
400 of the Eldorado's older hotel rooms. Removal of the asbestos will be
required only in the event of the demolition of the affected rooms or if the
asbestos was otherwise disturbed. Management currently has no plans to
renovate or demolish the affected rooms in a manner that would require removal
of the asbestos at this time.
The Company has expended approximately $692,000 in connection with
environmental matters from January 1, 1993 through September 30, 1996.
NON-RECOURSE NATURE OF NOTES
No direct or indirect member, manager, employee, officer, stockholder or
director, past, present or future, of either of the Issuers or any Guarantor
(as defined herein) will have any personal liability in respect of the
obligations of the Issuers under the Indenture, the Notes or any guarantees
thereof by reason of the status as such member, manager, employee, officer,
stockholder or director unless such person is an Issuer or Guarantor of the
Notes.
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ABSENCE OF PUBLIC MARKET
The Private Notes have not been registered under the Securities Act and are
subject to significant restrictions on resale. The Exchange Notes constitute a
new issue of securities for which there is currently no active trading market.
The Company does not intend to list the Notes on any securities exchange or to
seek approval for quotation of the Notes through any automated quotation
system. If the Exchange Notes are traded after their initial issuance, they
may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities and other
factors, including general economic conditions and the financial condition of,
performance of and prospects for the Company. The Initial Purchasers have
advised the Company that they currently intend to make a market in the Notes
as permitted by applicable law and regulation. However, the Initial Purchasers
are not obligated to do so and any such market-making activities may be
discontinued at any time without notice. In addition, such market-making
activities may be limited during the Exchange Offer. There can be no assurance
that an active trading market for the Notes will develop or be sustained. See
"Notice to Investors."
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Issuers are under
any duty to give notification of defects or irregularities with respect to
tenders of Private Notes for exchange. Private Notes that are not tendered or
are tendered but not accepted will, following consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof. In addition, any holder of Private Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or any other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. To the extent that Private Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Private Notes could be adversely affected due to
the limited amount, or "float," of the Private Notes that are expected to
remain outstanding following the Exchange Offer. Generally, a lower "float" of
a security could result in less demand to purchase such security and could,
therefore, result in lower prices for such security. For the same reason, to
the extent that a large amount of Private Notes are not tendered or are
tendered and not accepted in the Exchange Offer, the trading market for the
Exchange Notes could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Issuers on July 31, 1996 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The
Initial Purchasers subsequently sold the Private Notes to (i) "qualified
institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities
Act ("Rule 144A"), in reliance on Rule 144A and (ii) a limited number of
institutional "accredited investors" ("Accredited Institutions"), as defined
in Rule 501(a)(1), (2), (3), or (7) under the Securities Act. As a condition
to the sale of the Private Notes, the Issuers and the Initial Purchasers
entered into the Registration Rights Agreement on July 31, 1996. Pursuant to
the Registration Rights Agreement, the Issuers agreed that, unless the
Exchange Offer is not permitted by applicable law or Commission policy, they
would (i) file with the Commission a Registration Statement under the
Securities Act with respect to the Exchange Notes within 45 days after the
Closing Date, (ii) use their best efforts to cause such Registration Statement
to become effective under the Securities Act within 180 days after
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the Closing Date and (iii) use their best efforts to consummate the Exchange
Offer prior to the 30th business day following the date on which the
Registration Statement is declared effective. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement.
The Registration Statement is intended to satisfy certain of the Issuers'
obligations under the Registration Rights Agreement and the Purchase
Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Issuers believe that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Issuers to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii)
any such holder that is an "affiliate" of either of the Issuers within the
meaning of Rule 405 under the Securities Act) who exchanges Private Notes for
Exchange Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement with any
person to participate, in a distribution of the Exchange Notes, will be
allowed to resell Exchange Notes to the public without further registration
under the Securities Act and without delivering to the purchasers of the
Exchange Notes a prospectus that satisfies the requirements of Section 10 of
the Securities Act. However, if any holder acquires Exchange Notes in the
Exchange Offer for the purpose of distributing or participating in the
distribution of the Exchange Notes or is a broker-dealer, such holder cannot
rely on the position of the staff of the Commission enumerated in certain no-
action letters issued to third parties and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Issuers
have agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers and other persons, if any, with
similar prospectus delivery requirements for use in connection with any resale
for a period not to exceed 180 days after the date of effectiveness of the
Registration Statement, unless extended pursuant to the terms of the
Registration Rights Agreement. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Issuers will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Private Notes surrendered pursuant
to the Exchange Offer. Private Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will
not be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued
under, and be entitled to the benefits of Indenture, which also authorized the
original issuance of the Private Notes, such that both series of Notes will be
treated as a single class of debt securities under the Indenture.
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As of the date of this Prospectus, $100,000,000 in aggregate principal
amount of the Private Notes are outstanding and registered in the name of Cede
& Co., as a nominee for DTC. Only a registered holder of the Private Notes (or
such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the Indenture may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders
of the Private Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Issuers intend
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder.
The Issuers shall be deemed to have accepted validly tendered Private Notes
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Issuers.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Issuers will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
February 19, 1997, unless the Issuers, in their sole discretion, extend the
Exchange Offer, in which case the term Expiration Date shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuers will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders of Private Notes an announcement thereof and (iii) issue a
press release or other public announcement which shall include disclosure of
the approximate number of Private Notes deposited to date, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which the Issuers
may choose to make a public announcement of any delay, extension, amendment or
termination of the Exchange Offer, the Issuers shall have no obligation to
publish, advertise, or otherwise communicate any such public announcement,
other than by making a timely release to an appropriate news agency.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such
delay, extension or termination to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is amended in a manner determined by the Issuers to
constitute a material change, the Issuers will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders, and the Issuers will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 10 1/2% per annum.
Interest on the Exchange Notes will be payable semi-annually on February 15
and August 15 of each year, commencing August 15, 1997. Interest on the
Exchange Notes will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from the date of original issuance
of the Private Notes. Holders of Private Notes that are accepted for exchange
will be deemed to have waived the right to receive any interest accrued on the
Private Notes.
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PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "--
Exchange Agent" for receipt prior to the Expiration Date. In addition, either
(i) certificates for such Private Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such
procedure is available, into the Exchange Agent's account at the Depositary
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the
holder must comply with the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Issuers in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY TO THE EXCHANGE AGENT OF PRIVATE NOTES, THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR PRIVATE NOTES SHOULD BE SENT TO THE ISSUERS. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner of Private Notes whose Private Notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact the registered holder promptly and
instruct such registered holder to tender on such beneficial owner's behalf.
If such beneficial owner wishes to tender on its own behalf, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering its Private Notes, either make appropriate arrangements to register
ownership of the Private Notes in its name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box titled "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act which is a member of one of the recognized signature guarantee programs
identified in the Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
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If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Issuers, evidence satisfactory to the Issuers of their authority to so act
must be submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be
determined by the Issuers in their sole discretion, which determination will
be final and binding. The Issuers reserve the absolute right to reject any and
all Private Notes not properly tendered or any Private Notes the Issuers'
acceptance of which would, in the opinion of counsel for the Issuers, be
unlawful. The Issuers also reserve the right to waive any defects,
irregularities or conditions of tender as to particular Private Notes. The
Issuers' interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as the
Issuers shall determine. Although the Issuers intend to notify holders of
defects or irregularities with respect to tenders of Private Notes, neither
the Issuers, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Private Notes will not be
deemed to have been made until such defects or irregularities have been cured
or waived.
While the Issuers have no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Private Notes that are not tendered pursuant to the
Exchange Offer, the Issuers reserve the right in their sole discretion to
purchase or make offers for any Private Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "--Conditions,"
to terminate the Exchange Offer and, to the extent permitted by applicable
law, purchase Private Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to the Issuers
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with a registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in certain no-action
letters, (iv) such holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange Notes obtained by
such holder in exchange for Private Notes acquired by such holder directly
from the Issuers should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 or Item
508, as applicable, of Regulation S-K of the Commission and (v) such holder is
not an "affiliate," as defined in Rule 405 under the Securities Act, of either
of the Issuers. If the holder is a broker-dealer that will receive Exchange
Notes for such holder's own account in exchange for Private Notes that were
acquired as a result of market-making activities or other trading activities,
such holder will be required to acknowledge in the Letter of Transmittal that
such holder will deliver a prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and by delivering a prospectus,
such holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
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RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Private Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depositary pursuant to the book-entry transfer
procedures described below, such Private Notes will be credited to an account
maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in
accordance with the Depositary's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
Depositary, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or pursuant
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Issuers (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Private Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be
24
<PAGE>
withdrawn (the "Depositor"), (ii) identify the Private Notes to be withdrawn
(including the certificate number or numbers and principal amount of such
Private Notes) and (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Private Notes
were tendered (including any required signature guarantees). All questions as
to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Issuers in their sole discretion, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Private Notes so withdrawn are validly retendered. Properly
withdrawn Private Notes may be retendered by following one of the procedures
described above under "The Exchange Offer--Procedures for Tendering" at any
time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if consummation of the Exchange Offer
violates applicable law, rules or regulations (including gaming laws and
regulations) or an applicable interpretation of the staff of the Commission.
If the Issuers determine in their sole discretion that any of these
conditions are not satisfied, the Issuers may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders
to withdraw such Private Notes (see "--Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Issuers will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Issuers
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Issuers' continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the
Securities Act), (ii) to provide, upon the request of any holder of a
transfer-restricted Private Note, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Private Notes
pursuant to Rule 144A, (iii) to use their best efforts to keep the
Registration Statement effective to the extent necessary to ensure that it is
available for resales of transfer-restricted Private Notes by broker-dealers
for a period not to exceed 180 days from the Expiration Date, unless extended
pursuant to the terms of the Registration Rights Agreement and (iv) to provide
copies of the latest version of the Prospectus to broker-dealers upon their
request for a period not to exceed 180 days after the date of effectiveness of
the Registration Statement, unless extended pursuant to the terms of the
Registration Rights Agreement.
SHELF REGISTRATION
In the event that (i) the Issuers are not required to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law
or Commission policy, or (ii) any holder of Private Notes notifies the Issuers
in writing on or prior to the 20th business day following consummation of the
Exchange Offer (A) that based upon the advice of counsel such holder is
prohibited by applicable law or Commission policy from participating in the
Exchange Offer, or (B) that based upon the advice of counsel such holder may
not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a Prospectus and that the
25
<PAGE>
Prospectus contained in the Registration Statement is not appropriate or
available for such resales, or (C) that such holder is a broker-dealer and
holds applicable Notes acquired directly from the Issuers or one of their
affiliates, the Issuers jointly and severally, will at their cost, (a)
promptly file a shelf registration statement covering resales of the Notes (a
"Shelf Registration Statement"), (b) use their best efforts to cause such
Shelf Registration Statement to be declared effective under the Securities
Act, and (c) use their best efforts to keep effective such Shelf Registration
Statement until the earlier of three years after the (i) the date of its
effectiveness or (ii) such shorter period ending when (A) all applicable Notes
covered by the Shelf Registration Statement have been sold thereunder, (B) a
subsequent shelf registration statement covering all applicable Notes has been
declared effective under the Securities Act or (C) all applicable Notes may be
sold pursuant to Rule 144(k) under the Securities Act. The Issuers will, in
the event of the filing of a Shelf Registration Statement, provide to each
holder of the Notes copies of the prospectus which is a part of such Shelf
Registration Statement, notify each such holder when such Shelf Registration
Statement has become effective and take certain other actions as are required
to permit unrestricted resales of the Notes. A holder that sells its Notes
pursuant to a Shelf Registration Statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
LIQUIDATED DAMAGES
If (a) the Issuers fail to file any of the Registration Statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (b) any of such Registration Statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Issuers fail to consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above is hereinafter referred to as a "Registration Default"),
then the Issuers will pay damages to each holder of Notes, with respect to the
first 90-day period immediately following the occurrence of such Registration
Default, an amount equal to $.05 per week per $1,000 principal amount of Notes
held by such holder. Such damages, together with damages accrued by the
Issuers pursuant to the next succeeding sentence, are collectively referred to
herein as "Liquidated Damages." The amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of Notes
with respect to each subsequent 90-day period until all Registrations Defaults
have been cured, up to a maximum amount of Liquidated Damages of $.40 per week
per $1,000 principal amount of Notes. All accrued Liquidated Damages will be
paid by the Issuers on each Interest Payment Date to the Global Note Holder
(as defined herein) by wire transfer of immediately available funds and to
holders of Certificated Securities (as defined herein) by wire transfer to the
accounts specified by them or by the mailing of checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
26
<PAGE>
EXCHANGE AGENT
Fleet National Bank has been appointed as Exchange Agent of the Exchange
Offer. Questions and requests for assistance, requests for additional copies
of this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
By Mail: By Hand:
Fleet National Bank Fleet National Bank
Corporate Trust Operations Corporate Trust Operations
777 Main Street, Lower Level 777 Main Street, Lower Level
CTMO 0224 Hartford, Connecticut 06115
Hartford, Connecticut 06115 Attention: Patricia Williams
Attention: Patricia Williams
By Facsimile:
(860) 986-7908
Confirm by Telephone:
(860) 986-2910
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers and are estimated in the aggregate to be approximately
$1.0 million. Such expenses include registration fees, fees and expenses of
the Exchange Agent and the Trustee, accounting and legal fees and printing
costs, among others.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the exchange of the Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
CONSEQUENCES OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Private Notes may be resold only (i) to a person whom the seller reasonably
believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii)
in a transaction meeting
27
<PAGE>
the requirements of Rule 144 under the Securities Act, (iii) outside the
United States to a foreign person in a transaction meeting the requirements of
Rule 904 under the Securities Act, (iv) in accordance with another exemption
from the registration requirements of the Securities Act (and based upon an
opinion of counsel if the Issuers so request), (v) to the Issuers or (vi)
pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United
States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Issuers will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
28
<PAGE>
USE OF PROCEEDS
The Issuers will not receive any proceeds from the issuance of the Exchange
Notes offered hereby. In consideration for issuing the Exchange Notes as
contemplated in this Prospectus, the Issuers will receive in exchange Private
Notes in like principal amount, the terms of which are identical to the
Exchange Notes. The Private Notes surrendered in exchange for Exchange Notes
will not result in any increase in indebtedness of the Issuers.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at September 30, 1996. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements, including the notes
thereto, included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
---------------------
(UNAUDITED--DOLLARS
IN THOUSANDS)
<S> <C>
Current portion of long-term debt...................... $ 1,476
========
Long-term debt, less current portion:
Credit Facility...................................... $ 19,500
Senior Subordinated Notes due 2006................... 100,000
Other long-term debt................................. 6,296
--------
Total.............................................. 125,796
Total members' equity.................................. 85,362
--------
Total capitalization................................... $211,158
========
</TABLE>
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth on the following page has
been derived from the consolidated financial statements of the Predecessor
Partnership. The consolidated statement of income data for each year in the
three-year period ended December 31, 1995 and the consolidated balance sheet
data at December 31, 1994 and 1995 are derived from the financial statements
of the Predecessor Partnership which were audited by Arthur Andersen LLP,
independent public accountants, and are contained elsewhere in this
Prospectus. The consolidated statement of income data for the year ended
December 31, 1992 and the consolidated balance sheet data at December 31, 1992
and 1993 are derived from the financial statements of the Predecessor
Partnership which were audited by Arthur Andersen LLP and are not contained
herein. The consolidated statement of income data for the thirteen-month
period ended December 31, 1991 and the consolidated balance sheet data dated
December 31, 1991 are derived from the financial statements of the Predecessor
Partnership which were audited by other auditors and are not contained herein.
Consolidated statement of income data is presented for the thirteen-month
period ended December 31, 1991 because of a change in fiscal year by the
Predecessor Partnership. The selected consolidated financial data as of and
for the nine-month periods ended September 30, 1995 and 1996 are derived from
consolidated financial statements that are unaudited but which, in the opinion
of management, include all adjustments, consisting only of normal and
recurring adjustments, necessary for a fair presentation of the Company's
financial condition and results of operations. The selected consolidated
financial data are not necessarily indicative of the Company's future results
of operations or financial condition and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's consolidated financial statements, including the
notes thereto, and the other financial and statistical information appearing
elsewhere in this Prospectus.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN- YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
MONTH -------------------------------------- ---------------------------
PERIOD ENDED SEPTEMBER 30, SEPTEMBER 30,
DEC. 31, 1991 1992 1993 1994 1995 1995 1996
------------- -------- -------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Operating revenues:
Casino................. $ 93,792 $ 93,189 $ 95,261 $ 97,809 $106,737 $ 80,303 $ 79,272
Food and beverage...... 28,554 29,601 31,436 31,718 33,780 25,284 26,421
Hotel.................. 15,874 15,712 16,518 16,837 17,200 13,391 12,923
Equity in net income
(loss) of
subsidiary(1)......... -- -- -- -- (3,208) (4,093) 1,808
Other.................. 3,614 3,729 5,328 4,316 4,908 3,495 5,193
Less promotional
allowances............ (8,765) (10,771) (11,486) (12,482) (13,895) (10,565) (10,436)
-------- -------- -------- -------- -------- -------- --------
Net revenues......... 133,069 131,460 137,057 138,198 145,522 107,815 115,181
Operating expenses:
Casino(2).............. 26,869 26,843 34,573 37,554 42,692 31,868 32,788
Food and beverage(2)... 28,118 27,942 23,772 23,006 26,363 19,518 20,050
Hotel(2)............... 6,538 6,603 5,882 6,554 7,536 5,826 5,548
Other.................. 1,788 1,907 2,799 2,361 2,043 1,367 2,408
Selling, general and
administrative(3)..... 28,415 25,435 27,316 27,509 28,335 20,869 21,851
Depreciation........... 6,380 6,608 7,241 7,325 8,166 6,292 7,630
Abandonment loss(4).... -- -- -- -- 1,862 -- --
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses............ 98,108 95,338 101,583 104,309 116,997 85,740 90,275
-------- -------- -------- -------- -------- -------- --------
Operating income........ 34,961 36,122 35,474 33,889 28,525 22,075 24,906
Interest expense, net... (8,038) (6,575) (5,181) (3,254) (5,336) (2,963) (7,692)
-------- -------- -------- -------- -------- -------- --------
Net income before
minority interest...... 26,923 29,547 30,293 30,635 23,189 19,112 17,214
Minority interest in net
(income) loss of
subsidiary(5).......... -- -- -- -- 745 951 (420)
-------- -------- -------- -------- -------- -------- --------
Net income(6)........... $ 26,923 $ 29,547 $ 30,293 $ 30,635 $ 23,934 $ 20,063 $ 16,794
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(2)(7)............ $ 41,341 $ 42,730 $ 42,715 $ 41,214 $ 41,761 $ 32,460 $ 30,728
Net cash provided by
(used in):
Operating activities... 34,762 36,691 32,002 38,786 36,345 30,608 18,550
Investing activities... (14,409) (17,112) (10,478) (37,045) (62,791) (56,646) (15,123)
Financing activities... (20,429) (19,753) (21,876) (1,205) 27,208 22,733 (3,534)
Capital
expenditures........... 14,816 17,847 10,562 12,053 57,451 51,209 17,677
OPERATING DATA(8):
Number of hotel
rooms(9)............... 783 783 783 783 817 783 817
Average hotel occupancy
rate................... 90.2% 92.2% 93.0% 93.7% 93.8% 95.3% 94.7%
Casino square
footage(9)............. 61,500 61,500 61,500 61,500 76,500 76,500 81,500
Number of slot
machines(9)............ 1,557 1,546 1,568 1,597 1,904 1,906 1,989
Number of table
games(9)............... 84 77 77 71 84 77 84
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
-------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $ 6,085 $ 5,176 $ 4,824 $ 5,360 $ 6,122 $ 6,015
Total assets............ 109,541 119,011 129,645 160,384 215,592 231,074
Total debt.............. 65,392 65,645 61,469 79,064 123,630 127,272
Partners' equity(10).... 35,659 45,206 57,799 69,634 74,768 85,362
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
----------------- ------------------ --------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
PRO FORMA DATA(11):
Cash interest expense... $12,522 $ 9,415 $12,539
Net income.............. 16,505 14,817 17,872
EBITDA/Cash interest
expense................ 3.3x 3.3x 3.2x
Total debt/EBITDA....... 3.0x N/A 3.2x
Ratio of earnings to
fixed charges.......... 2.3x 2.5x 2.4x
</TABLE>
- --------
See footnotes to Selected Consolidated Financial Data
31
<PAGE>
FOOTNOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Equity in net income (loss) of subsidiary represents ELLC's 50% joint
venture interest in the Silver Legacy Joint Venture. The equity in net
income (loss) of subsidiary for the year ended December 31, 1995 and the
nine months ended September 30, 1995 includes the impact of ELLC's share
of the $9.9 million of pre-opening expenses that were incurred by the
Silver Legacy Joint Venture.
(2) The casino, food and beverage and hotel expenses for the thirteen month
period ended December 31, 1991 and for the year ended December 31, 1992
do not reflect the expense re-allocation, in accordance with SEC
guidelines, to allocate complimentaries provided, at cost, in the food
and beverage and hotel outlets to the casino department. This re-
allocation has been reflected in all subsequent periods presented.
(3) The Company pays management fees to Recreational Enterprises, Inc. and
Hotel Casino Management, Inc., the owners of 55% and 29% of the Company's
equity interests, respectively. The management fees paid to Recreational
Enterprises, Inc. and Hotel Casino Management, Inc. are included in
selling, general and administrative expenses and totalled $3.2 million
and $2.5 million for the nine months ended September 30, 1995 and 1996,
respectively, and $4.6 million, $3.8 million and $4.3 million for the
years ended December 31, 1993, 1994 and 1995, respectively. Historically,
the salaries of senior executive officers and certain other key employees
of the Company were not directly incurred by the Company but were paid
from a portion of the management fees paid to Recreational Enterprises,
Inc. As of July 1, 1996, the aggregate annual salaries of such senior
executive officers and other key employees have become payroll
obligations of the Company. In connection with the issuance of the
Private Notes, the Company entered into a Management Agreement with
Recreational Enterprises, Inc. and Hotel Casino Management, Inc.
providing that future management fees paid to Recreational Enterprises,
Inc. and Hotel Casino Management, Inc. will not exceed 1.5% of the
Company's annual net revenues. See "Material Agreements--Management
Agreement." Assuming reallocation of such salaries and the payment of
management fees pursuant to the Management Agreement (assuming aggregate
annual reallocated salaries at the 1996 levels of $2.3 million per year
(which includes assumed aggregate bonuses of $0.3 million which may or
may not be paid at the discretion of the Chief Executive Officer) and the
payment of management fees of the full 1.5% of annual net revenues, in
each case, for all periods presented), (i) the aggregate of such salaries
and management fees would have totalled $4.4 million, $4.4 million and
$4.5 million for the years ended December 31, 1993, 1994 and 1995,
respectively, and (ii) the Company's pro forma net income would have been
higher by $0.2 million for the year ended December 31, 1993 and would
have been $0.6 million and $0.2 million lower for the years ended
December 31, 1994 and 1995, respectively.
(4) Abandonment loss equals the net book value of property disposed of as a
result of the expansion of the Eldorado and represents the undepreciated
value of such property.
(5) Minority interest in net (income) loss of subsidiary represents the 23%
minority interest partners' share of ELLC's 50% joint venture interest in
the Silver Legacy Joint Venture. The minority interest in ELLC is owned
by the Company's equityholders.
(6) The Predecessor Partnership was not subject to U.S. federal income taxes,
as the partners included their respective shares of partnership taxable
income in their income tax returns. For each period shown, the
Predecessor Partnership made distributions to its partners, a portion of
which was to reimburse the partners for such tax liability. As a limited-
liability company, the Company is not subject to income tax liability.
Therefore, holders of membership interests will include their respective
shares of the Company's taxable income in their income tax returns and
the Company will continue to make distributions for such tax liabilities.
(7) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. For the year ended December 31, 1995, EBITDA was adjusted
to exclude ELLC's equity in net loss of its subsidiary of $3.2 million
and abandonment loss of $1.9 million. For the nine months ended September
30, 1996, EBITDA was adjusted to exclude ELLC's equity in net income of
its subsidiary of $1.8 million. EBITDA as presented may not be comparable
to EBITDA of other entities as other entities may not calculate EBITDA in
the same manner. EBITDA should not be construed as an alternative to
operating income or net income (as determined in accordance with
generally accepted accounting principles) as an indicator of the
Company's operating performance, or as an alternative to cash flows
generated by operating, investing and financing activities (as determined
in accordance with generally accepted accounting principles) as an
indicator of cash flows or a measure of liquidity. EBITDA is presented
solely as supplemental disclosure because management believes that it is
a widely used measure of operating performance in the gaming industry.
(8) Excludes the operating data of the Silver Legacy.
(9) As of the end of each period presented.
(10) Effective upon consummation of the Reorganization, partners' equity was
reclassified as members' equity.
(11) Gives pro forma effect to the issuance of the Private Notes and the
application of the net proceeds therefrom, as if such transactions had
occurred as of the beginning of each period presented. Cash interest
expense represents the interest expense on the Private Notes of $10.5
million, $7.9 million and $10.5 million, interest expense on the Credit
Facility of $1.6 million, $1.1 million and $1.5 million, plus other
interest expense not related to the Private Notes or the Credit Facility
of $0.4 million, $0.4 million, and $0.5 million, in each case for the
year ended December 31, 1995, the nine months ended September 30, 1996
and the twelve months ended September 30, 1996, respectively. Cash
interest expense excludes the impact of any capitalized interest or
amortization of loan costs.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Company's consolidated financial statements,
including the notes thereto, and the other financial information appearing
elsewhere in this Prospectus, as well as the discussion under "Risk Factors."
The discussion herein reflects the historical operations of the Predecessor
Partnership.
OVERVIEW
The Company's net revenues and net income are derived largely from the
Eldorado's gaming activities. To enhance its gaming revenues, the Company
attempts to maximize the use of its gaming facilities by providing a well-
balanced casino environment which contains a mix of games attractive to
multiple market segments. In addition, the Company attempts to maximize
customer visits to the casino by offering a wide variety of value oriented
dining options and through various promotions and special events. For the
twelve-month period ended September 30, 1996, casino revenues accounted for
approximately 70% of the Company's net revenues.
As of September 30, 1996, the Eldorado offered approximately 81,500 square
feet of gaming space with approximately 1,989 slot machines and 84 table
games, three hotel towers with a total of 817 rooms, including 137 suites, and
seven dining venues. Expansion activity during 1995 included the addition of
36 suites, the expansion of the casino space to 76,500 square feet (allowing
for the addition of 300 slots and 12 games) and the addition of The Brew
Brothers microbrewery, the Chefs' Pavilion buffet, three specialty shops, a
12,400 square foot convention center and the Grand Plaza, which is located at
the base of the skyway corridor which links the Eldorado to the Silver Legacy.
On March 28, 1996, the Company opened the 5,000 square foot mezzanine casino
with 102 slots and 10 table games.
The retail value of hotel accommodations and food and beverage items
provided to customers without charge is included in gross revenues and
deducted as a promotional allowance to calculate net revenues.
The Company's 77%-owned subsidiary, ELLC, holds a 50% interest, along with
Circus Sub, in the Silver Legacy Joint Venture, which owns and operates the
Silver Legacy. In connection with entering into the Silver Legacy Joint
Venture, the Company loaned $23.0 million to ELLC (the "ELLC Note"), and ELLC
contributed the $23.0 million to the Silver Legacy Joint Venture as a portion
of its equity investment. The Company intends to enter into an agreement with
ELLC and the other members of ELLC pursuant to which the Company will
contribute to the capital of ELLC all or a substantial portion of the ELLC
Note and will assume certain other obligations of the other ELLC members in
exchange for an increased equity interest in ELLC. Following these
transactions, the Company anticipates that its ownership interest in ELLC will
increase from 77% to in excess of 90%. See "Certain Transactions." The Company
accounts for its investment in the Silver Legacy Joint Venture utilizing the
equity method of accounting. Therefore, the Company's net income for the year
ended December 31, 1995 and the nine months ended September 30, 1996 reflects
its pro rata share of the net income (loss) before taxes of the Silver Legacy
Joint Venture from the opening of the Silver Legacy in July 1995. The Silver
Legacy Joint Venture does not pay any management fee in connection with its
operations.
IMPACT OF SILVER LEGACY/RECENT OPERATING RESULTS
The opening of the Silver Legacy in July 1995 increased the number of gaming
positions and hotel rooms in the Reno Market by approximately 10% and 13%,
respectively. The Reno Market has been positively impacted by the Silver
Legacy, with gaming revenues increasing by approximately 5.8%, or $58.0
million, from August 1, 1995 to September 30, 1996 over the comparable prior
period. The opening of the Silver Legacy has had a mixed effect on the
Eldorado's results of operations. During peak periods, the Eldorado has
benefitted from the critical mass of, and the seamless connection between, the
Eldorado, Silver Legacy and Circus Circus-Reno properties. In slower periods,
the Eldorado has been negatively impacted by the Silver Legacy as that
facility attracts a greater share of the gaming patrons due to its larger room
base. From August 1, 1995 through
33
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September 30, 1996, the Eldorado's gaming revenues increased by $4.6 million,
or 3.8%, over the comparable prior period. However, while the Eldorado was
able to increase its gaming revenues during this period despite competition
from the Silver Legacy, the Company's EBITDA (as described in footnote 7 to
Selected Consolidated Financial Data) declined due to additional operating and
marketing costs.
In addition to the impact of the Silver Legacy, harsh winter conditions in
the Reno area, the absence of a major bowling tournament in 1996, the
increased costs associated with operating a larger Eldorado facility and
increased interest expense each had a negative impact on the Company's
operating performance for the nine month period ended September 30, 1996. For
the nine months ended September 30, 1996, the Company's net income declined to
$16.8 million from $20.1 million in the comparable year period, primarily due
to the increase in interest expense (which was not capitalized) associated
with the issuance of the Private Notes on July 31, 1996, and EBITDA (as
described in footnote 7 to Selected Consolidated Financial Data) decreased to
$30.7 million as compared to $32.5 million in EBITDA (as described in footnote
7 to Selected Consolidated Financial Data) generated in the comparable prior
year period.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Net Revenues. Net revenues for the nine month period ended September 30,
1996 were $115.2 million compared to $107.8 million for the same period in
1995, an increase of 6.8%. Net revenues for the nine months ended September
30, 1996 include $1.8 million equity in net income of subsidiary. The Company
generated strong net revenues during the first nine months of 1995 due
primarily to the influx of visitors attending the ABC's National Championship
Bowling Tournament held from February through June 1995 and the opening of the
Silver Legacy in July 1995. Despite the absence of a major bowling tournament
in 1996, the Company's net revenues for the nine month period in 1996 exceeded
the results of the prior period as a result of the expansion and addition of
food and beverage facilities, which include The Brew Brothers in July 1995,
the Chefs' Pavilion in October 1995 and the mezzanine casino bar in March
1996, and the addition of the video arcade and three new specialty shops. In
addition, despite the dilution in the Reno area caused by the additional
gaming capacity present during the first half of 1996, the Company was able to
maintain casino revenues by effectively utilizing its expanded casino floor
space.
Casino revenues declined by 1.3% to $79.3 million for the first nine months
of 1996 compared to $80.3 million in the same period in 1995. Casino revenues
declined for the nine month period of 1996 despite the opening of the
mezzanine casino in March 1996, primarily due to decreased revenue in slots as
a result of competition from increased gaming capacity in the Reno area due to
the opening of the Silver Legacy. In addition, certain factors were in
existence in 1996 that were not present in 1995, such as poor weather in the
first quarter of 1996, which negatively impacted weekend traffic, and the lack
of a major bowling tournament.
Food and beverage revenues were $26.4 million for the nine months ended
September 30, 1996 compared to $25.3 million during the same period in 1995,
an increase of 4.5%. The increase in food and beverage revenues was due
primarily to the opening of The Brew Brothers in July 1995 and the Chefs'
Pavilion buffet in October 1995. These increases were somewhat offset by the
closing of The Vintage restaurant in January 1996 to make room for the new
mezzanine casino and the temporary closing of Choices Express Cafe restaurant
during the first quarter of 1996 to remodel and redesign the restaurant for
the addition of an Asian noodle kitchen.
Hotel revenues declined by 3.5% to $12.9 million for the nine months ended
September 30, 1996 from $13.4 million for the same period in 1995. The
Company's average daily rate ("ADR") decreased to $43 in the 1996 period from
$49 in the 1995 period and hotel occupancy over these periods remained
constant at approximately 95%. The decrease in ADR was caused primarily by
competition resulting from increased room capacity in the Reno area due to the
opening of the Silver Legacy and other properties in the second half of 1995.
The Company was able to partially offset the decrease in hotel revenues caused
by the decline in ADR through increased utilization of improved room
amenities, such as in-room movies and telephone usage.
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<PAGE>
Other revenues for the nine months ended September 30, 1996 were $5.2
million compared to $3.5 million for the same period in 1995, an increase of
48.6%. This increase is attributable primarily to added retail capacity with
the opening of three new specialty shops, an increase in revenue from the
video arcade and the completely remodeled and relocated gift shop. Other
revenues include a $0.5 million gain on the sale of land during the second
quarter of 1996.
Promotional allowances expressed as a percentage of casino revenues for the
nine months ended September 30, 1996 and 1995 were constant at 13.2%.
Operating Expenses. The Company's operating expenses increased by 5.3% to
$90.3 million for the nine months ended September 30, 1996 from $85.7 million
during the same period in 1995. This increase was attributable to increased
expenses in the casino and food and beverage departments and other departments
which includes retail, increased depreciation, and an increase in selling,
general and administrative expenses. The increase in expenses was somewhat
offset by improved operating margins in the hotel department.
Casino expenses increased by 2.9% to $32.8 million for the first nine months
of 1996 from $31.9 million during the same period in 1995. The increase was
due to the cost of servicing the larger casino floor with the opening of the
mezzanine casino in March 1996, in addition to increasing bad debt expense due
to the increased credit play in 1996 and discounts offered to certain of the
Company's premium customers.
Food and beverage expenses for the nine months ended September 30, 1996
increased 2.7% to $20.1 million from $19.5 million for the nine months ended
September 30, 1995. The increase in expenses was due primarily to costs
associated with the expanded facilities to accommodate restaurant additions
and expansions. Despite an increase in support personnel and the costs
associated with the expanded facilities, the Company was able to partially
offset these increases by more cost effective purchasing and adjustments to
the restaurant menu mix.
Hotel expenses declined for the nine months ended September 30, 1996 to $5.5
million, a decrease of 4.8% from $5.8 million during the same period of 1995.
The decline is primarily due to promotional expense decreases in the hotel
sales department in the first six months of 1996 compared to the same period
in 1995 because of the absence of a major bowling tournament in 1996.
Selling, General and Administrative Expenses and Management Fees. Selling,
general and administrative expenses and management fees increased during the
nine months ended September 30, 1996 to $21.9 million from $20.9 million
during the same period in 1995. The increase was due in part to increased
advertising expenditures to promote the recent expansion and upgraded
amenities to the property and to increased property maintenance expenditures
as a result of these expansions. Historically, the salaries of senior
executive officers and certain other key employees of the Company were not
directly incurred by the Company but were paid from a portion of the
management fees paid to Recreational Enterprises, Inc. As of July 1, 1996, the
aggregate annual salaries of such senior executive officers and other key
employees became payroll obligations of the Company. These obligations are
included within selling, general and administrative expenses.
Depreciation. Depreciation for the first nine months of 1996 was $7.6
million compared to $6.3 million for the first nine months of 1995. The
increase was attributed to the depreciation of assets that were not in service
in the prior period. These assets include the addition of 36 suites, the
Chefs' Pavilion buffet, the Grand Plaza and the skyway corridor, which
includes The Brew Brothers and added retail space.
Interest Expense, Net. Interest expense, net in the first nine months of
1996 and 1995 was $7.7 million and $3.0 million, respectively, an increase of
159.6%. Interest expense increased as a result of an increase in the average
outstanding borrowings to $119.5 million in the first nine months of 1996 from
$109.5 million in the first nine months of 1995 and as a result of an increase
in the Company's cost of capital. This increase in average outstanding
borrowings is attributable to costs incurred in connection with the Company's
expansion activities in 1995 and 1996. The Company's increase in cost of
capital is due to the issuance of the Private Notes, the net proceeds of which
were used to repay approximately $96.5 million of borrowings outstanding under
the Credit
35
<PAGE>
Facility (as defined below), which as of July 31, 1996 bore interest at an
approximate average annual rate of 7.6%. The Company capitalized interest of
$0.3 million in the first nine months of 1996 related to construction costs,
as compared to $1.0 million in the same period of 1995.
Net Income. As a result of the factors described above, net income for the
nine months ended September 30, 1996 declined by 16.3% to $16.8 million
compared to $20.1 million during the same period in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Revenues. Net revenues were $145.5 million for the year ended 1995
compared to $138.2 million for the year ended 1994, an increase of 5.3%, due
primarily to increased casino revenues. The increase in net revenues was
partially offset by the equity in net loss of the Company's subsidiary of $3.2
million. During 1995, casino revenues increased 9.1% to $106.7 million from
$97.8 million in 1994 as a result of increases in the Company's casino
capacity and an influx of visitors attracted by the opening of the Silver
Legacy and the ABC's National Championship Bowling Tournament held at the
National Bowling Stadium. In addition, slot machine and table game revenue
increased 6.3% and 19.4%, respectively, due primarily to the expansion of the
Company's casino in 1995.
Food and beverage revenues were $33.8 million for the year ended 1995, an
increase of 6.5% compared to $31.7 million for the year ended 1994. The
increase was due primarily to the opening of The Brew Brothers in July 1995,
which generated $1.5 million in gross revenues. The Company was able to
increase food and beverage revenues despite disruptions in the operations of
the Seafood Buffet, Choices Express Cafe and the Chefs' Pavilion buffet due to
construction activities throughout the hotel.
Hotel revenues for the year ended 1995 increased 2.2% to $17.2 million from
$16.8 million for the year ended 1994. The Company's ADR and hotel occupancy
percentage during 1995 and 1994 remained constant at approximately $60 and
94%, respectively. The increased hotel revenues resulted from the increased
use of hotel amenities.
Promotional allowances expressed as a percentage of casino revenues were
13.0% in 1995 compared to 12.8% in 1994 as a result of greater use of
complimentaries in connection with casino marketing targeted to both high-end
players and participants in the bowling tournaments held at the National
Bowling Stadium in 1995.
Operating Expenses. The Company's operating expenses increased to $117.0
million for the year ended 1995 from $104.3 million for the year ended 1994, a
12.2% increase. This increase was attributable to increased expenses in the
casino and food and beverage departments, increased depreciation expense and
an increase in selling, general and administrative expenses and an abandonment
loss of $1.9 million. The $1.9 million abandonment loss represents the
undepreciated portion of certain assets (several internal and external walls
and the former convention center) which were demolished or abandoned when the
Company constructed the Grand Plaza and the skyway corridor connecting the
Eldorado and the Silver Legacy. The $1.9 million abandonment loss was expensed
during the fourth quarter of 1995. Casino expenses were $42.7 million for the
year ended 1995 compared to $37.6 million for the year ended 1994, an increase
of 13.7%. This increase was due in large part to increased casino marketing
costs and increased costs associated with operating a larger casino in 1995 as
compared to 1994.
Food and beverage expenses were $26.4 million for the year ended 1995
compared to $23.0 million for the year ended 1994, an increase of 14.6% due
primarily to the opening of The Brew Brothers, the expansion of the new Chefs'
Pavilion buffet and related support facilities.
Hotel expenses increased 15.0% for the year ended 1995 to $7.5 million from
$6.6 million for the year ended 1994 due to increased operating expenses
associated with the addition of 36 new suites and expansions completed in
1995. Additionally, the hotel sales department incurred additional costs to
promote the hotel to those attending the National Championship Bowling
Tournament at the National Bowling Stadium in 1995.
36
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 3.0% for the year ended 1995 to $28.3
million from $27.5 million for the year ended 1994 primarily as a result of an
increase in the property maintenance expenses due to the Company's expansion
activities in 1995.
Depreciation. Depreciation expense increased 11.5% to $8.2 million for the
year ended 1995 compared to $7.3 million for the year ended 1994. This
increase resulted from the completion of certain expansion projects, which the
Company began to depreciate in the third and fourth quarters of 1995.
Interest Expense, Net. Interest expense, net was $5.3 million in 1995, a
64.0% increase from $3.3 million in 1994. Capitalized interest was $2.7
million in 1995, compared to $2.1 million in 1994. These amounts include
capitalized interest related to the Company's investment in the Silver Legacy
Joint Venture.
Net Income. As a result of the factors described above, net income was $23.9
million in 1995 compared to $30.6 million in 1994, a decrease of 21.9%.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Revenues. Net Revenues increased 0.8% to $138.2 million in 1994 compared
to $137.1 million in 1993. In the summer of 1994, the Company commenced
construction of 36 new suites and the Grand Plaza, expanded the casino and
added three specialty shops, The Brew Brothers and a 12,400 square foot
convention center, all of which were completed in 1995. In addition,
throughout 1994, the Silver Legacy was under construction, causing periodic
street closings during that period.
Despite the disruption due to the construction projects in and around the
property, casino revenues increased 2.7% in 1994 to $97.8 million from $95.3
million in 1993.
Food and beverage revenues increased slightly to $31.7 million in 1994 as
compared to $31.4 million in 1993. The Company was able to maintain its level
of food and beverage revenues despite a decline in customer count by
increasing its overall price structure.
Hotel revenues increased 1.9% to $16.8 million in 1994 from $16.5 million in
1993. The Company's ADR increased to approximately $60 in 1994 from
approximately $59 in 1993, and hotel occupancy increased to 93.7% in 1994 from
93.0% in 1993.
Other revenue decreased 19.0% in 1994 to $4.3 million from $5.3 million in
1993 due to a loss of income which had been generated by rental properties and
vending and parking facilities that had been located on the property on which
the Silver Legacy is now located. This property was contributed to the Silver
Legacy Joint Venture as part of ELLC's capital contribution in 1994.
Promotional allowances expressed as a percentage of casino revenues were
12.8% in 1994 compared to 12.1% in 1993 as a result of increased marketing
efforts to attract premium players.
Operating Expenses. The Company's operating expenses increased to $104.3
million in 1994 from $101.6 million in 1993, a 2.7% increase. The increase in
operating expenses was attributable primarily to an increase in promotional
expenses. The Company expanded its gaming customer base by adding additional
marketing representatives to pursue premium players in new markets. As a
result, casino expenses increased to $37.6 million in 1994 as compared to
$34.6 million in 1993, an increase of 8.6%.
Food and beverage expenses were $23.0 million in 1994 compared to $23.8
million in 1993, a decrease of 3.2%. The decrease in food and beverage
expenses was a result of management's concerted effort to contain and
economize the expenses in this department and a greater use of complimentaries
during 1994.
Hotel expenses increased 11.4% in 1994 to $6.6 million from $5.9 million in
1993 as a result of substantial increases in wages to employees in the hotel,
housekeeping and reservations departments.
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<PAGE>
Depreciation. Depreciation increased to $7.3 million in 1994 compared to
$7.2 million in 1993 as a result of depreciating the Company's 652-space
parking structure over a full year as compared to a partial allocation in the
prior year.
Interest Expense, Net. Interest expense dropped to $3.3 million from $5.2
million due to the capitalization of interest related to the various expansion
projects and the investment in the Silver Legacy. Capitalized interest was
$2.1 million in 1994, which includes capitalized interest related to the
Company's investment in the Silver Legacy Joint Venture, as compared to $0.3
million in 1993.
Net Income. As a result of the factors described above, net income was $30.6
million in 1994 compared to $30.3 million in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources have been
through cash flow from operations, borrowings under various credit agreements,
including the Former Credit Facility, and the issuance of the Private Notes.
Additionally, in June 1996 the Company received $2.5 million for the sale to
Galleon, Inc., a wholly-owned subsidiary of Circus Circus, of half of the
Company's interest in land on the block adjacent to the Silver Legacy. The
$0.5 million gain on this sale appears in the Consolidated Statements of Cash
Flows as part of "Loss (gain) on sale of property and equipment." The Company
has completed several expansion and remodeling projects, accounting for a
significant use of cash flow from operations and borrowings under the Credit
Facility.
The Company's EBITDA (as described in footnote 7 to Selected Consolidated
Financial Data) for the nine months ended September 30, 1996 was $30.7 million
as compared to $32.5 million for the nine months ended September 30, 1995, and
was $41.8 million and $41.2 million for the years ended December 31, 1995 and
1994, respectively. EBITDA (as described in footnote 7 to Selected
Consolidated Financial Data) excludes the Company's equity in net income
(loss) of ELLC and a $1.9 million abandonment loss recognized in the last
quarter of 1995. Cash flow from operations for the nine months ended September
30, 1996 and 1995 were $18.6 million and $30.6 million, respectively, and was
$36.3 million and $38.8 million for the years ended December 31, 1995 and
1994, respectively. The Company expects that flooding in the greater Reno area
and in several of the Reno Market's primary feeder markets, including northern
California, during December 1996 and January 1997 will adversely affect the
Company's operating results for the fourth quarter of 1996 and the first
quarter of 1997.
At September 30, 1996, the Company had $6.0 million of cash and cash
equivalents and $30.5 million available pursuant to the Credit Facility. The
net proceeds of the issuance of the Private Notes were used to repay a portion
of the Former Credit Facility. The Former Credit Facility was amended
concurrently with the closing of the offering to consist of a $50 million
revolving working capital facility. As of September 30, 1996, the Company had
$100.0 million in aggregate principal amount of Private Notes outstanding,
$19.5 million outstanding under the Credit Facility, and $6.3 million of other
long term debt (net of current portion).
In the third quarter of 1996, the Company made distributions to holders of
its equity interests of $6.0 million. For the first nine months of 1996, the
Company made distributions to holders of equity interests in the Company of
$6.2 million compared with $14.5 million during the same period in 1995.
Distributions of $18.8 million were made in each of 1995 and 1994.
During 1995, the Company's principal uses of funds were for capital
expenditures relating to several expansion projects, including the
construction of 36 new suites and completion of the skyway corridor connecting
the Eldorado to the Silver Legacy, which includes three specialty shops and
The Brew Brothers, the Chef's Pavilion buffet, the Grand Plaza and a 12,400
square foot convention center. Total expenditures related to these expansions
were $56.7 million. During the nine months ended September 30, 1996, the
Company's principal uses of funds were for capital expenditures related to the
mezzanine casino expansion of $4.8 million, for construction costs of the
Parisian-style bistro of $3.1 million and for costs of $3.5 million related to
the issuance of the Private Notes and the amendment to the Former Credit
Facility. Total capital expenditures for the nine months ended September 30,
1996 were $17.7 million.
The Company's future sources of liquidity are anticipated to be from its
operating cash flow, funds available from the Credit Facility and capital
lease financing for certain of its fixed asset purchases. The Company's
38
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anticipated uses of cash in the near term include approximately $15 million
for completion of a Parisian-style bistro, a 500-seat showroom and a full-
service health spa. The Parisian-style bistro is anticipated to be completed
in December 1996 and the other expansion projects are anticipated to be
completed during 1997. In addition, the Company paid approximately $1.6
million in 1996 to fund the cash-portion of the purchase price for a parcel of
land adjacent to and west of the Eldorado. See "Business--Properties."
CORPORATE EXPENSES/MANAGEMENT FEES
The Company pays management fees to Recreational Enterprises, Inc. and Hotel
Casino Management, Inc., the owners of 55% and 29% of the Company's equity
interests, respectively. The management fees paid to Recreational Enterprises,
Inc. and Hotel Casino Management, Inc. are included in selling, general and
administrative expenses and totalled $3.2 million and $2.5 million for the
nine months ended September 30, 1995 and 1996, respectively, and $4.6 million,
$3.8 million and $4.3 million for the years ended December 31, 1993, 1994 and
1995, respectively. Historically, the salaries of senior executive officers
and certain other key employees of the Company were not directly incurred by
the Company but were paid from a portion of the management fees paid to
Recreational Enterprises, Inc. As of July 1, 1996, the aggregate annual
salaries of such senior executive officers and other key employees have become
payroll obligations of the Company. In connection with the issuance of the
Private Notes, the Company entered into a Management Agreement with
Recreational Enterprises, Inc. and Hotel Casino Management, Inc. providing
that future management fees paid to Recreational Enterprises, Inc. and Hotel
Casino Management, Inc. will not exceed 1.5% of the Company's annual net
revenues. See "Material Agreements--Management Agreement." Assuming
reallocation of such salaries and the payment of management fees pursuant to
the Management Agreement (assuming aggregate annual reallocated salaries at
the 1996 levels of $2.3 million per year (which includes assumed aggregate
bonuses of $0.3 million which may or may not be paid at the discretion of the
Chief Executive Officer) and the payment of management fees of the full 1.5%
of annual net revenues, in each case, for all periods presented), (i) the
aggregate of such salaries and management fees would have totalled $4.4
million, $4.4 million and $4.5 million for the years ended December 31, 1993,
1994 and 1995, respectively, and (ii) the Company's pro forma net income would
have been higher by $0.2 million for the year ended December 31, 1993 and
would have been $0.6 million and $0.2 million lower for the years ended
December 31, 1994 and 1995, respectively.
SEASONALITY
Hotel/casino operations in the Reno Market are subject to seasonal
variation, with the strongest operating results occurring in the third quarter
of each year and the weakest results occurring during the period from November
through February. Such variations occur when weather conditions have made
travel to Reno by visitors from northern California and the Pacific Northwest
difficult. The following table shows the Company's percentage of gross
revenues by quarter for each of 1993, 1994 and 1995.
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
First quarter........................................ 20.6% 22.6% 21.6%
Second quarter....................................... 25.8% 26.1% 24.9%
Third quarter........................................ 28.9% 27.7% 28.8%
Fourth quarter....................................... 24.7% 23.6% 24.7%
----- ----- -----
Total.............................................. 100.0% 100.0% 100.0%
</TABLE>
IMPACT OF INFLATION
Absent changes in competitive and economic conditions or in specific prices
affecting the industry, the Company believes that the hotel/casino industry
may be able to maintain its operating profit margins in periods of general
inflation by increasing minimum wagering limits for its games and increasing
the prices of its hotel rooms, food and beverage and other items, and by
taking actions designed to increase the number of patrons. The industry may be
able to maintain growth in gaming revenues as a result of the tendency of
customers to increase their gaming budgets with an increase in inflation.
Changes in specific prices (such as fuel and transportation prices) relative
to the general rate of inflation may have a materially adverse effect on the
hotel/casino industry.
39
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BUSINESS
OVERVIEW
The Company owns and operates the Eldorado Hotel & Casino (the "Eldorado"),
a premier hotel/casino and entertainment facility in Reno, Nevada. The Company
has established the Eldorado as a luxury destination resort by creating a
sophisticated, elegant atmosphere unique in the Reno Market and providing
unsurpassed personal service and cuisine, a dynamic gaming environment and a
wide variety of amenities attractive to multiple market segments. The Eldorado
is centrally located in downtown Reno and is easily accessible both to vehicle
traffic from Interstate 80, the principal highway linking Reno to its primary
visitor markets in northern California, and to pedestrian traffic from nearby
casinos. For the twelve months ended September 30, 1996, the Eldorado
generated $40.0 million in EBITDA (as described in footnote 7 to Selected
Consolidated Financial Data) on net revenues of $152.9 million. For the year
ended December 31, 1995, the Company had an ADR of approximately $60. In
addition to owning the Eldorado, the Company's 77%-owned subsidiary, ELLC,
owns a 50% joint venture interest, along with a subsidiary of Circus Circus,
in the Silver Legacy, a major themed hotel/casino located adjacent to the
Eldorado. The remaining 23% of ELLC is owned by the principal equityholders of
the Company.
The Eldorado was established in 1973 and has undergone several significant
expansions and improvements, including substantial additions in 1979, 1985,
1989 and 1995. As a result of these expansions, the Eldorado is one of the
largest and most elegant properties in the Reno Market. As of September 30,
1996, the Eldorado offered approximately 81,500 square feet of gaming space
with 1,989 slot machines and 84 table games, three hotel towers with a total
of 817 rooms, including 137 suites, seven dining venues, parking for 1,138
vehicles and approximately 12,400 square feet of convention space. For the
year ended December 31, 1995, the Eldorado achieved a 93.8% average hotel
occupancy rate. The Company is currently further improving and expanding the
Eldorado through the development of a Parisian-style bistro, a state-of-the-
art 500-seat showroom and a full-service health spa.
As part of its strategy to further enhance its position as a market leader,
in 1993 the Company teamed with Circus Circus to develop the Silver Legacy,
the first newly constructed major hotel/casino in the Reno Market since 1978
and its first themed mega-resort. The Silver Legacy opened in July 1995 and
encompasses two city blocks in downtown Reno adjacent to the Eldorado and
Circus Circus-Reno. The Silver Legacy's design is based upon Nevada's silver
mining heritage and the legend of Sam Fairchild, a fictitious silver baron who
"struck it rich" on the site of the hotel/casino. The Company's management
believes that the Silver Legacy is a "must see" attraction for visitors to the
Reno Market. As of September 30, 1996, the Silver Legacy featured 1,711 hotel
rooms and suites, approximately 88,500 square feet of casino space with 2,212
slot machines and 87 table games and parking for approximately 1,800 vehicles.
The Eldorado, Silver Legacy and Circus Circus-Reno properties are connected
in a "seamless" manner by 200-foot wide skyway corridors. These enclosed
corridors serve as entertainment bridgeways between the three properties and
house several restaurants and custom retail shops. The Eldorado, Silver Legacy
and Circus Circus-Reno comprise the heart of the Reno Market's prime gaming
area and room base, providing the most extensive and the broadest variety of
gaming, entertainment, lodging and dining amenities in the Reno area, with an
aggregate of over 4,100 rooms, approximately 5,900 slot machines and 250 table
games, 16 restaurants and enough parking to accommodate approximately 4,600
vehicles. The Company's management believes that centralized location and
critical mass of these three properties, together with the ease of access
between the facilities, provide the Eldorado with significant advantages over
other freestanding hotel/casinos in the Reno Market.
The Company has a very broad and experienced management team that includes,
among others, Donald Carano and several members of his immediate family.
Donald Carano, the Chief Executive Officer and a member of the Board of
Managers of the Company, co-founded the Eldorado in 1973 and has been the
driving force behind its development. In addition to Donald Carano, each of
the Company's other eight senior executives has in excess of 10 years of
operating experience in the gaming industry. Management believes that its
family-oriented, hands-on approach has enabled the Company to operate the
Eldorado successfully for over two decades.
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In addition to their roles in management of the Company, members of the Carano
family beneficially own 63% of the Company.
Reno is the second largest city in Nevada and is located in northern Nevada
at the base of the Sierra Nevada mountain range, approximately 140 miles east
of Sacramento, California and 225 miles east of San Francisco, California. The
Reno Market is the third largest gaming market in the United States after Las
Vegas, Nevada and Atlantic City, New Jersey and generated over $900 million in
gaming revenues for the twelve months ended September 30, 1996. According to
the Nevada Gaming Board, while gaming revenues in the Reno Market grew at a 4%
compound annual growth rate from 1985 to 1995, for the period of August 1,
1995 to September 30, 1996, during which the Silver Legacy was in operation,
the Reno Market's gaming revenues increased by approximately 5.8% over the
comparable prior period. Reno is a destination resort market which attracts
visitors for an average of 2.5 nights. Visitors are attracted to the Reno area
for its wide variety of gaming amenities and its numerous other summer and
winter recreational activities. Principal feeder markets for the Reno Market
include northern California and the Pacific Northwest. The Company's
management believes that the opening of the Silver Legacy and the National
Bowling Stadium and the expansion of airflight service to the Reno/Tahoe
International Airport will positively impact the future growth of the Reno
Market.
BUSINESS STRATEGY
The Company's business strategy draws upon its extensive gaming management
experience gained from operating the Eldorado successfully for nearly two
decades. Key elements of the Company's strategy include the following:
Unsurpassed Personal Service and High Quality Amenities. One of the
cornerstones of the Company's business strategy is to provide its customers
with an extraordinary level of personal service. The Company's senior
management is actively involved in the daily operations of the Eldorado,
frequently interacting with hotel, restaurant and gaming patrons to ensure
that they are receiving the highest level of personal attention. Management
believes that extraordinary personal service is an integral part of fostering
customer loyalty and generating repeat business. Management regularly conducts
feedback sessions and focus groups with customers to elicit comments and
suggestions on ways it can improve each customer's experience at the Eldorado.
Additionally, management personally responds to suggestions made on comment
cards placed in each of the Eldorado's hotel rooms. Furthermore, management
continually strives to instill in each employee a dedication to superior
service designed to exceed guests' expectations.
In addition to personalized service, the Eldorado has earned a reputation
for high quality amenities and an excellent price-to-value relationship.
Locals and visitors alike are attracted to the Eldorado's selection of dining
venues and exceptional food quality, for which the Eldorado is nationally
recognized. Management believes that the Eldorado's excellent cuisine adds to
the overall atmosphere and prestige of the hotel and therefore emphasizes
outstanding food and ambiance and a wide variety of dining choices.
Superior Utilization of Gaming Capacity. Management believes that one way to
evaluate a gaming company's utilization of its gaming facilities is to measure
performance in terms of "fair share." "Fair share" compares gaming capacity
with revenue generated (assuming that for a company with 10% of the total
market's gaming capacity (measured in terms of number of slot machines plus
number of table game positions), 100% of its "fair share" would be 10% of the
total market's gaming revenues). The Eldorado has historically achieved
excellent utilization of its gaming facilities, as evidenced by the fact that
for the twelve months ended September 30, 1996, it generated 12.6% of the Reno
Market's gaming revenues (exclusive of race and sports wagers and keno) while
operating only 8.0% of the Reno Market's gaming capacity, giving the Eldorado
158% of its "fair share" of the Reno Market's gaming revenues. Management
attributes this success in its gaming utilization to its strategy of providing
a well-balanced gaming environment which contains a mix of slot machines and
table games attractive to both middle-income and premium-play customers. Due
to the significant gaming play of the Company's gaming customers, the
Eldorado's win per unit across all denominations of both slot machines and
table games substantially exceeds the Reno Market's average win per unit for
such games.
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The Company attempts to attract a high volume of gaming customers to the
Eldorado by offering a variety of value-oriented dining options and through
various promotions and special events, including the Eldorado's celebrated
annual Great Italian Festival.
The Eldorado continually monitors and enhances its casino operations to
react to changing market conditions and customer demands. For example, the
Company has shifted its slots mix towards $1 and higher denominated machines
in response to the increased popularity of higher-end slot machines, which the
Company believes appeal to its growing base of higher-income gaming clientele.
The Company targets premium-play customers as well as the value-conscious
gaming patron with its state-of-the-art casino featuring the latest in game
technology, unique electronic displays and customer-convenient features.
Effective Marketing to Target Gaming Patrons. The Company primarily targets
its marketing programs to four segments of the gaming market: the free and
independent traveler, preferred casino customers, local patrons and the
wholesale/specialty groups.
The free and independent traveler segment consists of those travelers not
affiliated with groups who make their reservations directly with the Eldorado
or through independent travel agents. To attract the independent traveler, the
Company uses print media, radio, television and direct mail to advertise in
northern California, the Pacific Northwest, western Canada and other regional
travel markets.
Preferred casino customers are those patrons who maintain the necessary
gaming criteria to become established casino guests. The Company uses a broad
special events agenda and an extensive guest development program, including
providing casino credit, to attract and retain preferred casino customers. In
addition, the Company utilizes its quality hotel rooms, excellent restaurant
venues and other amenities to offer complimentaries to a broad spectrum of
established casino guests, from the frequent players who place relatively
modest wagers to the true premium players who consistently wager high amounts.
The Company believes that the ability to reward the more modest gaming patrons
fosters intense loyalty and repeat business from such customers, who often
increase their level of play over time.
The Company has established an aggressive marketing program directed toward
the local gaming market segment, consisting of frequent radio, television and
newspaper advertising, a variety of promotions and other programs specifically
tailored for the local customer, such as check cashing promotions. The
Eldorado's reputation for exceptional quality restaurants and an excellent
price-to-value relationship is particularly appealing to the local gaming
patron, as dining is a primary motivation for casino visits by many local
residents.
Wholesale/specialty groups consist of those customers participating in
travel packages offered by air tour operators, groups of up to 100 people with
strong gaming profiles and visitors attending tournaments at the National
Bowling Stadium. The Eldorado sales force targets this segment by attending
trade shows in order to establish relationships with airlines, travel agents,
meeting planners and wholesalers. The Eldorado has developed special marketing
programs and tools to cultivate relationships with these air tour operators
and specialty groups, including offering familiarization tours of the
Eldorado. The Eldorado attempts to utilize this market segment as a means of
creating a consistent room base during the calendar year.
The Eldorado has implemented a state-of-the-art, real-time customer tracking
system which comprehensively tracks its gaming customers throughout the
casino. Customers are given an electronically readable card to insert into
slot machines and to provide to floor supervisors at table games. The slot
machines automatically transmit gaming data to a central computer and floor
supervisors manually enter certain data relating to gaming customers which is
then computerized. The system enables the Eldorado to obtain up-to-the-minute
information on a customer's gaming habits, maximum and minimum wagers, the
total amount wagered and length of play. The Eldorado can thereby ensure that
customers receive immediate recognition and complimentaries based on their
levels of gaming. This innovation is enhanced by a friendly, knowledgeable
staff and a conveniently located promotion center. In addition, "Club
Eldorado," the casino's full-service slot club, offers an array of special
events and exciting tournaments and convenient ways of earning
complimentaries.
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Strategic Expansion and Improvements. Since opening the Eldorado in 1973,
the Company has employed a strategy of continual expansion and improvement in
order to maintain and enhance its position as a leader in the Reno Market.
Expansions in 1979, 1985 and 1989 increased the Eldorado's room base by
approximately 500 rooms, and added a total of approximately 54,500 square feet
of gaming space. Further expansion in 1992 and 1993 included a remodeling of
the Eldorado's mezzanine level, the creation of the Eldorado Coffee Company
and the addition of a 652-space parking garage. During the summer of 1995, the
Company added 36 suites and unveiled the new Grand Plaza, a European-style
plaza located at the base of the skyway corridor connecting the Eldorado with
the Silver Legacy which showcases the "Fountain of Fortune," a dramatic 20-
piece fountain crafted from marble and bronze. As part of the 1995 expansion,
the casino was expanded to 76,500 square feet, and three exclusive specialty
shops, The Brew Brothers, the Chefs' Pavilion buffet and a new 12,400 square-
foot convention center were added. Most recently, in the early spring of 1996,
the Company opened a new, elegant 5,000 square-foot casino with 102 slots and
10 table games adjacent to the skyway corridor on the mezzanine level to take
advantage of the foot traffic coming to the Eldorado from the Silver Legacy.
Continuing its successful expansion strategy, the Company is currently
adding a new 175-seat Parisian-style bistro, which is scheduled to open in
December 1996. In addition, the Eldorado is currently building a state-of-the-
art 500-seat showroom which is scheduled to open in 1997. The showroom will
add an entertainment experience that management believes will attract a larger
and broader audience of entertainment seekers. The showroom will feature the
only nightly production show of its kind in downtown Reno. In addition, the
Eldorado plans to open a full-service health spa, scheduled to be completed in
1997. Management believes that the addition of these unique amenities will
further enhance the Eldorado's position as a leading luxury hotel in the Reno
Market. Furthermore, the Company owns a 31,000 square foot piece of property
across the street from and west of the Eldorado, which could be used for
further expansion of the Eldorado.
The map on the following page shows the relative locations of the Eldorado,
Silver Legacy and Circus Circus-Reno, as well as certain other major
attractions in the Reno Market.
43
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LOGO
[MAP]
44
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ELDORADO HOTEL & CASINO
When the Eldorado opened in 1973 with 282 rooms and approximately 7,000
square feet of gaming space, it was the only hotel/casino located in the
northern section of downtown Reno. As Reno has steadily grown northward, the
Eldorado is now centrally positioned in the heart of Reno's prime gaming area
and room base. Easily accessible to both foot and vehicle traffic, the
Eldorado is strategically located directly off Interstate 80, the principal
highway linking the Reno Market with San Francisco, Sacramento and other
cities in its primary visitor market of northern California. With three golden
towers, including a 26-story tower that lights up with over 2,000 feet of neon
at night, the Eldorado is visible from Interstate 80, attracting visitors to
the downtown area and generating interest in the property. Management believes
the Eldorado serves as a downtown landmark, situated to attract a large volume
of foot traffic from other casinos as well as from the local populace. In
addition, the Eldorado is easily accessible to visitors competing in and
attending the various bowling tournaments that are held in the National
Bowling Stadium, which is located just one block away. Furthermore, management
believes that the new exterior facade at the primary Virginia Street entrance,
featuring a 24-foot by 48-foot golden portal and majestic flickering
torchieres, is in itself an entertainment attraction that draws customers from
competing hotel/casinos.
As of September 30, 1996, the Eldorado offered approximately 81,500 square
feet of gaming space, with approximately 1,989 slot machines, 84 table games
consisting of blackjack, craps, roulette, Pai Gow Poker, Let It Ride(R),
Caribbean stud poker, mini-baccarat and baccarat, two keno games and a race
and sports book. The Eldorado's casino includes a balanced mix of slot
machines and table games which management believes makes it attractive to both
middle-income and premium-play customers. The relatively high proportion of
slot machines, which are offered in denominations from 5c to $100, generates
approximately 66% of the total gaming revenues for the casino and provides
consistency in revenues and cash flow. The diverse selection of table games
and the variety of table limits allow for the maximum amount of play from a
wide variety of gaming customers, which management believes makes the Eldorado
one of the premier table games casinos in the Reno Market.
The interior of the hotel is designed to create a unique European ambiance
and offers 817 finely-appointed rooms and suites, including 18 specialty
suites, 93 "Eldorado Player's Spa Suites" with bedside spas and 26 one-bedroom
and two-bedroom penthouse suites. Hotel guests enjoy panoramic views of Reno's
skyline and the majestic Sierra Nevada mountain range. Management believes
that attention to detail, decor and architecture have created an identifiable
and innovative presence in the Reno Market for the Eldorado. In 1995, the
Eldorado achieved a 93.8% average hotel occupancy rate and an ADR of
approximately $60. Management believes that the Eldorado's average hotel
occupancy rate and ADR are among the highest in the Reno Market.
The Eldorado is nationally recognized for its exceptional cuisine.
Management believes that the Eldorado's superior cuisine and wide-ranging
selection of dining opportunities are crucial factors in attracting and
retaining customers. All of the Eldorado's dining venues, which range from
buffet to gourmet, offer high quality food at reasonable prices. The following
chart details the Eldorado's dining venues, their respective seating
capacities and their outstanding attributes, including a detail of the awards
and distinctions each has received.
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<TABLE>
<CAPTION>
Seating
Dining Venue Capacity Description
------------ -------- -----------
<C> <C> <S>
LA STRADA 170 .Features northern Italian cuisine in an
Italian countryside villa setting
. Recognized as one of the country's top 10
Italian restaurants in the 1994 Best of the
Best Academy Awards of the Restaurant
Industry
. Recipient of the Wine Spectator Award of
Excellence in each of the past five years
. Hailed in the March 1993 issue of Bon Appetit
magazine as a "sure thing in Reno" for food
lovers
THE BREW BROTHERS 225 . The first microbrewery located in a
hotel/casino. Features a variety of
handcrafted beers and live nightly
entertainment.
. Named as the area's best microbrewery in the
Reno Gazette-Journal in 1996
. Offers seven microbrewed beers, including
Eldorado Extra Pale Honey Ale, Redhead Amber
Ale, Wild Card Wheat Ale, Big Dog Ale, Gold
Dollar Pale Ale, Double Down Stout and a
rotating seasonal brew
THE GRILL 185 . A spirited, lively steak and seafood house
. Specializes in rotisserie and grilled entrees
at affordable prices
. Offers top quality USDA cuts of beef and
fresh seafood, a "never-ending" salad and
fruit bar with homemade soups
CHEFS' PAVILION 525 . A 220-foot buffet offering a wide variety of
cuisines, including a Mongolian barbecue,
omelette station and a salad, fruit, ice
cream and dessert bar
. Features an open exhibition kitchen where
customers can observe meals being prepared
TIVOLI GARDENS 210 . A 24-hour restaurant with a menu featuring
Asian, Italian, Mexican and South American
cuisines
. Features the Eldorado Coffee Company, where
fresh coffee beans are roasted each day for
use throughout the hotel and for retail
purchase
. Hailed in the March 1993 issue of Bon Appetit
magazine as a "sure thing in Reno" for food
lovers
CHOICES EXPRESS CAFE 220 . A food court offering a diverse selection of
cuisines, including an Asian noodle kitchen,
a delicatessen, a gelato shop where 24
flavors are made fresh each day, a salad bar,
a bakery and an espresso bar
SEAFOOD BUFFET 425 . Offered each Friday and Saturday night
. Named one of the top 25 seafood restaurants
in the country in the 1994 Best of the Best
Academy Awards of the Restaurant Industry
. Voted one of Reno's best all-around food
values in a 1994 Reno Gazette-Journal
readership poll
PARISIAN-STYLE BISTRO 175 . A Parisian-style bistro, bar and restaurant
(scheduled to open offering French country
in December 1996) fare
. Designed by famed restaurant designer Pat
Kuleto to feature seven distinct
architectural styles
</TABLE>
46
<PAGE>
The Eldorado's selection of high-quality food and beverages reflects the
Carano family's emphasis on the dining experience. Eldorado chefs utilize
homemade pasta, carefully chosen imported ingredients, fresh seafood and top
quality USDA choice cuts of beef. Throughout the property, beverage offerings
include The Brew Brothers microbrewed beers and wines from the Ferrari Carano
Winery.
The Eldorado features a 652-space parking garage, a 360-space valet parking
facility and 126 surface parking spaces. Other amenities offered by the
Eldorado include several specialty shops, a versatile 12,400 square foot
convention center and an outdoor plaza located adjacent to the Eldorado which
hosts a variety of special events. The Eldorado's casino cabaret has been
named Reno's best cabaret for the past seven years by "Fun and Gaming," a
widely circulated Reno tourist publication.
SILVER LEGACY RESORT CASINO
The Silver Legacy opened in July 1995 as the first major newly-constructed
hotel/casino in the Reno Market since 1978 and its first themed mega-resort.
Plans for the Silver Legacy were originally formulated in 1993 by the Company
and Circus Circus, who jointly recognized the potential synergies of
constructing a new hotel/casino in between the Eldorado and Circus Circus-Reno
properties.
The Silver Legacy's design is based upon Nevada's silver mining heritage and
the legend of Sam Fairchild, a fictitious silver baron who "struck it rich" on
the site of the hotel/casino. Accordingly, the opulent interior of the Silver
Legacy showcases a variety of antique silver pieces from the Mackey silver
collection and a casino built around Sam Fairchild's legendary 120-foot tall
mining rig. The mining rig appears to transform ore into silver coins that
cascade into slot machines located at the mining rig's base. The mining rig is
enclosed within a 75,000 square foot dome, the interior of which is painted to
resemble the sky and features three dynamic sound and light shows which are
continuously updated so that visitors are provided with a unique experience
each time they enter the hotel. The exterior of the dome serves as a
distinctive landmark on the Reno skyline. The Company's management believes
that the Silver Legacy is a "must see" attraction for visitors to the Reno
Market.
The Silver Legacy is situated on two city blocks, encompassing 240,000
square feet in downtown Reno. The hotel currently offers 1,711 guest rooms and
suites, many of which feature views of Reno's skyline and the Sierra Nevada
mountain range. The Silver Legacy's 10-story parking facility can accommodate
approximately 1,800 vehicles. The Silver Legacy's casino features
approximately 88,500 square feet of gaming space and contains 2,212 slot
machines and 87 table games including blackjack, craps, roulette, Pai Gow
Poker, Let It Ride(R), Caribbean stud poker, mini-baccarat and Pai Gow and two
keno games. "Club Legacy," the Silver Legacy's slot club, offers customers
exciting special events and tournaments and convenient ways of earning
complimentaries. From its opening in July 1995 through the third quarter of
1996, the Silver Legacy has generated $52.5 million in EBITDA before
preopening expenses on net revenues of $179.6 million. The Company's
management expects the Silver Legacy's gaming revenues to increase as the
casino builds its premium customer base.
The Silver Legacy's restaurant offerings include a 240-seat buffet, a
delicatessen, a steak and seafood restaurant, an oyster bar and a 24-hour
coffee shop. In addition, the hotel sponsors entertainment events which are
held in the hotel's convention area. The Silver Legacy's other amenities
include three custom retail shops, exercise facilities and an outdoor swimming
pool and sundeck. The Silver Legacy's plans for the future include the
addition of periodic evening entertainment, a race and sports book to the
casino and a video arcade.
RENO MARKET
The Reno Market is the third largest gaming market in the United States
after Las Vegas, Nevada and Atlantic City, New Jersey and generated over $900
million of gaming revenues for the twelve months ended September 30, 1996. In
addition, according to Nevada Gaming Board, while gaming revenues in the Reno
Market grew at a 4% compound annual growth rate from 1985 to 1995, for the
period of August 1, 1995 to September 30, 1996, during which the Silver Legacy
was in operation, the Reno Market's gaming revenues
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<PAGE>
increased by approximately 5.8% over the comparable prior period. Also, as of
December 31, 1995, the Reno Market featured 14,241 hotel rooms which had an
86.0% average hotel occupancy rate in 1995. According to the Visitors
Authority, numerous other approved or announced hotel projects are expected to
add approximately 2,690 rooms to the Reno Market by the end of the decade.
Reno is the second largest city in Nevada, with a population of
approximately 150,620 as of July 1, 1995, and is located at the base of the
Sierra Nevada mountains along Interstate 80, approximately 140 miles east of
Sacramento, California and 225 miles east of San Francisco, California. Reno
is a destination resort market which attracts visitors by offering gaming as
well as numerous other summer and winter recreational activities. In addition
to gaming, the Reno area features numerous national forests, mountains and
lakes (including Lake Tahoe) and offers outstanding year-round opportunities
for outdoor activities of all types. According to the Visitors Authority,
visitors to the Reno Market stayed an average of 2.5 nights in 1995. The Reno
area enjoys relatively mild weather, with abundant sunshine throughout the
year, low humidity and modest annual snowfall. Special annual events in the
Reno area include Hot August Nights, the National Championship Air Races, the
Reno Balloon Races and the Reno Rodeo. According to the Visitors Authority,
the greater Reno area attracted 4.9 million visitors in 1995, an increase of
8.5% from 1994.
The following table sets forth certain statistical information for the Reno
Market for the years 1991 through 1995, as reported by the Visitors Authority
or the Nevada Gaming Board.
THE RENO MARKET
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gaming Revenues
(000's)................ $762,043 $804,927 $811,227 $826,174 $889,480
Gaming Positions(1)(2).. 27,963 28,500 29,228 29,943 31,926
Hotel Rooms(1).......... 12,368 12,566 12,566 12,582 14,241
Average Hotel Occupancy
Rate................... 83.8% 84.3% 85.2% 84.4% 86.0%
Airline Passenger
Arrivals(3)............ 1,713,313 1,884,703 2,374,244 2,670,969 2,911,834
Convention Attendance... 135,323 169,271 177,925 203,389 314,137
</TABLE>
--------
(1) As of December 31 for each period shown.
(2) Calculated from information provided by the Nevada State Gaming Control
Board.
(3) Arrivals to Reno/Tahoe International Airport.
The Company believes that four recent developments will further expand the
size of the Reno Market. These developments include (i) the opening of the
National Bowling Stadium in February 1995, (ii) the opening of the Silver
Legacy in July 1995, (iii) the announcement of several new hotel developments
and expansions and (iv) the increase in air service to Reno, especially by
Reno Air and Southwest Airlines.
The National Bowling Stadium, located approximately one block from the
Eldorado and Silver Legacy, opened in February 1995 at a reported cost of
approximately $48 million. The state-of-the-art facility features 80 bowling
lanes and will host tournaments for the ABC and the WIBC over the next 13
years as well as many other tournaments for other bowling organizations. The
National Bowling Stadium has scheduled the WIBC's National Championship
Bowling Tournament in 1997, 2000, 2003, 2006 and 2009 and has scheduled the
ABC's National Championship Bowling Tournament for 1998, 2001, 2004 and 2007,
providing a major bowling tournament in Reno two out of every three years
through the year 2009. The Visitors Authority estimates that the ABC's 1995
National Championship Bowling Tournament, which was held between February and
July 1995, was attended by approximately 228,000 people (93,000 bowlers and
135,000 family members and friends) who stayed for an average of approximately
four days and infused approximately $230 million into the local economy.
According to the Visitors Authority, bowling tournaments held at the National
Bowling Stadium attract visitors from markets that do not normally contribute
substantially to Reno's visitor profile. The National Bowling Stadium also
features a large-screen movie theater, a 1950s-themed diner and retail space
and can be configured to host special events and conventions.
48
<PAGE>
The Silver Legacy is Reno's first newly constructed major hotel/casino since
1978 and its first themed mega-resort. The Silver Legacy's 1,711 hotel rooms
and approximately 2,800 gaming positions represented an approximately 13%
increase in the number of hotel rooms and an approximately 10% increase in the
number of gaming positions in the Reno Market. In addition, according to the
Visitors Authority, several new hotel/casino projects have been commenced or
are planned. The Company's management believes that these new development and
expansion activities will help retain existing customers and assist in
attracting additional customers to the Reno Market.
Passenger traffic at the Reno/Tahoe International Airport has increased
steadily for five consecutive years, from 1.5 million airline passenger
arrivals in 1990 to over 2.9 million in 1995, representing a 14% compound
annual growth rate. In 1995, twelve scheduled airlines and numerous other
charter airlines provided service to more than 250 North American cities,
carrying more than 15,800 people daily. The most frequent users of the airport
are Reno Air and Southwest Airlines, with approximately 90 and 80 daily
flights, respectively, to and from Reno as of July 1, 1996. To meet the
significant increase in tourism and travel anticipated because of major
development efforts in the Reno area, including the development of the
National Bowling Stadium and the Silver Legacy, Reno has renovated and
expanded its airport facilities to accommodate an expected growth in passenger
activity. The Eldorado and Silver Legacy are within a 10-minute drive of the
airport, making them easily accessible to visitors travelling to Reno by air.
COMPETITION
The Company competes for customers primarily on the basis of location, range
and pricing of amenities and overall atmosphere. Of the 48 casinos currently
operating in the Reno Market, the Company competes principally with the eight
other hotel/casinos that each generate over $36 million in annual gaming
revenues, including Circus Circus-Reno and the Silver Legacy. To a lesser
extent, the Company also competes with hotel/casino operations located in Las
Vegas and Laughlin, Nevada and in the Lake Tahoe area. A substantial number of
customers travel to both Reno and the Lake Tahoe market during their visits.
Consequently, the Company believes that its success is influenced to some
degree by the success of the Lake Tahoe market. Environmental restrictions
place limitations on the expansion of hotels and casinos in the Lake Tahoe
market. Additionally, the Company competes with casino gaming on Native
American-owned lands throughout California, Washington and Oregon, from where
the Reno Market drew approximately 47%, 12% and 7%, respectively, of its
visitors in 1995. Furthermore, since the 1980's, legalized gaming
opportunities have proliferated throughout the United States, and the Company
now competes with pari-mutuel wagering, state-sponsored lotteries, card clubs,
bingo, off-track betting, riverboat and other forms of legalized gaming. The
Visitors Authority estimates that approximately 2,690 rooms will be added to
the Reno Market by the end of the decade. The Company expects that these
additional rooms will increase competition for visitor revenue in the future.
NEVADA REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in Nevada are
subject to the Nevada Act and various local regulations. The Company's gaming
operations are subject to the licensing and regulatory control of the Nevada
Gaming Authorities. The laws, regulations and supervisory procedures of the
Nevada Gaming Authorities are based upon declarations of public policy which
seek to, among other things, (i) prevent unsavory or unsuitable persons from
having any direct or indirect involvement with gaming at any time or in any
capacity, (ii) establish and maintain responsible accounting practices and
procedures, (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal
affairs and the safeguarding of assets and revenues, providing reliable
recordkeeping and requiring the filing of periodic reports with the Nevada
Gaming Authorities, (iv) prevent cheating and fraudulent practices and (v)
provide a source of state and local revenues through taxation and licensing
fees. Changes in such laws, regulations and procedures could have an adverse
effect on the Company's gaming operations.
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<PAGE>
The Company, which operates the Eldorado, is licensed by the Nevada Gaming
Authorities and is a corporate licensee (a "Corporate Licensee") under the
terms of the Nevada Act. The gaming license requires the periodic payment of
fees and taxes and is not transferable. The Company is required to register
with the Nevada Commission as a publicly traded corporation (a "Registered
Corporation") at the time it makes the Exchange Offer. Registered Corporations
are required periodically to submit detailed financial and operating reports
to the Nevada Commission and furnish any other information that the Nevada
Commission may request. No person may become a member of, or receive any
percentage of the profits from, the Company without first obtaining licenses
and approvals from the Nevada Gaming Authorities. All of the members of the
Company have obtained the licenses and approvals necessary to own their
respective interests in the Company. The Company has obtained from the Nevada
Gaming Authorities the various registrations, approvals, permits and licenses
required in order to engage in gaming activities at the Eldorado.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company in order
to determine whether such individual is suitable or should be licensed as a
business associate of the Company. Officers, directors and certain key
employees of the Company must file applications with the Nevada Gaming
Authorities and may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an application for
licensing for any cause which they deem reasonable. A finding of suitability
is comparable to licensing, and both require submission of detailed personal
and financial information followed by a thorough investigation. The applicant
for licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and, in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee of the Company unsuitable for licensing or unsuitable to continue
having a relationship with the Company, the Company would have to sever all
relationships with such person. In addition, the Nevada Commission may require
the Company to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company is required to submit detailed financial and operating reports
to the Nevada Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions by the Company must be reported
to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company, the
gaming licenses it holds could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, the Company and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the discretion of the
Nevada Commission. Further, a supervisor could be appointed by the Nevada
Commission to operate the Company's gaming properties and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of the Company's gaming properties) could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of
any gaming license or the appointment of a supervisor could (and revocation of
any gaming license would) materially adversely affect the Company's gaming
operations.
The Nevada Commission may, in its discretion, require the holder of any debt
security of the Company, including the Notes, to file applications, be
investigated and be found suitable to own such debt security. If the Nevada
Commission determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act, the Company can be sanctioned, including the loss
of its licenses, if without the prior approval of the Nevada Commission, it:
(i) pays to the unsuitable person any dividend, interest or any distribution
whatsoever, (ii) recognizes any voting right by such unsuitable person in
connection with such securities, (iii) pays the unsuitable person remuneration
in any form or (iv) makes any payment to the unsuitable person by way of
principal, redemption, conversion, exchange, liquidation or similar
transaction.
50
<PAGE>
The Company is presently licensed by the Nevada Gaming Authorities under the
provisions of the Nevada Act applicable to privately owned corporations. In
order to consummate the Exchange Offer, the Company will be required to apply
for registration with the Nevada Commission as a Registered Corporation and
for approval of the public offering of the Exchange Notes. The Company
presently has applications pending with the Nevada Gaming Authorities for such
approvals. Assuming that such orders and approvals are obtained, the following
discussion pertaining to Registered Corporations will apply.
Any beneficial holder of a Registered Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated and have his suitability as a beneficial holder
of a Registered Corporation's voting securities determined if the Nevada
Commission has reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the state of Nevada. The applicant
must pay all costs of investigation incurred by the Nevada Gaming Authorities
in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply
to the Nevada Commission for a finding of suitability within 30 days after the
Chairman of the Nevada Gaming Board mails the written notice requiring such
filing. Under certain circumstances, an "institutional investor," as defined
in the Nevada Act, which acquires more than 10%, but not more than 15%, of a
Registered Corporation's voting securities may apply to the Nevada Commission
for a waiver of such finding of suitability if such institutional investor
holds the voting securities for investment purposes only. An institutional
investor will not be deemed to hold voting securities for investment purposes
unless the voting securities were acquired and are held in the ordinary course
of business as an institutional investor and not for the purpose of causing,
directly or indirectly, the election of a majority of the members of the board
of directors of a Registered Corporation, any change in a Registered
Corporation's corporate charter, bylaws, management, policies or operations or
any of its gaming affiliates or any other action which the Nevada Commission
finds to be inconsistent with holding the Registered Corporation's voting
securities for investment purposes only. Activities which are not deemed to be
inconsistent with holding voting securities for investment purposes only
include: (i) voting on all matters voted on by shareholders, (ii) making
financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in
management, policies or operations and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent.
If the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Gaming Board may be found unsuitable. The same
restrictions apply to a record owner of the Company's securities if the record
owner, after request, fails to identify the beneficial owner of such
securities. Any shareholder found unsuitable and who holds, directly or
indirectly, any beneficial ownership of the voting securities of a Registered
Corporation beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. A Registered Corporation is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be a member or to have any other relationship with such
corporation, the Registered Corporation (i) pays that person any dividend or
interest upon voting securities of such corporation, (ii) allows that person
to exercise, directly or indirectly, any voting right conferred through
securities held by that person, (iii) pays remuneration in any form to that
person for services rendered or otherwise or (iv) fails to pursue all lawful
efforts to require such unsuitable person to relinquish his voting securities,
including, if necessary, the immediate purchase of such voting securities for
cash at fair market value.
A Registered Corporation is required to maintain a current stock ledger in
Nevada which may be examined by the Nevada Gaming Authority at any time. If
any securities are held in trust by an agent or by a nominee, the record
holder may be required to disclose the identity of the beneficial owner to the
Nevada Gaming Authorities. A failure to make such disclosure may be grounds
for finding the record holder unsuitable. A Registered
51
<PAGE>
Corporation is also required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the power to
require the stock certificates of a Registered Corporation to bear a legend
indicating that the securities are subject to the Nevada Act.
Neither the Company nor a Registered Corporation may make a public offering
of its securities without the prior approval of the Nevada Commission if the
securities or proceeds therefrom are intended to be used to construct, acquire
or finance gaming facilities in Nevada or to retire or extend obligations
incurred for such purposes. The Exchange Offer will qualify as a public
offering (as such term is defined in the Nevada Act) and will require the
prior approval of the Nevada Commission upon the recommendation of the Nevada
Gaming Board. In addition, because the Company will qualify as a Registered
Corporation upon the effectiveness of the Exchange Offer, it must receive an
exemption from provisions in the Nevada Act that render a Registered
Corporation ineligible to hold a gaming license and prohibit a Corporate
Licensee from making a public offering of its securities. The Company
presently has applications pending with the Nevada Gaming Authorities for such
approval and exemption. Approval of a public offering, if given, will not
constitute a finding, recommendation or approval by the Nevada Commission or
the Nevada Gaming Board as to the accuracy or adequacy of the prospectus or
the investment merits of the Exchange Notes offered in the Exchange Offer. Any
representation to the contrary is unlawful.
Changes in control of a Registered Corporation through merger,
consolidation, stock or asset acquisitions, management or consulting
agreements or any act or conduct by a person whereby he obtains control may
not occur without the prior approval of the Nevada Commission. Entities
seeking to acquire control of a Registered Corporation must satisfy the Nevada
Gaming Board and Nevada Commission with respect to a variety of stringent
standards prior to assuming control of such Registered Corporation. The Nevada
Commission may also require controlling shareholders, officers, directors and
other persons having a material relationship or involvement with the entity
proposing to acquire control to be investigated and licensed as a part of the
approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Registered Corporations may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates, (ii)
preserve the beneficial aspects of conducting business in the corporate form
and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are required in certain circumstances from the
Nevada Commission before a Registered Corporation may make exceptional
repurchases of voting securities above the current market price thereof and
before a corporate acquisition opposed by management may be consummated. The
Nevada Act also requires prior approval of a plan of recapitalization proposed
by a Registered Corporation's Board of Directors in response to a tender offer
made directly to the Registered Corporation's shareholders for the purposes of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received, (ii) the number of
gaming devices operated or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments.
Any person who is licensed, required to be licensed, registered, required to
be registered or is under common control with such person (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside
of Nevada, is required to deposit with the Nevada Gaming Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada Gaming Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease at the
52
<PAGE>
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada Commission if
they knowingly violate any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fail to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engage in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees or employ a person in
the foreign operation who has been denied a license or finding of suitability
in Nevada for the reason of personal unsuitability.
EMPLOYEES
As of December 1, 1996, the Company had 2,427 employees, the substantial
majority of whom are nonmanagement personnel. The number of people employed at
any time is subject to seasonal fluctuation. None of the Company's employees
is covered by a collective bargaining agreement. The Company believes that
employee relations are excellent.
PROPERTIES
The Company's executive offices reside inside the Eldorado, which is located
on an approximately 159,000 square foot parcel at 345 North Virginia Street,
Reno, Nevada. The Company owns the entire parcel, except for approximately
30,000 square feet which is leased by the Company from C, S and Y Associates,
a general partnership of which Donald Carano is a general partner. See
"Management--Compensation Committee Interlocks and Insider Participation." The
lease expires on June 30, 2027. Annual rent is equal to the greater of (i)
$400,000 and (ii) an amount based on a decreasing percentage of the Eldorado's
gross gaming revenues ranging from 3.0% of the first $6.5 million of gross
gaming revenues to 0.1% of gross gaming revenues in excess of $75.0 million.
Rent in 1995 totalled $649,000.
In addition, the Company owns a 35,000 square foot parcel of land located at
444 North Center Street, Reno, Nevada, on which the Company's human resources
offices are located, and owns approximately 90 acres of land located in Verdi,
Nevada. In addition, the Company owns a 31,000 square foot parcel of property
across the street from and west of the Eldorado, which could be used for
expansion of the Eldorado. Furthermore, the Company and Circus Circus each own
a one-half interest in a 63,000 square foot parcel of land across the street
from the Silver Legacy.
LEGAL MATTERS
The Company from time to time is involved in litigation arising in the
ordinary course of its business. The Company does not believe that such
litigation will, individually or in the aggregate, have a material adverse
effect on its financial position or results of operations.
53
<PAGE>
MANAGEMENT
The following tables set forth certain information with respect to persons
who are members of the Company's Board of Managers (each a "Board Member"),
executive officers of the Company or the Eldorado and other significant
employees.
BOARD MEMBERS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<C> <C> <S>
Donald L. Carano 65 Board Member and Chief Executive Officer of
the Company
Robert M. Jones 53 Chief Financial Officer of the Company
Gene R. Carano 40 Vice President and Secretary of the Company
and Co-General Manager of the Eldorado
Gregg R. Carano 37 Vice President of the Company and Co-General
Manager of the Eldorado
Gary L. Carano 44 Board Member--Appointed by Recreational
Enterprises, Inc. as its corporate
representative
Raymond J. Poncia, 63 Board Member--Appointed by Hotel Casino
Jr. Management, Inc. as its corporate
representative
Leslie Stone 35 Board Member
Abraham
SIGNIFICANT EMPLOYEES
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<C> <C> <S>
Robert B. MacKay 48 Director of Administration of the Eldorado
Robert B. Mouchou 41 Director of Gaming of the Eldorado
Rick W. Murdock 41 Director of Sales and Casino Marketing of the
Eldorado
Cindy L. Carano 35 Director of Hotel and Retail Operations of
the Eldorado
Rhonda B. Carano 42 Director of Advertising and Public Relations
of the Eldorado
</TABLE>
DONALD L. CARANO. Mr. Carano has served as Chief Executive Officer of, and
has owned a controlling interest in, the Company since 1973. Previously, he
was an attorney with the firm of McDonald Carano Wilson McCune Bergin
Frankovich & Hicks LLP, with which he maintains an "of counsel" relationship.
Mr. Carano has been involved in the gaming industry and has been a licensed
casino operator since 1969. Mr. Carano's commitment to the development and
promotion of tourism in Reno has earned him several awards, including the
Nevada Food and Beverage Directors Association Man-of-the-Year Award, the
American Lung Association 1993 Distinguished Community Service Award and the
1992 Hotelier of the Year Award. Also, since 1984, Mr. Carano has been the
Chief Executive Officer of the Ferrari Carano Winery. He is the father of
Gary, Gene, Glenn, Gregg and Cindy Carano and is married to Rhonda Carano.
ROBERT M. JONES. Mr. Jones has served as Chief Financial Officer of the
Company since 1989. Prior to joining the Company in 1984, Mr. Jones spent
fourteen years in public accounting, ten of which were as an audit principal
with the international accounting firm of Arthur Young & Company. Mr. Jones is
a Certified Public Accountant, was an honors graduate of the University of
Arizona with a major in accounting and has a Master of Business Administration
degree in taxation from Golden Gate University in San Francisco.
54
<PAGE>
GENE R. CARANO. Mr. Carano has served as Vice President of the Company and
Co-General Manager of the Eldorado since 1993 and has been Secretary of the
Company since June 1996. From 1986 to 1993, Mr. Carano served as the
Eldorado's Director of Gaming. Prior to joining the Eldorado, Mr. Carano held
various positions at another major casino in northern Nevada, including slot
floor supervisor and pit boss. Mr. Carano studied business management and
hotel administration at Utah State University and the University of Nevada,
Las Vegas.
GREGG R. CARANO. Mr. Carano returned to the Eldorado in 1994 as Vice
President of the Company and the Co-General Manager after serving as General
Manager of Circus Circus-Reno from 1993 to 1994. From 1985 to 1993, Mr. Carano
served as Director of Food and Beverage at the Eldorado. Mr. Carano holds a
Bachelor of Science Degree in Hotel/Restaurant Management from Florida
International University and an Associates Degree in Occupational Studies in
Culinary Arts from the Culinary Institute of America.
GARY L. CARANO. Mr. Carano is the General Manager of the Silver Legacy.
Previously, he served as Assistant General Manager, General Manager and Chief
Operating Officer of the Eldorado from 1980 to 1994. Mr. Carano holds a
Bachelors Degree in Business Administration from the University of Nevada,
Reno.
RAYMOND J. PONCIA, JR. Mr. Poncia has had an ownership interest in the
Eldorado since 1973 and has been involved in the gaming industry since 1968.
He has been involved with the Eldorado in the areas of development,
architectural and interior design, construction financing and business
planning. Mr. Poncia received his architectural degree from Case-Reserve
University and has been a licensed architect in private practice since 1960.
LESLIE STONE ABRAHAM. Ms. Abraham has been a Board Member since 1996. Since
December 1996 she has been a Managing Director of Wasserstein Perella & Co.
Inc., where she has been a director since 1995. Prior thereto, Ms. Abraham was
a Vice President at Salomon Brothers Inc. where she provided capital raising
and financial advisory services to a wide variety of companies. Ms. Abraham
received a M.B.A. and a B.S. from U.C.L.A.
ROBERT B. MACKAY. Mr. MacKay has been the Director of Administration of the
Eldorado since 1989. From 1985 to 1989, Mr. MacKay served as the Eldorado's
Treasurer. He also has held the positions of Director of Finance and
Controller of the Eldorado. Mr. MacKay is a Certified Public Accountant and is
a graduate of the University of Nevada, Reno with a degree in Accounting.
ROBERT B. MOUCHOU. Mr. Mouchou has been the Director of Gaming of the
Eldorado since 1993. Mr. Mouchou joined the Eldorado in 1979 and has held a
variety of positions, including Games Manager, Assistant Slot Manager, Casino
Analyst, Assistant Controller and Audit Supervisor.
RICK W. MURDOCK. Mr. Murdock has been the Director of Sales since 1985 and
the Director of Sales and Casino Marketing of the Eldorado since 1995. He
began his career at the Eldorado in 1981 and has since held various positions,
including Director of Sales, National Sales Manager and Assistant Hotel
Manager.
CINDY L. CARANO. Ms. Carano has been the Director of Hotel and Retail
Operations of the Eldorado since 1994. Ms. Carano joined the Eldorado's
management team in 1985 as a reservation supervisor and served as Hotel
Manager before becoming the Director of Hotel and Retail Operations. Ms.
Carano holds a Bachelor of Science degree from the University of Nevada, Las
Vegas School of Hotel Administration.
RHONDA B. CARANO. Mrs. Carano has been the Director of Advertising and
Public Relations of the Eldorado since 1978. Mrs. Carano previously worked as
a management trainee at the Eldorado from 1976 to 1978 where she learned the
hotel/casino business. Mrs. Carano is the Vice President of the Ferrari Carano
Winery. She received a Bachelor of Science degree from the University of
Nevada, Reno.
55
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Tables
The following table sets forth all compensation paid by the Predecessor
Partnership during 1995 to the Company's officers named below (the "Named
Officers").
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION
---------------- ------------
NUMBER OF
APPRECIATION
RIGHTS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS GRANTED COMPENSATION
--------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Donald Carano....................... $450,000 $50,000 -- $1,501(2)
Board Member and Chief Executive
Officer of the Company
Robert Jones........................ 255,000 30,000 75,000 2,807(3)
Chief Financial Officer of the
Company
Gene Carano......................... 300,000 72,000 100,000 3,080(4)
Vice President of the Company and
Co-General Manager of the Eldorado
Gregg Carano........................ 300,000 72,000 100,000 3,276(5)
Vice President of the Company and
Co-General Manager of the Eldorado
</TABLE>
- --------
(1) Historically, the salaries of the Named Officers were not directly
incurred by the Company but were paid from a portion of the management
fees paid to Recreational Enterprises, Inc. Certain of such Named Officers
also perform services for Recreational Enterprises, Inc. unrelated to the
business of the Company for which they receive salaries from Recreational
Enterprises, Inc. As of July 1, 1996, the aggregate annual salaries of
such Named Officers and certain other key employees have become payroll
obligations of the Company. The Company has been informed by Recreational
Enterprises, Inc. that the salaries and bonuses (including deferred
compensation) shown are attributable to services provided by the Named
Officers to the Company.
(2) Includes contributions to the Company's 401(k) Plan (as defined herein) of
$1,181, payment of term life insurance premiums of $138 and payment of
health insurance premiums of $182.
(3) Includes contributions to the Company's 401(k) Plan of $1,707, payment of
term life insurance premiums of $138 and payment of health insurance
premiums of $962.
(4) Includes contributions to the Company's 401(k) Plan of $1,980, payment of
term life insurance premiums of $138 and payment of health insurance
premiums of $962.
(5) Includes contributions to the Company's 401(k) Plan of $2,176, payment of
term life insurance premiums of $138 and payment of health insurance
premiums of $962.
56
<PAGE>
Following the consummation of the Reorganization, the Company intends to pay
the following annual compensation to the Named Officers.
<TABLE>
<CAPTION>
ANNUAL
NAME AND PRINCIPAL POSITION COMPENSATION(1)
--------------------------- ---------------
<S> <C>
Donald Carano............................................. $550,000
Board Member and Chief Executive Officer
of the Company
Robert Jones.............................................. 270,000
Chief Financial Officer of the Company
Gene Carano............................................... 300,000
Vice President of the Company and Co-General Manager
of the Eldorado
Gregg Carano.............................................. 300,000
Vice President of the Company and Co-General Manager
of the Eldorado
</TABLE>
- --------
(1) Such amounts do not include bonuses in an amount not to exceed 20% of such
Named Officers salaries for which such executive officers are eligible.
Bonuses are granted at the discretion of the Chief Executive Officer.
Performance and Appreciation Rights
The following table provides certain information with respect to the grants
of appreciation rights made during 1995 to the Named Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF
APPRECIATION
OF MEMBERSHIP
INTERESTS FOR TERM OF
THE
INDIVIDUAL GRANTS APPRECIATION RIGHTS
-------------------------------------------------------------- ---------------------
NUMBER OF % OF TOTAL
APPRECIATION APPRECIATION
RIGHTS RIGHTS GRANTED TO EXPIRATION
NAME GRANTED(1) EMPLOYEES IN 1995 BASE PRICE(2) DATE(3) 5% 10%
---- ------------ ----------------- ------------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald Carano........... -- -- -- -- -- --
Robert Jones............ 75,000 8.72% $26.66 December 31, 2004 $3,256,975 $5,186,188
Gene Carano............. 100,000 11.63 26.66 December 31, 2004 4,342,633 6,914,197
Gregg Carano............ 100,000 11.63 26.66 December 31, 2004 4,342,633 6,914,197
</TABLE>
- --------
(1) Such rights vest at a rate of 1/96th per month, subject to continued
employment, beginning on January 1, 1995 and become fully vested on
January 1, 2000.
(2) The value of an appreciation right was determined at the discretion of the
Chief Executive Officer as provided in the Rights Plan (as defined herein)
and is equal to (i) the product of eight multiplied by the Company's
consolidated net income, with certain adjustments and before interest,
taxes, depreciation and amortization of intangibles, for its most recently
completed twelve month period, less the aggregate principal amount of the
Company's indebtedness with a maturity date of more than one year from the
date of determination (excluding certain junior subordinated debt) as of
the end of the Company's most recently completed twelve month period and
any accrued and unpaid amounts due under any outstanding performance
rights, divided by (ii) 10,000,000 (which represents the number of
membership interests denominated in the form of performance and
appreciation rights). The Base Price represents the value of the
appreciation rights based upon the Company's performance for the year
ended December 31, 1994.
(3) Appreciation rights may expire earlier upon termination of employment,
death or disability.
Aggregated Performance and Appreciation Rights
The following table provides certain information with respect to
appreciation rights exercised by the Named Officers in 1995 and the value held
by such officers as of the end of 1995.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF APPRECIATION RIGHTS AS OF APPRECIATION RIGHTS
APPRECIATION DECEMBER 31, 1995 AS OF DECEMBER 31, 1995
RIGHTS VALUE ------------------------- -------------------------
NAME EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald Carano........... -- -- -- -- -- --
Robert Jones............ $0 $0 9,375 65,625 $0 $0
Gene Carano............. 0 0 12,500 87,500 0 0
Gregg Carano............ 0 0 12,500 87,500 0 0
</TABLE>
57
<PAGE>
DEFERRED COMPENSATION PLAN
Effective January 1, 1990, the Company established the Eldorado Hotel Casino
Deferred Compensation Plan (the "Deferred Compensation Plan") for the benefit
of a select group of management and highly compensated employees. Under the
Deferred Compensation Plan, each year the Company makes a contribution to a
trust on behalf of each participating employee in an amount determined by the
Chief Executive Officer of the Company, Donald Carano, in his sole discretion.
Participating employees vest 20% per year in the amount contributed to their
respective deferred compensation accounts each year so that they become 100%
vested in the amount credited to their respective accounts in any given year
five years from the date such amount was contributed. In addition, a
participating employee becomes 100% vested in all amounts credited to such
employee's account upon retirement, death, permanent disability or termination
of employment with the Company for any reason other than fraud, upon a sale of
substantially all of the Company's assets or if the Carano family ceases to
have majority ownership or control of the Company. Participating employees
receive annual distributions commencing upon the earliest of the second month
after death, permanent disability, retirement or, if employment is terminated
for reasons other than death or disability prior to attainment of age 60,
attainment of age 60. The Chief Executive Officer, however, may in his sole
discretion elect to make a distribution to an employee who terminates
employment prior to the attainment of age 60. In addition, the Chief Executive
Officer may in his sole discretion elect to distribute an employee's benefits
in the form of a lump sum distribution and may elect to distribute benefits to
an employee over a shorter period of time than that provided for in the
Deferred Compensation Plan. The Company has established a trust fund, with
Donald Carano as trustee, to hold and invest amounts contributed pursuant to
the Deferred Compensation Plan. Under the Deferred Compensation Plan,
participating employees have a duty to devote their full time, energy, skill
and best efforts to the affairs of the Company.
1995 PERFORMANCE AND APPRECIATION RIGHTS PLAN
The Company adopted the Eldorado Hotel Associates Limited Partnership 1995
Performance and Appreciation Rights Plan (the "Rights Plan") effective January
1, 1995 to provide certain executives and other key employees of the Company
who have substantial responsibility for its management and growth with
incentives and rewards. The Rights Plan is administered by a Committee
comprised of Donald Carano and two other individuals selected by the members
of the Company (the "Rights Committee"). The Rights Committee has sole and
complete authority to select eligible employees, to grant performance and
appreciation rights up to a maximum of 1,000,000 each in the aggregate, to
determine the date on which each performance right or appreciation right will
vest and to impose restrictions and conditions on performance and appreciation
rights. An employee is eligible to be granted performance and appreciation
rights if, on the proposed grant date, such employee is an executive or other
key employee of the Company or an affiliate of the Company, as determined by
the Rights Committee. An employee's performance rights terminate upon such
employee's exercise of any appreciation rights or the termination of such
employee's employment with the Company. Upon the termination of an employee's
employment with the Company, the employee will be entitled to exercise
appreciation rights only to the extent that such rights have vested to such
date. No performance or appreciation rights may be granted after June 1, 2000.
A performance right allows an employee to receive upon exercise compensation
equal to a percentage of the total distributions to the members of the Company
for the prior fiscal quarter between the date that the right was granted and
the date of exercise. An appreciation right allows an employee upon exercise
to receive compensation based on the difference between the value of the
membership interests of the Company at the date the right was granted and the
date of exercise. The combination of one performance right and one
appreciation right is intended to represent the economic equivalent of
ownership of .00001% of one membership interest in the Company. Performance
and appreciation rights do not, however, entitle holders thereof to any rights
in or to own or control any membership interests in the Company.
58
<PAGE>
Performance rights and appreciation rights may not be transferred other than
by will or the laws of descent and distribution or to a family trust created
solely for the benefit of an employee or such employee's spouse and
descendants. Performance rights and appreciation rights may be exercised only
by the employee holding such rights (or a legal guardian, legal
representative, trustee of a family trust or executor of the estate of a
deceased employee). The Rights Committee, however, may in its discretion allow
certain other transfers of performance and appreciation rights, such as
transfers during the lifetime of an employee to the spouse and children of the
employee.
401(K) RETIREMENT SAVINGS PLAN
The Company maintains a savings plan (the "401(k) Plan") qualified under
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended.
Generally, all employees of the Company in the United States who are 21 years
of age or older, who have completed six months and 1,000 hours of service and
who are not covered by collective bargaining agreements are eligible to
participate in the 401(k) Plan. Employees who elect to participate in the
401(k) Plan may defer up to 15% but not less than 1% of their annual
compensation, subject to statutory and certain other limits. The Company makes
matching contributions of 25% of the employees' contributions, up to a maximum
of 1.5% of the employees' annual compensation and subject to certain other
limitations.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has historically paid a management fee to each of Recreational
Enterprises, Inc. and Hotel Casino Management, Inc. A portion of these fees
represented compensation for services provided to the Company by certain
members of the Carano family. Management fees totalled $4.6 million, $3.8
million and $4.3 million in 1993, 1994 and 1995, respectively.
In the future, management fees will be paid pursuant to a Management
Agreement (the "Management Agreement") entered into by the Company,
Recreational Enterprises, Inc. and Hotel Casino Management, Inc. concurrently
with the issuance of the Private Notes. The Management Agreement provides that
Recreational Enterprises, Inc. and Hotel Casino Management, Inc.
(collectively, the "Managers") will, among other things, (a) develop strategic
plans for the Company's business, including preparing annual budgets and
capital expenditure plans, (b) provide advice and oversight with respect to
financial matters of the Company, (c) establish and oversee the operation of
financial accounting systems and controls and regularly review the Company's
financial reports, (d) provide planning, design and architectural services to
the Company and (e) furnish advice and recommendations with respect to certain
other aspects of the Company's operations. In consideration for such services,
the Company will pay to the Managers a management fee not to exceed 1.5% of
the Company's annual net revenues. The Management Agreement will be in effect
for three years from the date thereof and will be automatically renewed for
additional three year terms until terminated by one of the parties. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Corporate Expenses/Management Fees." There can be no assurance
that the terms of the Management Agreement are at least as favorable to the
Company as could be obtained from unaffiliated third parties.
The Company owns the entire parcel on which the Eldorado is located, except
for approximately 30,000 square feet which is leased by the Company from C, S
and Y Associates, a general partnership of which Donald Carano is a general
partner (the "C, S and Y Lease"). The C, S and Y Lease expires on June 30,
2027. Annual rent is equal to the greater of (i) $400,000 or (ii) an amount
based on a decreasing percentage of the Eldorado's gross gaming revenues
ranging from 3% of the first $6.5 million of gross gaming revenues to 0.1% of
gross gaming revenues in excess of $75 million. Rent in 1993, 1994 and 1995
totalled $636,000, $642,000 and $649,000, respectively. In the opinion of the
Company's management, the terms of the C, S and Y Lease are at least as
favorable to the Company as could have been obtained from unaffiliated third
parties.
In addition, the Company leases certain real property from G & G Associates,
a general partnership of which Gary Carano is a general partner. Lease
payments in 1993, 1994 and 1995 totalled approximately $11,000,
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$17,000 and $17,000, respectively. In the opinion of the Company's management,
the terms of this lease are at least as favorable to the Company as could have
been obtained from unaffiliated third parties.
Donald Carano has been an attorney with the firm of McDonald Carano Wilson
McCune Bergin Frankovich & Hicks LLP ("McDonald Carano") since 1961. Mr.
Carano maintains an "of counsel" relationship with McDonald Carano, but is not
involved in the active practice of law or in the representation of the Company
or any of its affiliates as an attorney. Donald Carano receives no
compensation from McDonald Carano. The Company currently retains McDonald
Carano in connection with a variety of legal matters. In addition, McDonald
Carano will pass upon certain legal matters with respect to the validity of
the Notes. In the opinion of the Company's management, the fees paid to
McDonald Carano are at least as favorable to the Company as could be obtained
from any other law firm for comparable services.
Donald Carano and Recreational Enterprises, Inc., which is owned by members
of the Carano family, collectively own a 50% equity interest in the Pioneer
Inn Hotel Casino, a small hotel/casino located in downtown Reno.
The Company pays insurance premiums for and from time to time leases an
aircraft owned by Recreational Enterprises, Inc. and a yacht owned by Hotel
Casino Realty Investments, Inc. for use in operating the Company's business.
In 1993, 1994 and 1995, (i) insurance premiums and lease payments for the
aircraft totalled approximately $331,000, $222,000 and $168,000, respectively,
and (ii) insurance premiums and lease payments for the yacht totalled
approximately $186,000, $185,000 and $187,000, respectively. In the opinion of
the Company's management, each of these premiums and lease payments is at
least as favorable to the Company as could have been obtained from an
unaffiliated third party.
The Company does not have a compensation committee or other committee of the
Board of Managers performing equivalent functions. The compensation paid in
1995 and to be paid in the future to each of the Company's Board Members and
executive officers will be determined by the Chief Executive Officer.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following chart illustrates the ownership of the Company and the Silver
Legacy Joint Venture. Recreational Enterprises, Inc. is beneficially owned by
members of the Carano family and Hotel Casino Management, Inc. is beneficially
owned by members of the Poncia family.
LOGO
[FLOW CHART]
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The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding membership interests by (i) each person
known by the Company to be a beneficial owner of 5% or more of the outstanding
membership interests, (ii) each Board Member, (iii) each executive officer
named under the caption "Management--Executive Compensation" and (iv) all
Board Members and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE
MEMBERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER INTEREST
------------------------------------ ----------
<S> <C>
Donald L. Carano(1)(2)......................................... 63.0%
Recreational Enterprises, Inc.(3).............................. 55.0%
Raymond J. Poncia, Jr.(4)(5)................................... 32.0%
Hotel Casino Management, Inc.(5)(6)............................ 29.0%
Hotel Casino Realty Investments, Inc.(7)....................... 6.0%
Gene R. Carano(2)(8)........................................... 5.9%
Gregg R. Carano(2)(8).......................................... 5.9%
Gary L. Carano(2)(8)........................................... 5.9%
Cindy L. Carano(2)(8).......................................... 5.9%
Glenn T. Carano(2)(8).......................................... 5.9%
Ludwig J. Corrao(9)............................................ 5.0%
Robert M. Jones(2)............................................. --
All Board Members and executive officers as a group............ 95.0%
</TABLE>
- --------
(1) Includes 5.0% owned by Mr. Carano individually, 55.0% owned by
Recreational Enterprises, Inc., which is owned by members of the Carano
family, and 3.0% beneficially owned by Mr. Carano through Recreational
Enterprises, Inc.'s 50.0% ownership of Hotel Casino Realty Investments,
Inc.
(2) The address of Donald L. Carano, Gene R. Carano, Gregg R. Carano, Cindy L.
Carano and Robert M. Jones is c/o Eldorado Resorts LLC, P.O. Box 3399,
Reno, Nevada 89505. The address of Gary L. Carano and Glenn T. Carano is
c/o Silver Legacy Resort Casino, 407 N. Virginia Street, Reno,
Nevada 89501.
(3) Recreational Enterprises, Inc. is beneficially owned by the following
members of the Carano family in the following percentages: Donald L.
Carano--49.5%; Gene R. Carano--10.1%; Gregg R. Carano--10.1%; Gary L.
Carano--10.1%; Cindy L. Carano--10.1% and Glenn T. Carano--10.1%. Gary
holds 7.185% of his interest in Recreational Enterprises, Inc. through
various trusts. Gene, Gregg, Cindy and Glenn each hold all of their
respective interests in Recreational Enterprises, Inc. through various
trusts. The address of Recreational Enterprises, Inc. is P.O. Box 2540,
Reno, Nevada 89505.
(4) Includes 29.0% owned by Hotel Casino Management, Inc., which is owned by
members of the Poncia family, and 3.0% beneficially owned by Mr. Poncia
through Hotel Casino Management, Inc.'s 50.0% ownership of Hotel Casino
Realty Investments, Inc.
(5) The address of Raymond J. Poncia, Jr. and Hotel Casino Management, Inc. is
P.O. Box 429, Verdi, Nevada 89439.
(6) Hotel Casino Management, Inc. is beneficially owned by the following
members of the Poncia family in the following percentages: Raymond J.
Poncia, Jr.--49.712%; Cathy L. Poncia-Vigen--12.572%; Linda R. Poncia--
12.572%; Michele L. Poncia--12.572% and Tammy R. Poncia--12.572%. Cathy,
Linda, Michele and Tammy each hold all of their respective interests in
Hotel Casino Management, Inc. through various trusts.
(7) Recreational Enterprises, Inc. and Hotel Casino Management, Inc. each own
50% of the outstanding shares of capital stock of Hotel Casino Realty
Investments, Inc. The address of Hotel Casino Realty Investments, Inc. is
P.O. Box 429, Verdi, Nevada 89439.
(8) All of such membership interest is beneficially owned through such
individual's 10.1% ownership of Recreational Enterprises, Inc.
(9) The address of Ludwig J. Corrao is P.O. Box 12907, Reno, Nevada 89510.
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CERTAIN TRANSACTIONS
The Company's 77%-owned subsidiary, ELLC, holds a 50% interest, along with
Circus Sub, in the Silver Legacy Joint Venture, which owns and operates the
Silver Legacy. In connection with entering into the Silver Legacy Joint
Venture, the Company loaned $23.0 million to ELLC, and ELLC contributed the
$23.0 million to the Silver Legacy Joint Venture as a portion of its equity
investment. The Company intends to enter into an agreement with ELLC and the
other members of ELLC pursuant to which the Company will contribute to the
capital of ELLC all or a substantial portion of the ELLC Note and will assume
certain other obligations of the other ELLC members in exchange for an
increased equity interest in ELLC. Following these transactions, the Company
anticipates that its ownership interest in ELLC will increase from 77% to in
excess of 90%.
MATERIAL AGREEMENTS
THE REORGANIZATION
The Company was recently formed under the laws of the State of Nevada to be
the successor to the Predecessor Partnership. Pursuant to an Agreement and
Plan of Merger dated as of June 28, 1996, between the Predecessor Partnership
and the Company, (i) the Predecessor Partnership merged with and into the
Company, with the Company remaining as the surviving entity, and (ii) each
partner's ownership interest in the Predecessor Partnership was converted into
the same ownership percentage of membership interests in the Company. The
Reorganization was effective on July 1, 1996. Concurrently with the
Reorganization, the Predecessor Partnership dissolved and terminated.
DESCRIPTION OF THE CREDIT FACILITY
The following is a summary of the Loan Agreement dated as of March 25, 1994
(the "Former Credit Facility"), among the Company, the banks named therein and
Bank of America NT&SA, as administrative agent, and the amendments thereto
which are contained in the Amended and Restated Loan Agreement dated as of
July 31, 1996 (the "Credit Facility"), between the Company and Bank of
America. This summary is qualified in its entirety by reference to the Former
Credit Facility and the Credit Facility, a copy of each of which is available
upon request. See "Available Information."
Former Credit Facility
The Former Credit Facility provided for a revolving credit facility which
bore interest, at the Company's option, at either (i) a fluctuating rate equal
to the greater of (a) the Reference Rate publicly announced by Bank of America
and (b) the Federal Funds Rate plus .50%, plus an applicable percentage or
(ii) a rate based upon the rate offered by Bank of America to prime banks in
the London Eurodollar Market or another Eurodollar Market acceptable to Bank
of America, plus an applicable percentage.
Amendments to the Former Credit Facility
Concurrently with the issuance of the Private Notes, the Company entered
into the Credit Facility. The Credit Facility provides for a senior secured
revolving credit facility of $50 million ($3 million of which may be utilized
for the issuance of letters of credit). Borrowings bear interest, at the
Company's option, at either (i) the greater of (a) the Reference Rate publicly
announced by Bank of America and (b) the Federal Funds Rate plus .50%, plus an
applicable percentage or (ii) the Eurodollar rate plus an applicable
percentage. The Credit Facility will mature on July 31, 2001. As of September
30, 1996, the Company had $19.5 million principal amount outstanding under the
Credit Facility, which bore interest at an average effective rate of 7.47%.
Security; Guaranty. The Credit Facility is secured by a first deed of trust
and security interest in all real property interests and fixtures underlying
the Eldorado, certain parking facilities, a second deed of trust on the 31,000
square foot property located across the street from the Eldorado, all related
personal property, substantially all other assets of the Company and a pledge
of the Company's interests in ELLC. In addition, Capital has guaranteed the
Company's obligations under the Credit Facility.
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Fees. In connection with the Credit Facility, the Company has agreed to pay
certain fees to the lenders, including a per annum commitment fee based on the
unused portion of the Credit Facility, a facility fee and an agency fee.
Covenants. The Credit Facility contains a number of restrictive and other
covenants, including (i) restrictions on the disposition of property, (ii)
restrictions on investments and acquisitions, (iii) restrictions on
distributions to members of the Company, (iv) restrictions on the incurrence
of negative pledges, (v) restrictions on the incurrence of indebtedness and
the issuance of guarantees, (vi) restrictions on transactions with affiliates
and (vii) restrictions on annual capital expenditures including capital
leases. The Credit Facility also contains financial covenants including a
maximum total debt to EBITDA ratio, a maximum senior debt to EBITDA ratio, a
minimum fixed charge coverage ratio and a minimum equity requirement.
Events of Default. The Credit Facility contains customary events of default,
including (i) failure to pay principal or interest when due, (ii) cross
defaults to other indebtedness and material agreements of the Company,
including any guarantees issued by the Company, (iii) change of control
restrictions, (iv) failure to comply with covenants, representations or
warranties in the Credit Facility, (v) the occurrence of judgments or
impermissible liens, (vi) the invalidity or termination of any loan document
executed in connection with the Credit Facility or the failure of any such
loan document to create a valid first priority lien on the assets of the
Company and (vii) bankruptcy, insolvency or similar events with respect to the
Company, any of its subsidiaries or any of its members.
LIMITED-LIABILITY COMPANY OPERATING AGREEMENT
The rights and obligations of the equityholders of the Company (the
"Members") are governed by the Operating Agreement of Eldorado Resorts LLC
(the "Operating Agreement") dated as of June 28, 1996, as amended, entered
into in connection with the Reorganization.
Membership Interests. Each Member's interest in the Company ("Membership
Interest") is equal to the percentage of capital contributed by that Member.
See "Security Ownership of Certain Beneficial Owners and Management."
Management. The Company is managed by the Board of Managers, which currently
consists of four Board Members. The initial Board Members designated in the
Operating Agreement are Donald Carano, Recreational Enterprises, Inc. and
Hotel Casino Management, Inc. In September 1996, the Members elected Leslie
Abraham as an additional Board Member. Each corporation that serves as a Board
Member must select a corporate officer as its representative. Recreational
Enterprises, Inc. has selected Gary Carano as its representative and Hotel
Casino Management, Inc. has selected Raymond Poncia as its representative. A
corporation which is a Board Member may change its representative at any time
by providing notice to the Company. The Operating Agreement provides that the
Board of Managers will consist of at least three, but not more than seven,
Board Members, as determined by a majority of the Board of Managers.
Board Members are elected at annual meetings of the Members for one-year
terms. Any Board Member may be removed from office with a vote of 60% of the
Membership Interests, but no Board Member may be removed where there would be
enough votes to elect that Board Member at an election. In an election, each
Member is entitled to as many votes as equals the number of percentage points
of such Member's Interest multiplied by the number of Board Members to be
elected. Members can cast all of their votes for a single Board Member or
distribute them among the candidates for Board Member as they see fit. The
Board of Managers generally has control over the management and affairs of the
Company. Board Members are required to devote enough time to the Company to
reasonably perform their duties. The Chief Executive Officer, President and
Presiding Board Member will supervise the day-to-day operations of the
Company. Members and interest holders have no right to participate directly in
management or control of the Company, except for votes required for certain
extraordinary transactions described in the Operating Agreement.
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Certain transactions may not be consummated without the approval of 75% of
the Membership Interests. These transactions include, among others, amending
the size of the Board of Managers to consist of less than three or more than
seven Board Members, engaging in any business combination or reorganization,
entering into any joint venture, partnership or limited-liability company
relating to the operation or ownership of the Company's properties, issuing or
selling Membership Interests, causing the Company to guarantee indebtedness,
requiring certain additional capital contributions, registering with the
appropriate regulatory authorities and publicly offering equity securities of
the Company.
Board Member and Officer Indemnification. The Operating Agreement provides
that no Board Member or Officer will be liable to the Company, its Members or
holders of its Membership Interests for acts or omissions of such Board Member
or Officer in connection with the business or affairs of the Company,
including for breach of fiduciary duty or mistake of judgment, except for acts
involving intentional misconduct, fraud or knowing violations of the law. The
Operating Agreement also provides that the Company will indemnify, defend and
hold harmless every Board Member and Officer for any losses arising out of the
Company or its business or affairs, unless such losses are based on acts or
omissions involving intentional misconduct, fraud or a knowing violation of
the law.
Rights and Restrictions of Members. Members have a preemptive right, for a
period of 30 days, to acquire any Membership Interest or any other equity or
voting interest, or any right or option for the purchase thereof, in the
Company that the Company or the Board of Managers at any time proposes to
issue. These rights cannot be altered without a unanimous vote of the
Membership Interests.
Restrictions on Transfer of Membership Interests. No Member may transfer its
interest without first offering it to the Company and the other Members. Any
transferee of a Membership Interest must obtain a license to hold an ownership
interest in a gaming licensee in Nevada. Additionally, any transferee must be
approved by at least a majority in interest of the non-transferring Members
before that person can enjoy the rights of membership.
Permitted Assignments and Transfers of Membership Interests. Any Member may
assign all or some of that Member's Membership Interest to the Company, any
other Member or to entities controlled by or under common control with any
other Member. Such assignees will not become Members, however, without the
approval of at least a majority in interest of the non-transferring Members.
Additionally, under certain circumstances, the Membership Interests which were
originally issued to, and respectively held as of the date of the Operating
Agreement by, Donald Carano and Ludwig Corrao may be transferred to any
affiliate of a Member, to any children or other lineal descendants of the
current holder of such transferable interest or to a revocable living trust
for the benefit of the current holder of such transferrable interest. Such
transferees immediately become Members. All transfers must meet with prior
approval of the Nevada Commission.
Dissolution and Liquidation. The Company will be dissolved upon the earliest
to occur of: (a) December 31, 2030, (b) the sale or disposition of all or
substantially all of the assets of the Company, (c) the written consent of
Members holding more than a 75% voting interest in the Company or (d) any
event that, pursuant to the Operating Agreement, terminates a Member's
interest, unless there are at least two remaining Members and at least a
"majority in interest" (as defined in Nevada Revised Statutes Section 86.065)
of the remaining Members agree to continue the Company.
The Company shall be liquidated upon the occurrence of any event requiring
dissolution of the Company. Proceeds from liquidation shall be dispersed first
to creditors, including Members and interest holders who are creditors for
debts other than their respective capital contributions, and second to Members
and interest holders in accordance with their capital account balances.
Mandatory Distributions. The Board of Managers will distribute each year to
each Member an amount equal to such Member's allocable share of taxable income
multiplied by the highest marginal combined federal, state and local income
tax rate applicable to individuals for that year; provided that such
distributions will not be
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made after any event that causes the Company to thereafter be taxed under the
Internal Revenue Code of 1986, as amended, as a corporation.
SILVER LEGACY JOINT VENTURE AGREEMENT
The Silver Legacy was developed by the Silver Legacy Joint Venture formed
pursuant to the Agreement of Joint Venture of Circus and Eldorado Joint
Venture (the "Joint Venture Agreement") dated as of March 1, 1994, between
ELLC and Circus Sub. Under the Joint Venture Agreement, each of ELLC and
Circus Sub (together, the "Partners") owns a 50% interest in the Silver Legacy
Joint Venture (each Partner's "Percentage Interest"). Each Partner was
obligated to contribute cash or property to the Silver Legacy Joint Venture
with a value equal to 15% of the total budgeted cost for developing and
constructing the Silver Legacy. To satisfy their respective contribution
obligations, ELLC contributed real property worth $25.0 million on which to
build the Silver Legacy and $26.9 million in cash and Circus Sub contributed
$51.9 million in cash. In addition, pursuant to the Joint Venture Agreement,
Circus Circus provided certain loans to the Silver Legacy Joint Venture for
the costs of developing and constructing the Silver Legacy and also provided
credit support for a $230.0 million credit agreement entered into by the
Silver Legacy Joint Venture on May 30, 1995, as amended and restated on
September 9, 1996 (the "Silver Legacy Credit Agreement"), for the balance of
the development and construction costs (such loans and financing are
collectively referred to herein as the "Construction Financing"). In return,
Circus Circus receives an annual fee which has been 1.5% of the average
outstanding principal balance of such financing. The Silver Legacy Credit
Agreement is secured by a deed of trust on the Silver Legacy and by security
interests in other assets of the Silver Legacy Joint Venture. Under the Silver
Legacy Credit Agreement, indebtedness is subject to scheduled quarterly
reductions ranging from $2.5 million to $5.0 million, and a scheduled
reduction of the remaining outstanding balance on June 30, 2003. Each of
ELLC's and Circus Sub's ability to participate in cash flows generated by the
Silver Legacy is limited by the terms of the Joint Venture Agreement and the
Silver Legacy Credit Agreement. As of September 30, 1996, the Silver Legacy
Joint Venture was indebted to Circus Circus in the aggregate amount of $38.9
million, the repayment of which is subject to certain limitations under the
terms of the Silver Legacy Credit Agreement. The advances to the Silver Legacy
Joint Venture are secured by a second deed of trust on the Silver Legacy. As
of September 30, 1996, the assets of the Silver Legacy Joint Venture,
including the Silver Legacy, were subject to encumbrances securing the
repayment of indebtedness in the principal amount of $239.5 million.
Additional capital contributions in proportion to each Partner's Percentage
Interest may be required by the Managing Partner (as defined in the Joint
Venture Agreement) to defray any net loss (not including depreciation and
amortization expenses) incurred by the Silver Legacy Joint Venture. If either
Partner fails to make such additional capital contributions, the non-
defaulting Partner may (i) contribute the amount of the additional capital
contribution that the defaulting Partner has failed to pay to the Silver
Legacy Joint Venture on behalf of the defaulting Partner, which amount will be
considered a loan to the defaulting Partner from the non-defaulting Partner
(an "Additional Capital Contribution Loan") and must be repaid by the
defaulting Partner from the cash distributions it receives pursuant to the
Joint Venture Agreement or (ii) loan the amount of the additional capital
contribution that the defaulting Partner has failed to pay to the Silver
Legacy Joint Venture, which loan must be repaid from Net Cash from Operations
(as defined herein).
Profit Allocation. Under the terms of the Joint Venture Agreement, Profits
of the Silver Legacy Joint Venture (defined as the Silver Legacy Joint
Venture's taxable income with certain adjustments) in each fiscal year are
allocated to the Partners pursuant to the following formula: (i) the net
operating income of the Silver Legacy Joint Venture for financial reporting
purposes (determined in accordance with generally accepted accounting
principles) for such fiscal year, exclusive of interest expense, is credited
to Circus Sub up to the amount of its Priority Allocation (as defined below)
for such fiscal year, any balance is credited to ELLC up to the amount of
Circus Sub's Priority Allocation for such fiscal year and any remaining
balance is credited to the Partners in proportion to their Percentage
Interests, (ii) interest expense of the Silver Legacy Joint Venture for such
fiscal year is charged to the Partners in proportion to their Percentage
Interests and (iii) the difference between net operating income less interest
expense and Profits for such fiscal year is credited (or charged) to the
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Partners in proportion to their Percentage Interests. If this formula causes a
Partner to be charged with a loss in any fiscal year, such Partner will be
allocated zero Profits for such year and the other Partner will be allocated
all of the Profits for such year. In addition, losses of the Silver Legacy
Joint Venture (defined as the Silver Legacy Joint Venture's taxable loss with
certain adjustments) in any fiscal year are allocated to the Partners in
proportion to their Percentage Interests.
Circus Sub is entitled to a priority allocation ("Priority Allocation") of
pretax operating income equal to 7.5% of the "Initial Investment," defined as
the total cost of construction of the Silver Legacy up to a maximum of $290
million. The Initial Investment is decreased each year by the amount of
depreciation expense recorded on the Silver Legacy in such year and by any
principal payments made to repay the Construction Financing in such year.
Circus Sub is entitled to such Priority Allocation beginning May 1, 1997 and
for so long as ELLC selects the General Manager (as defined in the Joint
Venture Agreement) of the Silver Legacy (as provided for in the Joint Venture
Agreement).
Distributions of Cash From Operations. The Joint Venture Agreement provides
that Net Cash from Operations (defined as the gross cash proceeds from all
Silver Legacy Joint Venture operations less cash operating expenses and
certain other expenses and obligations, including interest and principal
payments on indebtedness including the Construction Financing, other than
indebtedness owed Partners or affiliates as provided for in the Joint Venture
Agreement) is to be distributed quarterly to the Partners in proportion to
their Percentage Interests after satisfaction of certain other obligations as
follows: (i) at the end of the first year of operation only, the distribution
to each Partner of an amount equal to its tax liability attributable to the
Silver Legacy Joint Venture, (ii) the payment of interest and principal on all
loans to the Silver Legacy Joint Venture from Partners and affiliates
(excluding payment of principal on the Construction Financing), (iii) the
payment of principal and interest on any Additional Capital Contribution Loan,
plus the distribution to the non-defaulting Partner who provided such
Additional Capital Contribution Loan of an amount equal to the amount of such
Additional Capital Contribution Loan, (iv) the payment of certain construction
cost overruns, (v) at the end of the first year of operation only, the payment
of the balance of the principal of the Construction Financing not including
cost overruns, (vi) to the extent earned and available, the distribution to
Circus Sub of an amount up to its Priority Allocation and to ELLC of an amount
up to the amount distributed to Circus Sub pursuant to Circus Sub's Priority
Allocation, (vii) after the first year of operation, the distribution to each
Partner of an amount equal to its tax liability attributable to the Silver
Legacy Joint Venture and (viii) the payment of the balance of the portion of
the Construction Financing provided by Circus Circus until such loans are paid
in full or refinanced. In addition, any withdrawal from the Silver Legacy
Joint Venture by either party results in a reduction of distributions to such
withdrawing Partner to 75% of amounts otherwise payable to such Partner.
Management. The Silver Legacy Joint Venture is managed by an Executive
Committee, a Managing Partner and a General Manager. The Executive Committee
consults with, reviews, monitors and oversees the performance of the Managing
Partner and the General Manager, thus functioning in a capacity similar to a
corporation's board of directors. The Executive Committee may act only upon
the approval of a majority of its members. The Executive Committee has five
members, three of whom are appointed by the Managing Partner and the other two
of whom are appointed by the other Partner. The Joint Venture Agreement names
Circus Sub as the Managing Partner. As of December 1, 1996, the members of the
Executive Committee appointed by the Managing Partner are Kurt Sullivan,
Yvette Landau and Scott Beeman; the members appointed by ELLC are Donald
Carano and Robert Jones.
The Managing Partner is generally responsible for overseeing the management
and the business affairs of the Silver Legacy Joint Venture and may be
replaced only: (i) upon the unanimous agreement of the Partners or (ii) by the
other Partner if the Silver Legacy Joint Venture's net operating results for
any four consecutive quarters are less than 80% of the amount projected in the
Silver Legacy Joint Venture's annual business plan, upon which such other
Partner will become the Managing Partner; provided, however, that as long as
ELLC appoints the General Manager, ELLC may not require Circus Sub to resign
as Managing Partner.
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The General Manager is responsible for the oversight and management of the
day-to-day operations of the Silver Legacy and other business of the Silver
Legacy Joint Venture. The General Manager, currently Gary Carano, is appointed
by ELLC subject to the approval of Circus Sub. The General Manager will
continue to be selected by ELLC so long as Circus Sub is allocated its
Priority Allocation or so long as the Silver Legacy Joint Venture's net
operating results are not less than 80% of the amount projected in the Silver
Legacy Joint Venture's annual business plan. If the General Manager fails to
meet such performance requirements, Circus Sub may replace the General
Manager; provided, however, that if Circus Sub replaces the General Manager
without ELLC's consent, Circus Sub will not receive its Priority Allocation.
Transfers of Partnership Interests. After the Silver Legacy has been in
operation for at least 10 years and the initial Construction Financing has
been paid in full, either Partner may, so long as such Partner is not in
default of any of the provisions of the Joint Venture Agreement, offer to
purchase the entire interest of the other Partner. If either Partner makes
such an offer, the other Partner is required to either sell its interest or
purchase the interest of the offering Partner at the price proposed by the
offering Partner, subject to a pro rata adjustment if the interests are not
equal at the time of the offer. In addition, in the event that (i) a Partner
is in default at any time on any two required additional capital
contributions, (ii) an Additional Capital Contribution Loan is not repaid
within two years, (iii) any deed of trust for the benefit of Circus Circus for
the Construction Financing is in default for over one year or (iv) unless
otherwise agreed by Circus Circus, Donald Carano, an immediate family member
acceptable to Circus Sub or one of their respective affiliates does not
control ELLC, or unless otherwise agreed by ELLC, Circus Circus does not
control Circus Sub, then the non-defaulting Partner may purchase the
defaulting Partner's interest. The purchase price will be equal to the net
equity of the defaulting Partner's interest, decreased by any amount that the
non-defaulting Partner contributed as a capital contribution on behalf of the
defaulting Partner (which amount is considered a loan to the defaulting
Partner pursuant to the Joint Venture Agreement). Any such purchase and sale
is subject to the approval of the Nevada Gaming Authorities.
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DESCRIPTION OF NOTES
GENERAL
The Private Notes were issued pursuant to an indenture (the "Indenture")
dated as of July 31, 1996, between the Issuers and Fleet National Bank, as
trustee (the "Trustee"), in a private transaction that is not subject to the
registration requirements of the Securities Act. See "Notice to Investors."
The terms of the Private Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939
(the "Trust Indenture Act"). The Notes are subject to all such terms, and
holders of Notes are referred to the Indenture and the Trust Indenture Act for
a statement thereof. The form and terms of the Exchange Notes will be the same
as the form and terms of the Private Notes except that (i) the exchange will
have been registered under the Securities Act, and therefore the Exchange
Notes will not bear legends restricting the transfer thereof and (ii) holders
of the Exchange Notes will not be entitled to certain rights of holders of the
Private Notes under the Registration Rights Agreement, which rights will
terminate upon consummation of the Exchange Offer. The following summary of
the material provisions of the Indenture does not purport to be complete and
is qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. A copy of the proposed form
of Indenture may be obtained from the Company. The definitions of certain
terms used in the following summary are set forth below under "--Certain
Definitions."
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Notes. The Notes
may be presented for registration or transfer and exchange at the offices of
their respective Registrar, which for the Notes initially will be the
Trustee's corporate trust office. The Issuers may change any Paying Agent and
Registrar without notice to holders of the Notes.
As of the date of the Indenture, the only Subsidiary of the Issuers (other
than Capital) was ELLC, an Unrestricted Subsidiary. Unrestricted Subsidiaries
will not be subject to many of the restrictive covenants set forth in the
Indenture.
Capital is a wholly-owned subsidiary of the Company that was incorporated in
Nevada for the purpose of serving as a co-issuer of the Notes in order to
facilitate the issuance of the Notes. Capital will not have any substantial
operations or assets and will not have any revenues. As a result, prospective
participants in the Exchange Offer should not expect Capital to participate in
servicing the interest and principal obligations on the Notes. See "--Certain
Covenants."
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100.0 million and
will mature on August 15, 2006. Interest on the Notes will accrue at the rate
of 10 1/2% per annum and will be payable semi-annually in arrears on February
15 and August 15 of each year (each, an "Interest Payment Date"), commencing
on August 15, 1997, to holders of record on the immediately preceding February
1 and August 1. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date
of original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal of and premium, interest and
Liquidated Damages, if any, on the Notes will be payable at the office or
agency of the Issuers maintained for such purpose or, at the option of the
Issuers, payment of interest and Liquidated Damages, if any, may be made by
check mailed to the holders of the Notes at their respective addresses set
forth in the register of holders of Notes; provided that all payments with
respect to Notes the holders of which have given wire transfer instructions to
the Company will be required to be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof. Until
otherwise designated by the Issuers, the Issuers' office or agency will be the
office of the Trustee maintained for such purpose. The Notes will be issued in
denominations of $1,000 and integral multiples thereof.
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SUBORDINATION
The payment of principal of, and premium, interest and Liquidated Damages
(if any) on, the Notes, and any other amounts payable by the Issuers with
respect to the Notes, will be subordinated in right of payment, as set forth
in the Indenture, to the prior payment in full of all Senior Debt of the
Issuers, whether outstanding on the date of the Indenture or thereafter
incurred.
Upon any distribution to creditors of either Issuer in a liquidation or
dissolution of such Issuer or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Issuer or its property, an
assignment for the benefit of creditors or any marshalling of either Issuer's
assets and liabilities, the holders of Senior Debt of such Issuer will be
entitled to receive payment in full of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Debt) before the holders of
Notes will be entitled to receive any payment with respect to the Notes, and
until all Obligations with respect to Senior Debt of such Issuer are paid in
full in cash, any distribution to which the holders of Notes would be entitled
shall be made to the holders of such Senior Debt (except that holders of Notes
may receive securities that are subordinated at least to the same extent as
the Notes to Senior Debt and any securities issued in exchange for Senior Debt
and payments made from the trust described under "--Legal Defeasance and
Covenant Defeasance").
The Issuers also may not make any payment upon or in respect of the Notes
and may not offer to repurchase Notes (except in such subordinated securities
or from the trust described under "--Legal Defeasance and Covenant
Defeasance") if (i) a default in the payment of the principal of or interest
on Designated Senior Debt occurs and has not been cured or waived in writing
or (ii) any other default occurs and is continuing with respect to Designated
Senior Debt that permits holders of the Designated Senior Debt as to which
such default relates to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Issuers or the
holders of any Designated Senior Debt. Payments on the Notes may and shall be
resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage may be commenced unless and
until 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the Trustee by any
holders of Designated Senior Debt, and which is known to the holders of such
Designated Senior Debt, shall be, or be made, the basis for a subsequent
Payment Blockage Notice (unless such nonpayment default shall have been cured
or waived for a period of not less than 181 days).
The Indenture further requires that the Issuers promptly notify holders of
Senior Debt of the receipt of an acceleration notice following an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Issuers who are holders of Senior Debt. As of September 30,
1996, the Company had outstanding $27.3 million in principal amount of Senior
Debt. The Indenture limits the amount of additional Indebtedness, including
Senior Debt, that the Issuers and their Restricted Subsidiaries can incur. See
"--Certain Covenants--Incurrence of Indebtedness."
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OPTIONAL REDEMPTION
Except for the Company's rights in connection with one or more Public Equity
Offerings or as required by applicable gaming law, the Notes are not
redeemable at the Issuers' option prior to August 15, 2001. Thereafter, the
Notes are subject to redemption at the option of the Issuers, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period
beginning on August 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.............................................................. 105.25%
2002.............................................................. 103.50%
2003.............................................................. 101.75%
2004 and thereafter............................................... 100.00%
</TABLE>
Notwithstanding the foregoing, but subject to the terms of any Designated
Senior Debt, on or prior to August 15, 1999, the Issuers may redeem up to 33%
in aggregate principal amount of the Notes originally issued under the
Indenture at a redemption price of 110% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date with the net proceeds of one or more Public Equity Offerings;
provided that at least $67.0 million in aggregate principal amount of Notes
remain outstanding immediately after the occurrence of each such redemption;
and provided, further, that notice of each such redemption shall have been
given within 30 days after the date of the closing of each such Public Equity
Offering.
GAMING REDEMPTION
Notwithstanding any other provision hereof, if any Gaming Authority requires
that a holder or beneficial owner of Notes must be licensed, qualified or
found suitable under any applicable gaming law and such holder or beneficial
owner fails to apply for a license, qualification or a finding of suitability
within 30 days after being requested to do so by the Gaming Authority (or such
lesser period that may be required by such Gaming Authority), or if such
holder or such beneficial owner is not so licensed, qualified or found
suitable, the Company will have the right, at its option, (i) to require such
holder or beneficial owner to dispose of such holders or beneficial owner's
Notes within 30 days of receipt of such notice of such finding by the
applicable Gaming Authority or such earlier date as may be ordered by such
Gaming Authority or (ii) to redeem the Notes of such holder or beneficial
owner at the lesser of the principal amount thereof or the price at which such
holder or beneficial owner acquired such Notes, together with, in either case,
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
earlier of the date of redemption or such earlier date as may be required by
such Gaming Authority or the date of the finding of unsuitability by such
Gaming Authority, which may be less than 30 days following the notice of
redemption, if so ordered by such Gaming Authority. The holder or beneficial
owner of Notes applying for a license, qualification or a finding of
suitability must pay all costs of the licensure or investigation for such
qualification or finding of suitability. The Company is not required to pay or
reimburse any holder or beneficial owner of Notes who is required to apply for
such license, qualification or finding of suitability for the costs of the
licensure or investigation for such qualification or finding of suitability.
Such expense will, therefore, be the obligation of such holder or beneficial
owner. See "Risk Factors--Gaming Regulation" and "Business--Regulatory
Matters".
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date
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(except in the case of a redemption required by any Gaming Authority, which
may be less than 30 business days) to each holder of Notes to be redeemed at
its registered address. If any Note is to be redeemed in part only, the notice
of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest ceases to accrue on Notes or portions of them called for
redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Issuers are not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. Upon the occurrence of a Change of Control (as defined
herein), the Issuers are required to make an offer (a "Change of Control
Offer") to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of each holder's Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of repurchase (the "Change of
Control Offer Price," and such date of payment being the "Change of Control
Payment Date") which date is required to be no earlier than 30 days nor later
than 60 days from the date such notice is mailed (unless a longer period is
required by law). Within 30 days following any Change of Control, the Issuers
will mail a notice to each holder describing the transaction that constitutes
the Change of Control and offering to repurchase Notes pursuant to the
procedures required by the Indenture and described in such notice. The Issuers
will comply with the requirements of Rule 14e-1 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control. Pursuant to the Indenture, the Board of Managers of the
Company and the Board of Directors of Capital do not have the ability to waive
the right of the holders to have their Notes repurchased upon a Change of
Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (i) accept for payment all of the Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all of
the Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officer's
Certificate stating the aggregate principal amount of the Notes or portions
thereof being purchased by the Issuers. The Paying Agent will promptly mail to
each holder of the Notes so tendered the Change of Control Payment for such
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered, if any; provided that
each such new Note will be in a principal amount of $1,000 or an integral
multiple thereof. Prior to complying with the provisions of this covenant, but
in any event within 90 days following a Change of Control, the Issuers will
either repay all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. The Issuers will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Notwithstanding the foregoing, the Company shall not be required to make a
Change of Control Offer as provided above if, in connection with any Change of
Control, it has made an offer to purchase (an "Alternative Offer") any and all
Notes validly tendered at a cash price equal to or higher than the Change of
Control Offer Price and has purchased all Notes properly tendered in
accordance with the terms of such Alternative Offer.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of the Notes to require
that the Issuers repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The occurrence of a Change of Control could result in a default under the
Senior Credit Agreement or other Senior Debt. In addition, the Senior Credit
Agreement or other Senior Debt could restrict the Issuers' ability to
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repurchase Notes upon a Change of Control. In the event a Change of Control
occurs at a time when the Issuers are prohibited from repurchasing Notes, the
Issuers could seek the consent of its lenders to the repurchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If
the Issuers do not obtain such a consent or repay such borrowings, the Issuers
will remain prohibited from repurchasing Notes. In such case, the Issuers'
failure to make a Change of Control Offer or to repurchase Notes tendered in a
Change of Control Offer would constitute an Event of Default under the
Indenture, which could, in turn, constitute a default under the Senior Credit
Agreement or other Senior Debt. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the holders of
Notes. See "--Subordination." Finally, the Issuers' ability to repurchase
Notes upon a Change of Control may be limited by the Issuers' then existing
financial resources.
Asset Sales. The Indenture provides that the Issuers will not, and will not
permit any of their Restricted Subsidiaries or ELLC to, engage in an Asset
Sale unless (i) no Default or Event of Default exists or is continuing
immediately prior to and after giving effect to such Asset Sale, (ii) the
Issuers, the Restricted Subsidiary or ELLC, as the case may be, receives (a)
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets or Equity Interests issued or sold or otherwise disposed
of or (b) in the case of a lease of assets which constitutes an Asset Sale, a
lease providing for rent and other consideration which are no less favorable
to the Company, the Restricted Subsidiary or ELLC, as the case may be, than
the then prevailing market conditions (in the case of either (a) or (b),
evidenced by a resolution of the Management Committee set forth in an
Officer's Certificate delivered to the Trustee) and (iii) at least 80% of the
consideration therefor received by the Issuers, such Restricted Subsidiary or
ELLC, as the case may be, is in the form of cash or Cash Equivalents; provided
that (a) the amount of any liabilities (as shown on the most recent balance
sheet of the Issuers, such Restricted Subsidiary or ELLC, as the case may be)
of the Issuers, any Restricted Subsidiary or ELLC (other than liabilities that
are by their terms subordinated to the Notes) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Issuers, such Restricted Subsidiary or ELLC, as the case may be,
from further liability, shall be deemed to be Cash Equivalents for purposes of
this covenant, (b) the amount of any notes or other obligations received by
the Issuers, such Restricted Subsidiary or ELLC from such transferee that are
promptly (but in any event, within 30 days) converted by the Issuers, such
Restricted Subsidiary or ELLC into cash (to the extent of the cash received)
shall be deemed to be cash for purposes of this provision, (c) with respect to
an Asset Sale of Development Property or other real property except a
hotel/casino (1) real property received in exchange therefor and to be used or
useful in any business in which the Company is permitted to engage pursuant to
the covenants described under "--Certain Covenants--Business Activities" will
be deemed to be Cash Equivalents for purposes of this covenant and shall be
deemed to have been applied in accordance with the first sentence of the next
succeeding paragraph and (2) notes or other evidences of indebtedness received
in exchange therefor shall be deemed Cash Equivalents for purposes of this
covenant, provided that cash payments received in respect thereof shall be
applied by the Company in accordance with this covenant, (d) with respect to
an Asset Sale by ELLC, consideration received by ELLC in the form of a note
pursuant to Section 12.2 of the Joint Venture Agreement shall be deemed to be
Cash Equivalents for purposes of this provision and payments received by ELLC
in respect of such note shall be applied by ELLC as specified in the next
succeeding paragraph and (e) with respect to an Asset Sale by the Company of
its interest in ELLC or an Asset Sale by ELLC, voting equity securities issued
by an Included Person that are registered and freely-tradeable by the Company
under applicable state and federal securities laws and listed for trading on a
national securities exchange will be deemed to be Cash Equivalents for
purposes of this provision, provided that the sale, transfer or other
distribution by the Company of such equity securities shall be subject to this
covenant; and provided, further, that contingent liabilities that are assumed
by the transferee of any such assets shall not be deemed to be the receipt of
consideration if such contingent liabilities are not shown as liabilities on
the most recent balance sheet of the Issuers, such Restricted Subsidiary or
ELLC, as the case may be.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Issuers may either (a) apply such Net Proceeds to permanently reduce
Senior Debt of the Issuers or long-term Indebtedness of a Restricted
Subsidiary of the Company (and, in either case, to correspondingly reduce
commitments with respect
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thereto) or (b) reinvest or to commit itself by contract to reinvest the Net
Proceeds in a Permitted Investment (other than Cash Equivalents); provided,
however, that, so long as ELLC is an Unrestricted Subsidiary, in the case of
an Asset Sale by ELLC, (i) the Net Proceeds shall first be applied to pay the
principal and interest on the ELLC Note, (ii) the Net Proceeds shall then be
distributed to the members of ELLC, in accordance with their membership
interests, and (iii) of the Net Proceeds received by the Company pursuant to
clause (ii), 50% shall be subject to this covenant, and provided, further,
however, that in the case of an Asset Sale by the Company of its interest in
ELLC, only 50% of the Net Proceeds received by the Company (net of payments on
the ELLC Note) shall be subject to this covenant, so long as ELLC is an
Unrestricted Subsidiary prior to any such Asset Sale. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5 million, the Issuers are
required to make an offer to all holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes that may be purchased out of
the Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes (subject to the restrictions of the Indenture). If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased
on a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero. Pending the final application of any
such Net Proceeds, the Issuers may temporarily reduce Senior Debt, without a
permanent reduction of availability thereunder, or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture.
CERTAIN COVENANTS
Restricted Payments. The Indenture provides that the Issuers will not, and
will not permit any of their Restricted Subsidiaries to, directly or
indirectly, (i) declare or pay any dividend or make any other distribution on
account of the Company's Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company),
other than the Member Notes and dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or dividends or
distributions payable to the Company or any Consolidated Subsidiary of the
Company; (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent of the
Company, other than any such Equity Interests owned by the Company or any
Consolidated Subsidiary of the Company; (iii) make any principal payment on,
or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Notes (other than Notes and the
Member Notes), except at final maturity or scheduled sinking fund payments set
forth in the original documentation governing such Indebtedness; or (iv) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Issuers would, after giving pro forma effect to such Restricted
Payment as if such Restricted Payment had been made at the beginning of the
Company's most recently completed four full fiscal quarters for which
internal financial statements are available preceding the date of such
Restricted Payment, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
contained in the provisions described under the caption "--Incurrence of
Indebtedness" below; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Issuers and their Restricted Subsidiaries
after January 1, 1996 (excluding the Restricted Payments permitted by the
next succeeding paragraph), is less than the sum of $25 million plus (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from January 1, 1996 to the end of
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the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds,
or the fair market value of assets (as determined in good faith by the
Management Committee), received by the Company from capital contributions
(other than the conversion of the Member Notes into equity interests of the
Company in accordance with the terms thereof) or the issue or sale after
the date of the Indenture of Equity Interests of the Company or of debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or convertible debt securities)
sold to a Subsidiary of the Company and other than Disqualified Stock or
debt securities that have been converted into Disqualified Stock), less any
amounts paid to holders of the Member Notes, plus (iii) 50% of the net cash
proceeds received by the Company (net of payments on the ELLC Note) from
the sale or other liquidation of the Company's interest in ELLC or the sale
by ELLC of all or substantially all its assets, plus (iv) 100% of the net
cash proceeds received by the Company from a distribution by, or from the
sale or other liquidation of, any Restricted Investment or Unrestricted
Subsidiary other than cash proceeds received from ELLC and other than cash
proceeds received from Investments and applied pursuant to clause (vi) of
the next succeeding paragraph.
The foregoing provisions will not prohibit (i) the payment of any dividend
or other distribution within 60 days after the date of declaration thereof, if
at said date of declaration such payment would have complied with the
provisions of the Indenture; (ii) the making of any Restricted Investment or
the redemption, repurchase, retirement or other acquisition of any Equity
Interests of the Company (A) in exchange for, or out of the proceeds of, a
substantially concurrent capital contribution (other than the conversion of
the Member Notes into equity interests of the Company in accordance with the
terms thereof) or sale (other than to a Subsidiary of the Company) of other
Equity Interests of the Company or its Parent (other than any Disqualified
Stock), provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c) of the preceding paragraph, or (B) to the
extent required by the final order of a Gaming Authority; (iii) the
defeasance, redemption or repurchase of subordinated Indebtedness with the net
cash proceeds from an incurrence of Permitted Refinancing Indebtedness or a
substantially concurrent capital contribution or sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c) of the preceding paragraph; (iv)
so long as the Company is treated as a partnership or other pass through
entity for United States federal income tax purposes, distributions to equity
owners of the Company in an amount not to exceed the Tax Amount for such
period; (v) payment of a fee not to exceed 1.5% of Net Revenues to the
Managers pursuant to the Management Agreement as in effect on the date of the
Indenture; (vi) Investments in an amount not to exceed $15.0 million in any
Person or Persons primarily engaged in the Gaming Business, plus, to the
extent not included in the Consolidated Net Income of the Issuers, 100% of net
cash proceeds received by the Issuers from a distribution by, or from the sale
or other liquidation of, any Investment made pursuant to this clause (vi),
provided in no event shall amounts permitted to be invested pursuant to this
clause (vi) exceed $15.0 million; and (vii) any redemption required pursuant
to the provisions of the Indenture described under the caption "Gaming
Redemption" above.
The Management Committee may designate any Restricted Subsidiary, other than
Capital, to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Issuers and their Restricted Subsidiaries (except to the
extent repaid in cash) in the Subsidiary so designated will be deemed to be
Restricted Payments at the time of such designation and will reduce the amount
available for Restricted Payments under the first paragraph of this covenant.
All such outstanding Investments will be deemed to constitute Investments in
an amount equal to the greatest of (i) the net book value of such Investments
at the time of such designation, (ii) the fair market value of such
Investments at the time of such designation and (iii) the original fair market
value of such Investments at the time they were made. Such designation will
only be permitted if such Restricted Payment would be permitted at such time
and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
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The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Management Committee set forth
in an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company
or such Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than ten business days following the end of each fiscal quarter, the
Company shall deliver to the Trustee an Officers' Certificate identifying each
Restricted Payment made by the Company during such fiscal quarter and stating
that each such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments"
were computed, which calculations may be based upon the Company's latest
available financial statements.
Incurrence of Indebtedness. The Indenture provides that the Issuers will
not, and will not permit any of their Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guaranty or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), provided,
however, that, so long as no Default or Event of Default has occurred and is
continuing, the Issuers and any of their Restricted Subsidiaries may incur
Indebtedness (including Acquired Debt) if the Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred would have been at least 2.5 to 1, in
each case determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom, including without limitation the application of
any such net proceeds to repay Indebtedness), as if the additional
Indebtedness had been incurred or had been issued at the beginning of such
four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Issuers and their Restricted Subsidiaries of
Indebtedness pursuant to the bank lines of credit (including revolving and
term loans) in an amount not to exceed $75.0 million at any time
outstanding, less the aggregate amount of all permanent reductions thereto
pursuant to the covenant described under "--Repurchase at the Option of
Holders--Asset Sales;"
(ii) the incurrence by the Issuers of Existing Indebtedness;
(iii) the incurrence by the Issuers of Indebtedness represented by the
Notes and the Indenture;
(iv) the incurrence by the Issuers or any of their Restricted
Subsidiaries of Indebtedness in one or more FF&E Financings and Capitalized
Lease Obligations to acquire or refinance furniture, fixtures or equipment
incident to and useful in the Gaming Business, in an aggregate principal
amount not to exceed $15.0 million outstanding at any one time;
(v) the incurrence of intercompany Indebtedness between or among the
Issuers and any of their Consolidated Subsidiaries; provided that any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than an Issuer or a
Consolidated Subsidiary of an Issuer, or any sale or other transfer of any
such Indebtedness to a Person that is not either an Issuer or a
Consolidated Subsidiary of an Issuer, shall be deemed to constitute an
incurrence of such Indebtedness by the Issuers or such Restricted
Subsidiary, as the case may be;
(vi) the incurrence by the Issuers or any of their Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding or for the purpose of fixing or hedging any currency exchange
rate risk;
(vii) the incurrence by the Issuers or any of their Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund Indebtedness that was permitted by the Indenture to be
incurred;
(viii) the incurrence of other Indebtedness by the Company or its
Restricted Subsidiaries in an amount not to exceed $20.0 million to fund
expansions, renovations, land acquisitions and construction of real
property improvements with respect to the Eldorado;
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(ix) the incurrence of Indebtedness pursuant to the Member Notes, the
Daniels Notes or the ELLC Member Notes; and
(x) to the extent that such incurrence does not result in the incurrence
by the Company or any Restricted Subsidiary of any obligation for the
payment of borrowed money of others, Indebtedness incurred solely as a
result of the execution by the Company or its Restricted Subsidiaries of
letters of credit relating to workers compensation or self insurance,
performance bonds or similar instruments; provided, however, that the
foregoing exception shall not be applicable to Indebtedness incurred in
connection with the performance by the Company or its Restricted
Subsidiaries of such bonds or instruments or payment of such letters of
credit.
Liens. The Indenture provides that the Issuers will not, and will not permit
any of their Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Issuers will not, and will not permit any of their
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other
distributions to the Issuers or any of their Restricted Subsidiaries on their
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any indebtedness owed to the Issuers or
any of their Restricted Subsidiaries, (ii) make loans or advances to the
Issuers or any of their Restricted Subsidiaries or (iii) transfer any of its
properties or assets to the Issuers or any of their Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of
(a) the Senior Credit Agreement as in effect on the date of the Indenture, and
any amendments, modifications, restatements, renewals, supplements,
refundings, replacements or refinancings thereof that contain restrictions
that are no more restrictive than those contained in the Senior Credit
Agreement as in effect on the date of the Indenture, (b) agreements existing
and as in effect on the date of the Indenture, (c) any instrument governing
Indebtedness permitted to be incurred pursuant to the terms of the Indenture,
(d) applicable law, (e) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Issuers or any of their Restricted Subsidiaries as
in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, (f) customary non-
assignment provisions in leases or other agreements entered into in the
ordinary course of business, (g) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (h) any
restriction or encumbrance contained in contracts for the sale of assets
permitted by the Indenture, provided that such restrictions relate only to the
assets being sold pursuant to such contracts and (i) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets; Creation of Parent. The Indenture
provides that neither Issuer may consolidate or merge with or into (whether or
not such Issuer is the surviving entity), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another limited-liability
company, corporation, Person or entity, unless (i) such Issuer is the
surviving entity or the entity or the Person formed by or surviving any such
consolidation or merger (if other than such Issuer) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a limited-liability company, partnership or a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any
such consolidation or merger (if other than such Issuer) or the entity or
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of such Issuer
under the Notes and the Indenture pursuant to a supplemental indenture in a
form reasonably
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satisfactory to the Trustee; (iii) immediately after such transaction, no
Default or Event of Default exists; (iv) such Issuer or any entity or Person
formed by or surviving any such consolidation or merger, or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of such Issuer
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of Indebtedness;" (v)
any such transaction would not require any Holder of Notes to obtain a Gaming
License or be qualified under the laws of any applicable gaming jurisdiction
in the absence of such transactions, provided that a transaction involving a
jurisdiction that does not require the licensing or qualification of all of
the holders of the Notes, but reserves the discretionary right to require the
licensing or qualification of any holder of Notes, shall not be prohibited
pursuant to the terms of this clause (v); (vi) any such transaction would not
result in the loss of any qualification or any material license of the Company
or its Subsidiaries necessary for any Gaming Business then operated by the
Company or its Subsidiary; and (vii) the Issuers have delivered to the Trustee
an opinion of counsel reasonably satisfactory to the Trustee confirming that
the holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such transaction and will be
subject to federal income tax in the same manner and at the same times as
would have been the case if such transaction had not occurred.
The Indenture provides that upon creation of Parent or upon the other
transfer of sufficient membership interests to cause a dissolution for
purposes of Section 708 of the Internal Revenue Code of 1986, as amended, or
any successor provision thereto the Company will deliver to the Trustee an
opinion of counsel reasonably satisfactory to the Trustee confirming that the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such transaction and will be
subject to federal income tax in the same manner and at the same times as
would have been the case if such transaction had not occurred.
Transactions with Affiliates. The Indenture provides that neither Issuer
will, and will not permit any of its Restricted Subsidiaries to, make any
payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property (except Development
Property) or assets from, or enter into or make or amend (for the purpose of
increasing the obligations of either Issuer or their Restricted Subsidiaries
thereunder or decreasing the obligations of any Affiliate thereunder without a
commensurate decrease of the obligations of such Issuer or such Restricted
Subsidiary thereunder) any contract, agreement, understanding, loan, advance
or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction
is on terms that are no less favorable to such Issuer or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction with an unrelated Person and (ii) such Issuer delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Management Committee set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved
unanimously by the Management Committee and (b) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, an opinion as to the fairness to the
Company of such Affiliate Transaction from a financial point of view issued by
an accounting, appraisal or investment banking firm of national standing;
provided that (1) any compensation paid to, indemnity provided on behalf of,
or employment agreement entered into with, any officer or director of the
Issuers or any of their Restricted Subsidiaries in the ordinary course of
business, (2) transactions between or among the Issuers and their Restricted
Subsidiaries and (3) Restricted Payments, Permitted Investments and other
payments and distributions that are permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments," in each
case, shall not be deemed Affiliate Transactions. The Indenture provides that
the Company will not, and will not permit ELLC to, modify, amend or otherwise
alter the terms of the ELLC Note to extend the maturity thereof, reduce the
amount payable by ELLC thereunder or the rate of interest applicable thereto
or otherwise diminish the obligations of ELLC thereunder; provided, however,
that the Company may, from time to time, contribute all or a portion of the
ELLC Note to ELLC in exchange for an increased equity interest in ELLC.
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Business Activities. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, engage, directly or indirectly,
in any business other than (i) a Gaming Business and (ii) such other
businesses as the Company or any Restricted Subsidiary is engaged in on the
date of the Indenture. Neither the Company nor any of its Subsidiaries is
permitted by the Indenture to conduct a Gaming Business in any gaming
jurisdiction in which the Company or such Subsidiary is not licensed on the
date of the Indenture if the holders of the Notes would be required to be
licensed as a result thereof; provided that the provisions described in this
sentence will not prohibit the Company or any of its Subsidiaries from
conducting a Gaming Business in any jurisdiction that does not require the
licensing or qualification of all of the holders of the Notes, but reserves
the discretionary right to require the licensing or qualification of any
holder of Notes.
The Indenture provides that until such time as ELLC is designated as a
Restricted Subsidiary or merged with the Company, in each case in accordance
with the terms of the Indenture, the Issuers shall not permit ELLC to (i)
engage, directly or indirectly in any business or activity other than holding
an interest in the Silver Legacy Joint Venture, subject to the right of ELLC
to dispose of such interest in the Silver Legacy Joint Venture in accordance
with the provisions of the covenant entitled "--Asset Sales" above, (ii)
become the owner of any capital stock or other ownership interest in any other
entity, (iii) incur, assume, guaranty or otherwise become liable for any
Indebtedness to any other entity other than the ELLC Note, Indebtedness
payable to the Issuers or any Restricted Subsidiary and Indebtedness incurred
pursuant to Section 2.7 of the Joint Venture Agreement or (iv) issue
membership interests representing more than 10% of the outstanding equity
interests of ELLC prior to such issuance without first obtaining an opinion of
fairness to ELLC of the consideration to be received by ELLC in respect of
such issuance of membership interests from an investment banking firm of
national standing.
Subsidiary Guarantees. The Indenture provides that (i) each Restricted
Subsidiary and (ii) if the Issuers or any of their Restricted Subsidiaries
shall acquire or create another Subsidiary after the date of the Indenture,
then such Restricted Subsidiary or such newly acquired or created Subsidiary
shall execute a Guarantee and deliver an opinion of counsel relating to the
enforceability and authorization of such Guarantee in accordance with the
terms of the Indenture, pursuant to which such Subsidiary shall become a
Guarantor, on a senior subordinated basis (pursuant to subordination
provisions substantially similar to those described above under the caption
"--Subordination"), of the Issuers' payment obligations under the Notes and
the Indenture; provided, that this covenant shall not apply to any Subsidiary
during such period as such Subsidiary (i) is incorporated in any jurisdiction
outside the United States, (ii) has been properly designated as an
Unrestricted Subsidiary in accordance with the Indenture for so long as it
continues to constitute an Unrestricted Subsidiary, (iii) has Adjusted Net
Assets of less than $3.0 million or (iv) has less than $5.0 million of
outstanding Indebtedness owed to any Person other than the Issuers or any
Restricted Subsidiary.
The Indenture provides that, in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition,
by way of such a merger, consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring the property (in the
event of a sale or other disposition of all of the assets of such Guarantor)
will be released and relieved of any obligations under its Subsidiary
Guarantee; provided that the Net Proceeds of such sale or other disposition
are applied in accordance with the applicable provisions of the Indenture. In
addition, the Indenture provides that, in the event the Management Committee
designates a Guarantor to be an Unrestricted Subsidiary, then such Guarantor
will be released and relieved of any obligations under its Guarantee; provided
that such designation is conducted in accordance with the applicable
provisions of the Indenture.
Designation of an Unrestricted Subsidiary as a Restricted Subsidiary. Any
Unrestricted Subsidiary may be designated by the Management Committee as a
Restricted Subsidiary; provided that (i) at the time of such designation after
giving pro forma effect thereto as if such designation had occurred, and any
Non-Recourse Debt previously incurred by such Unrestricted Subsidiary had been
incurred, at the beginning of the Company's most recently completed four
fiscal quarters for which internal financial statements are available
preceding the date of such designation, the Issuers would be permitted to
incur $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test contained in the provisions described in the first paragraph under
the caption
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"--Incurrence of Indebtedness"; (ii) if such newly designated Restricted
Subsidiary has Adjusted Net Assets of $3.0 million or more or $5.0 million or
more of outstanding Indebtedness owed to any Person other than the Issuers or
any Restricted Subsidiary, such newly designated Restricted Subsidiary
executes and delivers a Guarantee and an opinion of counsel relating to the
enforceability and authorization of such Guarantee as required by the
Indenture; and (iii) no Default has occurred and is continuing immediately
preceding such designation and after giving pro forma effect thereto.
Designation of a Subsidiary as an Unrestricted Subsidiary. Any newly-
organized Subsidiary may be designated by the Management Committee as an
Unrestricted Subsidiary at the time of its formation, provided that such
Subsidiary has total assets of $1,000 or less at the time of such designation.
Any Restricted Subsidiary may be designated by the Management Committee as an
Unrestricted Subsidiary (at which time such Restricted Subsidiary's Guarantee
will terminate); provided that (i) at the time of such designation after
giving pro forma effect thereto as if such designation had occurred at the
beginning of the Issuers' most recently completed four fiscal quarters for
which internal financial statements are available preceding the date of such
designation, (A) the Issuers would be permitted to incur $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test contained in the
provisions described in the first paragraph under the caption "--Incurrence of
Indebtedness" and (B) the Fixed Charge Coverage Ratio is not less than 80% of
the Fixed Charge Coverage Ratio for such period without giving pro forma
effect to such designation; and (ii) no Default has occurred and is continuing
immediately preceding such designation and after giving pro forma effect
thereto, including the requirement described in the third paragraph under the
caption "--Restricted Payments" that any Investment in such Restricted
Subsidiary be deemed to be a Restricted Payment made on the date of such
designation.
Limitation on Other Senior Subordinated Debt. The Indenture provides that
the Issuers will not incur, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect to or become
responsible for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt (or in the case of a Guarantor, debt that is
subordinate or junior in right of Payment to such Guarantor's Senior Debt) and
senior in any respect in right of payment to the Notes or in the case of a
Guarantor, senior to the Guarantee executed by such Guarantor.
Independent Member of the Management Committee. The Indenture provides that,
within 180 days from the date thereof, the Company will cause an independent
person to be elected to serve on the Management Committee. As used herein,
"independent" means that neither such person nor any member of such person's
family (i) has any material, direct or indirect financial interest in the
Issuers or any other obligor on the Notes or in any Affiliate of the Issuers
or of any other obligor on the Notes or (ii) serves as an officer or employee
of the Issuers or any other obligor on the Notes or any such Affiliate,
provided that service on the Management Committee or the board of managers of
the Company or the board of directors of Capital or any other obligor on the
Notes or any such Affiliate will not be deemed to constitute service as an
officer or employee thereof.
RESTRICTIONS ON ACTIVITIES OF CAPITAL
The Indenture provides that Capital may not hold any material assets, become
liable for any material obligations or engage in any significant business
activities; provided that Capital may be a co-obligor or guarantor with
respect to Indebtedness if the Company is a primary obligor of such
Indebtedness and the net proceeds of such Indebtedness are retained by the
Company or loaned to one or more of the Company's Restricted Subsidiaries
other than Capital.
PAYMENTS FOR CONSENT
The Indenture provides that the Issuers will not, and will not permit any of
their Restricted Subsidiaries to, directly or indirectly, pay or cause to be
paid any consideration, whether by way of interest, fee or otherwise, to any
Holder of any Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Notes
unless such consideration is offered to be paid or is paid to all Holders of
the Notes that consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
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REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Issuers will furnish to the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Issuers were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial position and
results of operations of the Company and its Restricted Subsidiaries and, with
respect to the annual information only, a report thereon by the Issuers'
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Issuers were
required to file such reports. In addition, whether or not required by the
rules and regulations of the Commission, the Issuers will file a copy of all
such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Issuers have agreed that, for so long as any Notes
remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest or
Liquidated Damages, if any, on the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due
of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Issuers to comply with the repurchase provisions described under the
captions "--Repurchase at the Option of Holders--Change of Control," "--
Repurchase at the Option of Holders--Asset Sales" or the covenants contained
in "--Certain Covenants--Restricted Payments;" (iv) failure by the Issuers for
30 days after notice to comply with any of its other agreements in the
Indenture or the Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Issuers or any of their
Restricted Subsidiaries (or the payment of which is guaranteed by the Issuers
or any of their Restricted Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture having an
outstanding principal amount of more than $5.0 million, individually or in the
aggregate, if such Indebtedness has been accelerated (or has matured);
(vi) failure by the Issuers or any of their Restricted Subsidiaries to pay
final non-appealable judgments aggregating in excess of $5.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days; (vii)
any Guarantee of a Significant Guarantor shall be held in a judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be
in full force and effect, or any Significant Guarantor, or any Person acting
on behalf of any Significant Guarantor, shall deny or disaffirm its
obligations under its Guarantee; (viii) any Gaming License relating to a
Material Gaming Facility is revoked, terminated or suspended or otherwise
ceases to be effective, resulting in the cessation or suspension of operation
for a period of more than 30 days of any material portion or aspect of the
Gaming Business of any Gaming Facility; (ix) certain events of bankruptcy or
insolvency with respect to the Issuers, any of their Significant Subsidiaries,
or any group of Subsidiaries that, considered together, would constitute a
Significant Subsidiary; and (x) the Member Notes represent Indebtedness for
more than 90 days.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable upon delivery of a notice of acceleration
to the Company and to the agent for the lenders under the Senior Credit
Agreement, provided, that the Notes shall become due and payable immediately
if any Senior Debt has been or is accelerated following delivery of a notice
of acceleration. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency with respect
to either Issuer, any Significant Subsidiary of the Issuers or any group of
Restricted Subsidiaries of the Issuers that, taken together, would constitute
a Significant Subsidiary of the Issuers, all outstanding Notes will become due
and payable without further action or notice. Holders of the Notes may not
enforce the Indenture or the Notes except as provided in the Indenture.
Subject to
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certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention of avoiding payment of the premium that the Issuers would have
had to pay if the Issuers then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior
toAugust 15, 2001 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to such date, then the premium
specified in the Indenture shall also become immediately due and payable to
the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of the principal of, or premium, interest or Liquidated Damages (if
any) on, the Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS, MEMBERS AND
STOCKHOLDERS
No director, officer, employee, incorporator, partner, member or stockholder
of the Issuers, as such, shall have any liability for any obligations of the
Issuers under the Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of Notes
by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws
and it is the view of the Commission that such a waiver is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of their
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, and premium, interest and
Liquidated Damages (if any) on, the Notes when such payments are due from the
trust referred to below, (ii) the Issuers' obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Issuers'
obligations in connection therewith and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Issuers may, at their option and at any
time, elect to have the obligations of the Issuers released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuers must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
without reinvestment, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, and
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premium, interest and Liquidated Damages (if any) on, the outstanding Notes on
the stated maturity or on the applicable redemption date, as the case may be,
and the Issuers must specify whether the Notes are being defeased to maturity
or to a particular redemption date, (ii) in the case of Legal Defeasance, the
Issuers shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that (a) the
Issuers have received from, or there has been published by, the Internal
Revenue Service a ruling or (b) since the date of the Indenture, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that, the
Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Issuers shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; (iv) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which the Issuers or any of their Subsidiaries is a party or by
which the Issuers or any of their Subsidiaries is bound; (vi) the Issuers
shall have delivered to the Trustee an opinion of counsel to the effect that
after the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; (vii) the Company shall
have delivered to the Trustee an Officers' Certificate stating that the
deposit was not made by the Issuers with the intent of preferring the Holders
of Notes over the other creditors of the Issuers with the intent of defeating,
hindering, delaying or defrauding creditors of the Issuers or others; and
(viii) the Issuers shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Issuers may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Issuers are not required to transfer or exchange any Note
selected for redemption. Also, the Issuers are not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants
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described above under the caption "--Certain Covenants--Repurchase at the
Option of Holders"), (iii) reduce the rate of or change the time for payment
of interest on any Note, (iv) waive a Default or Event of Default in the
payment of principal of, or premium, interest or Liquidated Damages (if any)
on, the Notes (except a rescission of acceleration of the Notes by the Holders
of at least a majority in aggregate principal amount of the Notes and a waiver
of the payment default that resulted from such acceleration), (v) make any
Note payable in money other than that stated in the Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of Notes to receive payments of principal of, or
premium, interest or Liquidated Damages (if any) on, the Notes, (vii) waive a
redemption payment with respect to any Note (other than a payment required by
one of the covenants described above under the caption "--Certain Covenants--
Repurchase at the Option of Holders") or (viii) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Issuers and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Issuers' obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes will initially be
issued in the form of one Global Note (the "Global Note"). The Global Note
will be deposited on the date of the closing of the sale of the Notes offered
hereby (the "Closing Date") with, or on behalf of, the Depositary and
registered in the name of Cede & Co., as nominee of the Depositary (such
nominee being referred to herein as the "Global Note Holder").
Notes that are issued as described below under "--Certificated Securities"
will be issued in the form of registered definitive certificates (the
"Certificated Securities"). Upon the transfer of Certificated Securities, such
Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to
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the Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Issuers expect that pursuant to procedures established by the Depositary
(i) upon deposit of the Global Note, the Depositary will credit the accounts
of Participants designated by the Initial Purchaser with portions of the
principal amount of the Global Note and (ii) ownership of the Notes evidenced
by the Global Note will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by the Depositary (with
respect to the interests of the Depositary's Participants), the Depositary's
Participants and the Depositary's Indirect Participants. Prospective
purchasers are advised that the laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Notes evidenced by the Global Note will
be limited to such extent. For certain other restrictions on the
transferability of the Notes, see "Notice to Investors."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of
any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced
by the Global Note will not be considered the owners or Holders thereof under
the Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Notes.
Payments in respect of the principal of, and premium, interest and
Liquidated Damages (if any) on, any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Issuers and
the Trustee may treat the persons in whose names Notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Issuers nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of Notes. The Issuers believe, however, that it is currently the policy
of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). All such certificated Notes would be subject to
the legend requirements described herein under "Notice to Investors." In
addition, if (i) the Issuers notify the Trustee in writing that the Depositary
is no longer willing or able to act as a depositary and the Issuers are unable
to locate a qualified successor within 90 days or (ii) the Issuers, at their
option, notify the Trustee in writing that they elect to cause the issuance of
Notes in the form of Certificated Securities under the Indenture, then, upon
surrender by the Global Note Holder of its Global Note, Notes in such form
will be issued to each person that the Global Note Holder and the Depositary
identify as being the beneficial owner of the related Notes.
Neither the Issuers nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Issuers and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
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SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to
the accounts specified by the Global Note Holder. With respect to Certificated
Securities, the Issuers will make all payments of principal, premium, interest
and Liquidated Damages, if any, by wire transfer of immediately available
funds to the accounts specified by the Holders thereof or, if no such account
is specified, by mailing a check to each such Holder's registered address.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the Notes
represented by the Global Note are expected to be eligible to trade in the
PORTAL market and to trade in the Depositary's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such Notes
will, therefore, be required by the Depositary to be settled in immediately
available funds. The Issuers expect that secondary trading in the Certificated
Securities will also be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Restricted Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Adjusted Net Assets" of a Guarantor at any date means the amount by which
the book value of the property and assets of such Guarantor exceeds the total
amount of liabilities, including without limitation contingent liabilities
(after giving effect to all other fixed and contingent liabilities incurred or
assumed on such date), but excluding liabilities under the Guarantee, of such
Guarantor at such date.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that Beneficial Ownership of 10% or more of the voting securities of
a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback)
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Issuers and their Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Issuers or any of their Restricted Subsidiaries of Equity
Interests of any of the Issuers' Restricted Subsidiaries, in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions for net proceeds in excess of $1.0 million.
Notwithstanding the foregoing, the following will be deemed not to be Asset
Sales: (A) the disposition of Cash Equivalents or the sale of inventory or
obsolete furniture, fixtures, equipment or other property (real or personal)
in the ordinary course of business, (B) dispositions of gaming equipment in
the ordinary course of business pursuant to an established program for the
maintenance and upgrading of such equipment, (C) the surrender or waiver of
contract rights or the settlement, release or surrender of contract, tort or
other claims of any kind, (D) the grant in the ordinary course of business of,
or lapse of, any license of patents, trademarks and other
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similar intellectual property, including transfer of intellectual property
relating exclusively to the conduct of the business of The Brew Brothers,
provided that, in such event, the Company shall be granted a license to use
such transferred intellectual property for a nominal fee, (E) pursuant to the
foreclosure of any Lien on assets securing any FF&E Financing or Capital Lease
Obligation permitted pursuant to the provisions of the Indenture described
above under the caption "--Incurrence of Indebtedness," provided that such
FF&E Financing or Capital Lease Obligation is secured by a Lien that relates
only to assets purchased with such FF&E Financing or Capital Lease Obligation,
and provided, further, that such foreclosure or other remedy is conducted in a
commercially reasonable manner or in accordance with applicable law;
(F) involving only the lease or sublease for a term not to exceed ten years
(other than a sale and a leaseback transaction or similar transaction in which
the owner, prior to the transaction, does not retain the residual interest of
the property at the conclusion of the term of the lease) of real or personal
property in the ordinary course of business and provided that, with respect to
a lease or sublease for which (i) the aggregate rental payments exceed $1.0
million per annum the Company delivers to the Trustee a resolution of the
Management Committee set forth in an Officers' Certificate certifying that the
lease has been approved unanimously by the Management Committee and (ii) the
aggregate rental payments exceed $5.0 million per annum the Company delivers
to the Trustee an opinion as to the fairness to the Company of such lease from
a financial point of view by an accounting, appraisal or investment banking
firm of national standing; (G) resulting from (a) the designation of any
Restricted Subsidiary as an Unrestricted Subsidiary, or contribution to the
capital of any Unrestricted Subsidiary, in accordance with the applicable
provisions of the Indenture, or (b) the sale of Capital Stock of any
Unrestricted Subsidiary or the sale of all or substantially all of the assets
of any Unrestricted Subsidiary; (H) a transfer of assets by the Issuers to a
Consolidated Subsidiary or by a Consolidated Subsidiary to the Issuers or to
another Consolidated Subsidiary, (I) an issuance of Equity Interests by a
Consolidated Subsidiary to the Issuers or to another Consolidated Subsidiary,
(J) a Permitted Investment, Restricted Payment or other payment or
distribution that is permitted by the covenant described above under the
caption "--Restricted Payments" and (K) the contribution, in exchange for an
equity interest or debt obligation, of Development Property to a joint venture
in which the Company, directly or indirectly, holds an equity interest.
"Beneficial Owner" (including, with correlative meanings, "Beneficially
Owned" and "Beneficial Ownership") means, with respect to any Capital Stock, a
"person," as such term is used in Section 13(d)(3) of the Exchange Act, that
is a "beneficial owner," as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act, of such Capital Stock.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited-liability company,
membership interests and (v) any other interest or participation that confers
similar intellectual property, including transfer of intellectual property
relating exclusively to the conduct of the business of The Brew Brothers,
provided that, in such event, the Company shall be granted a license to use
such transferred intellectual property for a nominal fee, (E) pursuant to the
foreclosure of any Lien on assets securing any FF&E Financing or Capital Lease
Obligation permitted pursuant to the provisions of the Indenture described
above under the caption "--Incurrence of Indebtedness," provided that such
FF&E Financing or Capital Lease Obligation is secured by a Lien that relates
only to assets purchased with such FF&E Financing or Capital Lease Obligation,
and provided, further, that such foreclosure or other remedy is conducted in a
commercially reasonable manner or in accordance with applicable law;
(F) involving only the lease or sublease for a term not to exceed ten years
(other than a sale and a leaseback transaction or similar transaction in which
the owner, prior to the transaction, does not retain the residual interest of
the property at the conclusion of the term of the lease) of real or personal
property in the ordinary course of business and provided that, with respect to
a lease or sublease for which (i) the aggregate rental payments exceed $1.0
million per annum the Company delivers to the
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Trustee a resolution of the Management Committee set forth in an Officers'
Certificate certifying that the lease has been approved unanimously by the
Management Committee and (ii) the aggregate rental payments exceed $5.0
million per annum the Company delivers to the Trustee an opinion as to the
fairness to the Company of such lease from a financial point of view by an
accounting, appraisal or investment banking firm of national standing; (G)
resulting from (a) the designation of any Restricted Subsidiary as an
Unrestricted Subsidiary, or contribution to the capital of any Unrestricted
Subsidiary, in accordance with the applicable provisions of the Indenture, or
(b) the sale of Capital Stock of any Unrestricted Subsidiary or the sale of
all or substantially all of the assets of any Unrestricted Subsidiary; (H) a
transfer of assets by the Issuers to a Consolidated Subsidiary or by a
Consolidated Subsidiary to the Issuers or to another Consolidated Subsidiary,
(I) an issuance of Equity Interests by a Consolidated Subsidiary to the
Issuers or to another Consolidated Subsidiary, (J) a Permitted Investment,
Restricted Payment or other payment or distribution that is permitted by the
covenant described above under the caption "--Restricted Payments" and (K) the
contribution, in exchange for an equity interest or debt obligation, of
Development Property to a joint venture in which the Company, directly or
indirectly, holds an equity interest.
"Beneficial Owner" (including, with correlative meanings, "Beneficially
Owned" and "Beneficial Ownership") means, with respect to any Capital Stock, a
"person," as such term is used in Section 13(d)(3) of the Exchange Act, that
is a "beneficial owner," as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act, of such Capital Stock.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited-liability company,
membership interests and (v) any other interest or participation that confers
on a Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Carano Interests" means Donald L. Carano, his spouse, lineal descendants
(including adopted children and their lineal descendants) and any trust or
entity owned, controlled by or established for the exclusive benefit of, or
the estate of, any of the foregoing.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500 million and a Keefe Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses
(ii) and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. or Standard
& Poor's Ratings Group and in each case maturing within six months after the
date of acquisition and (vi) shares of any fund investing exclusively in
investments of the type described in clauses (i), (ii), (iii) or (iv) above if
such fund has net assets of not less than $500.0 million.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries, taken as a whole, to any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act) other than the Carano Interests or an
Included Person, (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) prior
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to the consummation of an Initial Public Offering, the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that the Carano Interests cease to control a majority of
the voting power of the Company (other than in connection with an Initial
Public Offering and sales or other dispositions of Capital Stock that do not
result in the Carano Interests as a group no longer Beneficially Owning such
Capital Stock), (iv) after an Initial Public Offering, the Company's becoming
aware of (by way of a report or any other filing pursuant to Section 13(d) of
the Exchange Act, proxy vote, written notice or otherwise) the acquisition by
any Person or related group (within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Exchange Act, or any successor provision to either of the
foregoing, including any "group" acting for the purpose of acquiring, holding
or disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than the Carano Interests, in a single transaction or in
a related series of transactions, by way of merger, consolidation or other
business combination or purchase of beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act, or any successor provision) of 35% or
more of the total voting power entitled to vote in the election of the
Management Committee or Board of Directors, as the case may be, or such other
Person surviving the transaction and, at such time, the Carano Interests shall
fail to beneficially own, directly or indirectly, securities representing
greater than the combined voting power of the Company's or such other Person's
Capital Stock as is beneficially owned by such Person or group; (v) the first
day on which the Company fails to own 100% of the issued and outstanding
Equity Interests of Capital, other than by reason of a merger of Capital with
and into a corporate successor to the Company, and (vi) during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Management Committee (together with any new managers whose
election or appointment by such committee or whose nomination for election by
the members of the Company was approved by a vote of a majority of the
managers then still in office who were either managers at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Management
Committee then in office; provided, however, that the sale or transfer by the
Carano Interests to an Included Person shall not be a Change of Control so
long as such Included Person maintains an ownership interest that, if held by
the Carano Interests, would not constitute a Change of Control, and provided
further that for purposes of this definition (except clause (v)) the term
"Company" shall mean "Parent" should Parent exist and for purposes of clause
(vi), Management Committee and managers shall mean Board of Directors and
directors should Parent exist.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing Consolidated Net Income, (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with an Asset
Sale, (ii) provision for taxes based on income or profits or, so long as such
Person is treated as a partnership or other pass through entity for United
States federal income tax purposes, the Tax Amount of such Person and its
Restricted Subsidiaries for such period, (iii) consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid
or accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit
or bankers' acceptance financings, and net payments (if any) pursuant to
Hedging Obligations), (iv) depreciation and amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents
an accrual of or reserve for cash charges in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period, (v) pre-opening expenses to the
extent that such pre-opening expenses were deducted in computing Consolidated
Net Income, in each case, on a consolidated basis and determined in accordance
with GAAP and (vi) any abandonment loss incurred in connection with the
expansion of the Eldorado which was reflected on the Company's Consolidated
Statement of Income for the period ended December 31, 1995. Notwithstanding
the foregoing, the provision for taxes on the income or profits of, and the
depreciation, amortization and other non-cash charges of, a Restricted
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in same proportion)
that the Net Income of such Restricted Subsidiary was included in calculating
the Consolidated Net Income of such Person and only if a corresponding amount
would be permitted
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at the date of determination to be dividended to the Issuers by such
Restricted Subsidiary without prior governmental approval (that has not been
obtained), and without direct or indirect restriction pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting (including without limitation ELLC) shall be included only to the
extent of the amount of dividends or distributions paid in cash to the
referent Person or a Consolidated Subsidiary thereof, (ii) the Net Income of
any Restricted Subsidiary shall be excluded to the extent that the declaration
or payment of dividends or similar distributions by such Restricted Subsidiary
of such Net Income is not at the date of determination of Consolidated Net
Income for such period permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such Restricted Subsidiary or
its stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, (iv) the cumulative effect of a change in accounting
principles and any losses resulting from the application of Statement of
Financial Accounting Standards No. 121 shall be excluded and (v) the Net
Income of any Unrestricted Subsidiary, other than ELLC, shall be excluded,
whether or not distributed to the Issuers or their Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person, the amount by
which the total assets of such Person and its Restricted Subsidiaries exceed
the sum of (i) the total liabilities of such Person and its Restricted
Subsidiaries plus (ii) any Disqualified Stock of such Person and its
Restricted Subsidiaries (other than any such Disqualified Stock issued to such
Person or any of its Restricted Subsidiaries), in each case determined in
accordance with GAAP.
"Consolidated Subsidiary" of any Person means a Restricted Subsidiary of
such Person which could be included with such Person in a consolidated group
of such Person for federal income tax reporting.
"Continuing Member" means, as of any date of determination, any member of
the Management Committee who (i) was a member of the Management Committee on
the date of the Indenture or (ii) was nominated for election to the Management
Committee with the approval of at least a majority of the Continuing Members
who were members of the Management Committee at the time of such nomination or
election.
"Daniels Notes" means Indebtedness in an amount not to exceed $3.5 million
incurred to finance the acquisition of the Daniels Property.
"Daniels Property" means that certain parcel of real property together with
the improvements thereon located in the city of Reno, county of Washoe, state
of Nevada, located on Washoe Assessor Parcels 007-292-18, 007-292-20 and 007-
292-25, and more commonly known as Daniel's Motor Lodge, 275 North Sierra
Street, Reno, Nevada 89501.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) Indebtedness under the Senior Credit
Agreement and (ii) any other Senior Debt permitted to be incurred by the
Issuers under the terms of the Indenture the principal amount of which is
$25.0 million or more and that has been designated by the Management Committee
as "Designated Senior Debt."
"Development Property" means a parcel of real property that is not part of a
Gaming Facility and that (i) was owned as of the date of the Indenture by the
Company, (ii) was owned as of the date of the Indenture by
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Affiliates of the Company and transferred to the Company or a joint venture in
which the Company participates and valued at the acquisition cost of such
parcels by such Affiliate plus an amount equal to interest at the rate of 10%
per annum on such acquisition cost from the date of acquisition by such
Affiliate, (iii) the Daniels Property or (iv) is acquired by the Company after
the date of the Indenture and has a fair market value of less than
$1.0 million on the date of determination.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature.
"Eldorado" means the casino/hotel owned and operated by the Company and
located at Fourth and Virginia Streets in Reno, Nevada.
"ELLC" means Eldorado Limited Liability Company, a Nevada limited-liability
company.
"ELLC Member Notes" means Indebtedness in an amount not to exceed $3.9
million incurred in connection with the acquisition by the Company of certain
membership interests of ELLC from Affiliates of the Company.
"ELLC Note" means the inter-company payable in the amount of $23.0 million
made by ELLC in favor of the Company.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" has the meaning specified under the caption "--Events of
Default and Remedies."
"Existing Indebtedness" means Indebtedness of the Issuers and their
Restricted Subsidiaries in existence on the date of the Indenture, until such
amounts are repaid.
"FF&E" means furniture, fixtures and equipment, including gaming equipment,
used in connection with any Gaming Business.
"FF&E Financing" means the incurrence of Indebtedness, the proceeds of which
will be used to finance the acquisition by the Company or a Restricted
Subsidiary of FF&E used in connection with any Gaming Facility whether or not
secured by a Lien on such FF&E; provided that such Indebtedness does not
exceed the fair market value of such FF&E at the time of its acquisition.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(without duplication) (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of original issue discount, non-
cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations, but excluding all other
amortization of debt issuance costs) and (ii) the consolidated interest
expense of such Person and its Restricted Subsidiaries that was capitalized
during such period and (iii) any interest expense on Indebtedness of another
Person that is Guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv)
the product of (a) all cash dividend payments or other distributions (and non-
cash dividend payments in the case of a Person that is a Restricted
Subsidiary) on any series of Disqualified Stock of such Person (other than
payments to such Person and its Consolidated Subsidiaries), times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person (or, in the case of a Person that is a partnership, the combined
federal, state and local tax rate to which such Person would be subject if it
were a Nevada corporation filing separate tax
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returns with respect to its Taxable Income), expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period; provided, however, that
(i) in the event that such Person or any of its Restricted Subsidiaries
incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues or redeems any preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period; (ii) in the event
that such Person or any of its Restricted Subsidiaries designates an
Unrestricted Subsidiary as a Restricted Subsidiary in accordance with the
provisions of the Indenture, or makes any acquisitions or dispositions
(including Asset Sales), including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date, then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such acquisitions or dispositions, as if the same
had occurred at the beginning of the applicable four-quarter reference period,
and, in the case of a redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, Consolidated Cash Flow for such reference period shall
be calculated without giving effect to clause (v) of the proviso set forth in
the definition of Consolidated Net Income and in the case of acquisitions,
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income; (iii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded;
and (iv) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of
the referent Person or any of its Restricted Subsidiaries following the
Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Gaming Authority" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States federal or foreign government, any state, province or any city or other
political subdivision or otherwise, and whether now or hereafter in existence,
or any officer or official thereof, including the Nevada State Gaming
Commission, the Nevada State Gaming Control Board and any other applicable
gaming regulatory authority with authority to regulate any gaming operation
(or proposed gaming operation) owned, managed or operated by the Company or
any of its Subsidiaries.
"Gaming Business" means the gaming business and includes all businesses
necessary for, incident to, connected with or arising out of the operation of
a gaming establishment or facility (including developing and operating
lodging, retail and restaurant facilities, sports or entertainment facilities,
transportation services or other related activities or enterprises and any
additions or improvements thereto) and any businesses incident and useful to
the Gaming Business, including without limitation food and beverage
distribution operations to the extent that they are operated in connection
with a gaming business.
"Gaming Facility" means any tangible vessel, building, or other structure
used or expected to be used to enclose space in which a Gaming Business is
conducted and (i) wholly or partially owned, directly or indirectly, by the
Company or any Restricted Subsidiary or (ii) any portion or aspect of which is
managed or used, or expected to be managed or used, by the Company or a
Restricted Subsidiary; provided that the term Gaming
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Facility does not include any real property whether or not such vessel,
building or other structure is located thereon or adjacent thereto or any
furniture, fixtures and equipment, including gaming equipment, used in
connection with any Gaming Business.
"Gaming License" means any license, permit, franchise or other authorization
from any Gaming Authority required on the date of the Indenture or at any time
thereafter to own, lease, operate or otherwise conduct the Gaming Business of
the Company and its Subsidiaries, including all licenses granted under the
gaming laws of a jurisdiction or jurisdictions to which the Company or any of
its Subsidiaries is, or may at any time after the date of the Indenture, be
subject.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means each Subsidiary that executes a Guarantee of the Issuers'
payment obligations under the Notes and the Indenture in accordance with the
provisions of the Indenture, and their respective successors and assigns.
"HCM" means Hotel Casino Management, Inc., a Nevada corporation.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest and currency rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against
fluctuations in interest or currency exchange rates.
"Included Persons" means any Person that (i) has a class of equity
securities that is traded on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq Stock Market, (ii) has equity market value as of the
date of determination of $2 billion or more, (iii) has senior unsecured debt
securities rated in a ratings category higher than the Notes, as rated by both
of Moody's Investors Service and Standard & Poor's Ratings Group and (iv)
engages primarily in the Gaming Business.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations or
the amount of any Person's obligation to the redemption, repayment or other
repurchase of its Disqualified Stock, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
indebtedness (other than letters of credit and Hedging Obligations) would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien
on any asset of such Person (whether or not such indebtedness is assumed by
such Person) and, to the extent not otherwise included, the Guarantee by such
Person of any indebtedness of any other Person; provided that with respect to
the Company and its Restricted Subsidiaries, the Guarantee of Indebtedness
shall not be deemed an incurrence of Indebtedness to the extent that the
Indebtedness so guaranteed is permitted to be incurred by the Company or a
Restricted Subsidiary pursuant to the terms of the Indenture.
"Initial Public Offering" means the first underwritten public offering of
common Capital Stock of the Company or Parent registered under the Securities
Act (other than a public offering registered on Form S-8 under the Securities
Act) that results in net proceeds of at least $20.0 million to the Company or
the Parent, as the case may be.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons in the forms of direct or indirect loans (including
guarantees of Indebtedness or other obligations), advances (other than
advances to vendors and customers in the ordinary course of business that are
recorded as accounts receivable in accordance with GAAP and excluding
commission, travel, relocation and similar advances to officers and
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employees made in the ordinary course of business), capital contributions,
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities
by the Issuers or any of their Restricted Subsidiaries for consideration
consisting of Equity Interests (other than Disqualified Stock) of the Company
shall not be deemed to be an Investment. If the Issuers or any of their
Restricted Subsidiaries sells or otherwise disposes of any Equity Interests of
any Restricted Subsidiary of the Issuers such that, after giving effect to any
such sale or disposition, such Person is no longer a Restricted Subsidiary of
either Issuer, the Issuers shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of.
"Joint Venture Agreement" means that certain Agreement of Joint Venture of
Circus and Eldorado Joint Venture dated as of March 1, 1994 by and among ELLC,
the Company and Galleon, Inc. and relating to the Silver Legacy.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Management Agreement" means the Management Agreement, dated the date of the
Indenture, between the Company, REC and HCM.
"Management Committee" means (i) for so long as the Company is a limited-
liability company, the Board of Managers appointed pursuant to Article V of
the Operating Agreement, (ii) if the Company is a partnership, the general
partners or a committee or board generally managing the business of such
partnership and (iii) otherwise the Board of Directors of the Company.
"Managers" means REC and HCM, or any successors thereto.
"Material Gaming Facility" means on any date any Gaming Facility that is
owned by the Company or a Restricted Subsidiary (i) which has contributed more
than 10% of the Net Revenues of the Company during the Company's most recently
completed four full fiscal quarters for which internal financial statements
are available preceding such date (such contribution to be annualized if such
Gaming Facility has not been in full operation for all of such four fiscal
quarters) or (ii) the book value of which on such date constitutes more than
10% of the total assets of the Company and its Restricted Subsidiaries as of
the end of the most recently completed fiscal quarter for which internal
financial statements are available.
"Member Notes" shall mean a series of notes of the Company that: (i) are
issued pro rata, to the members of the Company in contemplation of the Initial
Public Offering; (ii) have terms specifying that principal amounts thereof may
be paid only by proceeds from the Initial Public Offering; (iii) shall
automatically be converted into membership interests, pro rata, (a) if not
paid with proceeds of the Initial Public Offering within 90 days of issuance
or (b) upon the occurrence of an Event of Default under the Notes; (iv) have a
stated final maturity after the Notes; (v) are expressly subordinated in right
of payment to the prior payment in full of the Notes; (vi) have stated
interest payment dates no more often than semi-annually; (vii) have a stated
interest rate of less than 10%; (viii) are unsecured; (ix) are not redeemable
prior to stated maturity except from the proceeds of the Initial Public
Offering; and (x) do not contain any terms or covenants which would cause the
Member Notes to be in default prior to the Notes.
"Net Income" means, with respect to any Person for any period, (i) the net
income (loss) of such Person for such period, determined in accordance with
GAAP and before any reduction in respect of preferred stock dividends,
excluding, however, (a) any gain (but not loss), together with any related
provision for taxes on such
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gain (but not loss), realized in connection with (1) any Asset Sale
(including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (2) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries and (b) any extraordinary or
nonrecurring gain (but not loss), together with any related provision for
taxes on such extraordinary or nonrecurring gain (but not loss), less (ii) in
the case of any Person that is treated as a partnership or other pass through
entity for United States federal or state income tax purposes, the Tax Amount
of such Person for such period.
"Net Proceeds" means the aggregate cash proceeds received by the Issuers,
any of their Restricted Subsidiaries or ELLC in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions), any
relocation expenses incurred as a result thereof, any taxes or Tax
Distributions paid or payable by the Issuers, any of their Restricted
Subsidiaries or ELLC as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), any
purchase money obligations relating to the assets comprising such Asset Sale
(to the extent repaid with the proceeds thereof) and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Net Revenues" means the net revenues as determined under GAAP of the
Company and its Restricted Subsidiaries as shown on the Company's financial
statements.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Issuers
nor any of their Restricted Subsidiaries (a) provides credit support of any
kind (including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender, (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Issuers or any of their Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or
assets of the Issuers or any of their Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating Agreement" means the Operating Agreement of Eldorado Resorts LLC,
dated June 28, 1996, as amended to the date of the Indenture.
"Parent" means a corporation to be formed which shall own all or
substantially all of the common equity interests of the Company.
"Permitted Investments" means (i) any Investment in the Issuers or in a
Consolidated Subsidiary of the Issuers, including without limitation any
Investment in the Gaming Business of the Issuers or any such Consolidated
Subsidiaries of the Issuers; (ii) any Investment in Cash Equivalents; (iii)
any Investment by the Issuers or any of their Restricted Subsidiaries in a
Person if, as a result of such Investment, (a) such Person becomes a
Consolidated Subsidiary of the Company engaged in the Gaming Business or (b)
such Person is merged, consolidated or amalgamated with or into, or transfers
or conveys substantially all of its assets to, or is liquidated into, the
Company or a Consolidated Subsidiary of the Company engaged in the Gaming
Business; (iv) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Repurchase
at the Option of Holders--Asset Sales"; (v) advances and loans to employees of
the Company and its Restricted Subsidiaries in the ordinary course of
business; (vi) Investments acquired by the Company or any of its Restricted
Subsidiaries (a) in exchange for any other Investment or accounts receivable
held by the Company or such Restricted Subsidiary in connection with or as a
result of a bankruptcy workout, reorganization or recapitalization
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of the issuer of such Investment or accounts receivable or (b) as a result of
a foreclosure by the Company or such Restricted Subsidiary or other transfer
of title with respect to any secured Investment in default; (vii) the
contribution, in exchange for an equity interest or debt obligation, of
Development Property to a joint venture in which the Company, directly or
indirectly, holds an equity interest; (viii) any Hedging Obligation; and
(ix) capital expenditures, including the acquisition of other tangible assets
or the payment of costs of construction of real property improvements, in each
case to be used or useful in the Gaming Business of the Company or its
Restricted Subsidiaries.
"Permitted Liens" means (i) Liens securing Senior Debt and Indebtedness of
Restricted Subsidiaries that is permitted to be incurred pursuant to the
Indenture; (ii) Liens securing Indebtedness that is pari passu in right of
payment with the Notes, provided that the Notes are equally and ratably
secured, (iii) Liens in favor of the Issuers or any of their Restricted
Subsidiaries; (iv) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Issuers or any of their
Restricted Subsidiaries, provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Issuers or any such Restricted Subsidiary; (v) Liens on property existing at
the time of acquisition thereof by the Issuers or any of their Restricted
Subsidiaries, provided that such Liens were in existence prior to the
contemplation of such acquisition; (vi) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business;
(vii) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (iv) of the second paragraph of the covenant entitled
"Incurrence of Indebtedness" covering only the assets acquired with such
Indebtedness; (viii) Liens existing on the date of the Indenture; (ix) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (x) Liens of landlords or of mortgagees of
landlords arising by operation of law, provided that the rental payments
secured thereby are not yet due and payable; (xi) Liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, (xii)
easements, rights-of-way, restrictions, minor defects or irregularities in
title and other similar charges or encumbrances not interfering in any
material respect with the business of the Company or any of its Restricted
Subsidiaries; (xiii) judgement or attachment Liens not giving rise to an Event
of Default; (xiv) Liens arising out of the purchase, consignment, shipment or
storage of inventory or other goods in the ordinary course of business; (xv)
any interest or title of a lessor in property subject to any Capital Lease
Obligation or other lease; (xvi) Liens arising from filing Uniform Commercial
Code financing statements regarding leases; (xvii) leases or subleases
permitted pursuant to the terms of the Indenture and that are granted to
others and do not in any material respect interfere with the business of the
Company or any Restricted Subsidiary; (xviii) any interest or title of a
lessor in the property subject to any lease, whether characterized as
capitalized or operating other than any such interest or title resulting from
or arising out of a default by the Company or any Restricted Subsidiary of its
obligations under such lease; and (xix) Liens incurred in the ordinary course
of business of the Issuers or any of their Restricted Subsidiaries that (a)
are not incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of business
by the Issuers or any such Restricted Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Issuers
or any of their Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Issuers or any such Restricted Subsidiary;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date no earlier than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness
96
<PAGE>
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness is subordinated in right of payment to the Notes on terms at
least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred only by
the Issuer or the Restricted Subsidiary that is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means an individual, partnership, limited-liability company,
corporation, trust or unincorporated organization and a government or agency
or a political subdivision thereof.
"Public Equity Offering" means an underwritten public offering of common
Capital Stock of the Company or Parent registered under the Securities Act
(other than a public offering registered on Form S-8 under the Securities Act)
that results in net proceeds of at least $20.0 million to the Company.
"REC" means Recreational Enterprises, Inc., a Nevada corporation.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person that
is not an Unrestricted Subsidiary.
"Senior Credit Agreement" means that certain Loan Agreement, dated as of
March 25, 1994, between the Issuer, the banks named therein, Bank of America
National Trust and Savings Association, as administrative agent, First
Interstate Bank of Nevada, N.A., as amended by that certain First Amendment to
Loan Agreement, dated as of September 29, 1995, that certain Second Amendment
to Loan Agreement, dated as of the date of the Indenture, and any further
amendments, modifications, restatements, renewals, supplements, refundings,
replacements or refinancings thereof.
"Senior Debt" means (i) Indebtedness under the Senior Credit Agreement and
(ii) any other Indebtedness permitted to be incurred by the Issuers under the
terms of the Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is subordinated in right of payment to any
Senior Debt of the Issuers. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (a) any liability for federal, state,
local or other taxes owed or owing by the Issuers, (b) any Indebtedness of the
Issuers to any of their Subsidiaries or other Affiliates, (c) any trade
payables or (d) any Indebtedness that is incurred in violation of the
Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Significant Guarantor" means any Guarantor with Adjusted Net Assets in
excess of $5.0 million.
"Silver Legacy Joint Venture" means Silver Legacy Joint Venture, a Nevada
general partnership.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of such
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Tax Amount" means, with respect to any period, without duplication, the
amount of taxable income of any Person for such period multiplied by the
highest marginal combined federal, state and local tax rates
97
<PAGE>
applicable to individuals during such period, but only at such blended state
and local tax rates at which such Person would have been subject to taxation
if such Person had been taxed as a corporation during such period.
"Tax Distribution" means a distribution in respect of taxes to the partners
of the Company pursuant to clause (iv) of the second paragraph of the covenant
entitled "Restricted Payments."
"Unrestricted Subsidiary" means any Subsidiary, other than Capital, that is
designated by the Management Committee as an Unrestricted Subsidiary pursuant
to a Board Resolution, but only to the extent that such Subsidiary (i) has no
Indebtedness other than Non-Recourse Debt, (ii) is not party to any agreement,
contract, arrangement or understanding with the Issuers or any of their
Restricted Subsidiaries unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Issuers or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Issuers, (iii) is a Person with respect
to which neither the Issuers nor any of their Restricted Subsidiaries has any
direct or indirect obligation (a) to subscribe for additional Equity Interests
or (b) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results and (iv) is
not a guarantor of, and is not otherwise directly or indirectly providing
credit support for, any Indebtedness of the Issuers or any of their Restricted
Subsidiaries. Any such designation by the Management Committee shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described above under the caption
"--Certain Covenants--Incurrence of Indebtedness." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Issuers as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness," the Issuers shall be in default of such
covenant).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
98
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Latham & Watkins, counsel to the Issuers, the following
discussion describes the material federal income tax consequences expected to
result to holders whose Private Notes are exchanged for Exchange Notes in the
Exchange Offer. Such opinion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be
sought with respect to the Exchange Offer. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. EACH HOLDER OF
PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
The exchange of Private Notes for Exchange Notes will be treated as a "non-
event" for federal income tax purposes because the Exchange Notes will not be
considered to differ materially in kind or extent from the Private Notes. As a
result, no material federal income tax consequences will result to holders
exchanging Private Notes for Exchange Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with the resales of Exchange Notes received in exchange for
Private Notes where such Private Notes were acquired as a result of market-
making activities or other trading activities. The Issuers have agreed that
for a period not to exceed 180 days after the date of effectiveness of the
Registration Statement, unless extended pursuant to the terms of the
Registration Rights Agreement, they will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
The Issuers will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The Issuers have agreed to pay all expenses incident to the Issuers'
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities,
including liabilities under the Securities Act.
99
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of Exchange Notes will be
passed upon for the Issuers by Latham & Watkins, Los Angeles, California.
Donald L. Carano, a member of the Board of Managers and the Chief Executive
Officer of the Company, maintains an "of counsel" relationship with the law
firm of McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP, but is
not involved in the active practice of law or in the representation of the
Company or any of its affiliates as an attorney.
EXPERTS
The consolidated financial statements of the Predecessor Partnership and its
subsidiary as of December 31, 1994 and 1995 and for each year of the three-
year period ended December 31, 1995 included in this Prospectus and included
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of such firm
as experts in giving such report.
AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act with respect to
the Exchange Notes offered hereby. As permitted by the rules and regulations
of the Commission, this Prospectus omits certain information, exhibits and
undertakings contained in the Registration Statement. For further information
with respect to the Issuers and the Exchange Notes offered hereby, reference
is made to the Registration Statement, including the exhibits thereto and the
financial statements, including the notes thereto, filed as a part thereof.
The Registration Statement (and the exhibits thereto), as well as the periodic
reports and other information filed by the Issuers with the Commission, may be
inspected and copied at the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the Commission located at Room 1400, 75 Park Place,
New York, New York 10007 and Suite 1400 Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its
public reference facilities in New York, New York and Chicago, Illinois at the
prescribed rates. In addition, the Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.
100
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Income........................................... F-4
Consolidated Statements of Partners' Equity................................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Eldorado Hotel Associates Limited Partnership:
We have audited the accompanying consolidated balance sheets of ELDORADO
HOTEL ASSOCIATES LIMITED PARTNERSHIP and subsidiary (the "Partnership") as of
December 31, 1994 and 1995 and the related consolidated statements of income,
partners' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Eldorado Hotel Associates
Limited Partnership and subsidiary as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 27, 1996
F-2
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................... $ 5,360 $ 6,122 $ 6,015
Accounts receivable, net.................... 2,662 3,949 4,392
Inventories................................. 1,209 1,992 2,363
Prepaid expenses............................ 1,126 1,528 1,901
-------- -------- --------
Total current assets...................... 10,357 13,591 14,671
NOTE RECEIVABLE............................... -- -- 782
INVESTMENT IN JOINT VENTURE................... 42,229 44,644 46,452
PROPERTY AND EQUIPMENT, net................... 97,582 147,281 155,686
OTHER ASSETS, net............................. 10,216 10,076 13,483
-------- -------- --------
Total assets.............................. $160,384 $215,592 $231,074
======== ======== ========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........... $ 1,119 $ 13,674 $ 847
Current portion of capital lease
obligations................................ 213 520 629
Accounts payable............................ 3,296 3,279 4,062
Retention payable on construction........... 411 1,361 146
Accrued and other liabilities............... 5,881 7,570 9,103
Due to partners and affiliates.............. 598 329 54
-------- -------- --------
Total current liabilities................. 11,518 26,733 14,841
LONG-TERM DEBT, less current portion.......... 77,643 107,477 123,460
CAPITAL LEASE OBLIGATIONS, less current por-
tion......................................... 89 1,959 2,336
-------- -------- --------
Total liabilities......................... 89,250 136,169 140,637
-------- -------- --------
MINORITY INTEREST............................. 1,500 4,655 5,075
COMMITMENTS AND CONTINGENCIES (Note 13).......
PARTNERS' EQUITY.............................. 69,634 74,768 85,362
-------- -------- --------
Total liabilities and partners' equity.... $160,384 $215,592 $231,074
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Casino.................... $ 95,261 $ 97,809 $106,737 $ 80,303 $ 79,272
Food and beverage......... 31,436 31,718 33,780 25,284 26,421
Hotel..................... 16,518 16,837 17,200 13,391 12,923
Equity in net income
(loss) of subsidiary..... -- -- (3,208) (4,093) 1,808
Other..................... 5,328 4,316 4,908 3,495 5,193
-------- -------- -------- -------- --------
148,543 150,680 159,417 118,380 125,617
Less--promotional allow-
ances.................... (11,486) (12,482) (13,895) (10,565) (10,436)
-------- -------- -------- -------- --------
Net revenues............ 137,057 138,198 145,522 107,815 115,181
OPERATING EXPENSES:
Casino.................... 34,573 37,554 42,692 31,868 32,788
Food and beverage......... 23,772 23,006 26,363 19,518 20,050
Hotel..................... 5,882 6,554 7,536 5,826 5,548
Other..................... 2,799 2,361 2,043 1,367 2,408
Selling, general and ad-
ministrative............. 22,684 23,732 24,047 17,707 19,387
Management fees........... 4,632 3,777 4,288 3,162 2,464
Depreciation.............. 7,241 7,325 8,166 6,292 7,630
Abandonment loss.......... -- -- 1,862 -- --
-------- -------- -------- -------- --------
Total operating
expenses............... 101,583 104,309 116,997 85,740 90,275
-------- -------- -------- -------- --------
OPERATING INCOME............ 35,474 33,889 28,525 22,075 24,906
INTEREST EXPENSE, net....... (5,181) (3,254) (5,336) (2,963) (7,692)
-------- -------- -------- -------- --------
NET INCOME BEFORE MINORITY
INTEREST................... 30,293 30,635 23,189 19,112 17,214
MINORITY INTEREST IN NET
(INCOME) LOSS OF
SUBSIDIARY................. -- -- 745 951 (420)
-------- -------- -------- -------- --------
NET INCOME.................. $ 30,293 $ 30,635 $ 23,934 $ 20,063 $ 16,794
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE, December 31, 1992............................................ $ 45,206
Distributions....................................................... (17,700)
Net income.......................................................... 30,293
--------
BALANCE, December 31, 1993............................................ 57,799
--------
Distributions....................................................... (18,800)
Net income.......................................................... 30,635
--------
BALANCE, December 31, 1994............................................ 69,634
--------
Distributions....................................................... (18,800)
Net income.......................................................... 23,934
--------
BALANCE, December 31, 1995............................................ 74,768
--------
Distributions (unaudited)........................................... (6,200)
Net income (unaudited).............................................. 16,794
--------
BALANCE, September 30, 1996 (unaudited)............................... $ 85,362
========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income................ $ 30,293 $ 30,635 $ 23,934 $ 20,063 $ 16,794
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation............ 7,241 7,325 8,166 6,292 7,630
Equity in net (income)
loss of subsidiary..... -- -- 3,208 4,093 (1,808)
Minority interest in net
income (loss) of
subsidiary............. -- -- (745) (951) 420
Loss (gain) on sale of
property and equipment... 200 147 1,761 (146) (450)
(Increase) Decrease in--
Accounts receivable, net.. (193) (640) (1,287) (1,092) (443)
Inventories............... (63) 200 (783) (781) (371)
Prepaid expenses.......... 173 (89) (402) (428) (373)
Other assets, net ........ (7,866) 1,399 140 (96) (3,675)
(Decrease) Increase in--
Accounts payable,
retention payable,
accrued and other
liabilities and due to
partners and affiliates.. 2,217 (191) 2,353 3,654 826
-------- -------- -------- -------- ---------
Net cash provided by
operating activities..... 32,002 38,786 36,345 30,608 18,550
-------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment................ (10,562) (12,053) (57,451) (51,209) (17,677)
Investment in joint
venture.................. -- (25,014) (5,623) (5,623) --
Proceeds from sale of
property and equipment... 84 22 283 186 2,554
-------- -------- -------- -------- ---------
Net cash used in investing
activities............... (10,478) (37,045) (62,791) (56,646) (15,123)
-------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from long-term
and other debt........... 5,756 94,892 53,000 42,000 116,733
Principal payments on
long-term and other
debt..................... (9,932) (77,297) (10,892) (8,667) (114,067)
Contributions by minority
interest member.......... -- -- 3,900 3,900 --
Distributions............. (17,700) (18,800) (18,800) (14,500) (6,200)
-------- -------- -------- -------- ---------
Net cash provided by (used
in) financing
activities............... $(21,876) $ (1,205) $ 27,208 $ 22,733 $ (3,534)
-------- -------- -------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(DECREASE)/INCREASE IN
CASH AND CASH
EQUIVALENTS............ $ (352) $ 536 $ 762 $ (3,305) $ (107)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD.... 5,176 4,824 5,360 5,360 6,122
---------- ---------- ---------- -------- --------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................. $ 4,824 $ 5,360 $ 6,122 $ 2,055 $ 6,015
========== ========== ========== ======== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during
period for interest.. $ 5,121 $ 4,959 $ 6,639 $ 5,368 $ 6,354
---------- ---------- ---------- -------- --------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1994, the Partnership contributed land
totalling $17,215,000 ($325,000 of which was included in Other Assets) to a
joint venture (See Note 7).
During the year ended December 31, 1994, the minority interest member
contributed land valued at $1,500,000 to Eldorado Limited Liability Company
(See Notes 1 and 7).
During the year ended December 31, 1995, the Partnership entered into
capital lease obligations totalling $2,458,000 for slot machines and other
equipment.
During the nine months ended September 30, 1995, the Partnership entered
into capital lease obligations totalling $410,000 for the human resources
modular building.
During the nine months ended September 30, 1996, the Partnership entered
into capital lease obligations totalling $976,000 for slot machines and other
equipment (unaudited).
During the nine months ended September 30, 1996, the Partnership accepted a
$782,000 note receivable in partial payment for the sale of land.
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation/Operations
The consolidated financial statements include the accounts of Eldorado Hotel
Associates Limited Partnership (the "Partnership") and its majority-owned
subsidiary, Eldorado Limited Liability Company ("ELLC"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements for the nine months ended September
30, 1995 and 1996 and related amounts in the Notes to Consolidated Financial
Statements are unaudited, but in the opinion of management reflect all normal
and recurring adjustments necessary for a fair presentation of the results of
those periods.
The Partnership owns and operates the Eldorado Hotel & Casino, a 817-room
hotel casino in downtown Reno, Nevada. ELLC owns a 50% interest in a joint
venture that owns the Silver Legacy Resort Casino, a 1,711 room hotel that
opened July 28, 1995 and is located contiguous to the Eldorado Hotel & Casino.
ELLC was organized as a Nevada limited-liability company on March 1, 1994.
During 1994, the Partnership contributed land and received an initial 88.75%
interest in ELLC. During 1995, the Partnership's interest was reduced to
76.76% as a result of other members' contributions.
Eldorado Resorts LLC (the "Company") was formed to be the successor to
Eldorado Hotel Associates Limited Partnership pursuant to an exchange of all
of the then currently outstanding partnership interests in the Partnership for
membership interests in the Company (the "Reorganization"). The Reorganization
was effective on July 1, 1996. Eldorado Capital Corp., a Nevada corporation
and wholly-owned subsidiary of the Company, was incorporated with the sole
purpose of serving as co-issuer of the 10 1/2% Senior Subordinated Notes due
2006 in order to facilitate the offering thereof.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include investments purchased with an original
maturity of 90 days or less.
Inventories
Inventories are stated at the lower of cost, using a first-in, first-out
basis, or market value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful life of the asset or the
term of the capitalized lease, whichever is less. Costs of major improvements
are capitalized, while costs of normal repairs and maintenance are charged to
expense as incurred.
Capitalization of Interest
The Partnership capitalizes interest on funds disbursed during the active
construction and development phases of its facilities and other major
projects. This includes interest capitalized on the Partnership's investment
F-8
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in the Silver Legacy Resort Casino. Interest capitalized during the fiscal
years ended December 31, 1993, 1994 and 1995 was approximately $253,000,
$2,140,000 and $2,742,000, respectively and $2,716,000 (unaudited) and
$277,000 (unaudited) for the nine months ended September 30, 1995 and 1996,
respectively.
Investment in the Silver Legacy Resort Casino
ELLC accounts for its 50% joint venture interest in the Silver Legacy Joint
Venture (as defined herein) under the equity method of accounting.
Casino Revenue and Promotional Allowances
In accordance with industry practice, the Partnership recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses. The retail value of food, beverage, rooms and other
services furnished to customers on a complimentary basis is included in gross
revenue and then deducted as promotional allowances. The cost of providing
such complimentary services is charged to operating expenses in the casino
department. Such estimated costs of providing complimentary services are as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Food and beverage...................... $6,026 $6,996 $7,716 $5,805 $5,614
Hotel.................................. 607 789 1,222 904 1,087
Other.................................. 300 1,018 1,033 795 787
------ ------ ------ ------ ------
$6,933 $8,803 $9,971 $7,504 $7,488
====== ====== ====== ====== ======
</TABLE>
Partners' Equity
Effective upon consummation of the Reorganization, partners' equity was
reclassified as members' equity.
Federal Income Taxes
The Partnership is not subject to income taxes; therefore, no provision for
income taxes has been made as the Partners include their respective shares of
partnership income in their income tax returns. As a limited- liability
company, the Company is not subject to income tax liability. Therefore,
holders of membership interests will include their respective shares of the
Company's taxable income in their income tax returns and the Company will
continue to make distributions for such tax liabilities.
Reclassifications
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to current year presentation.
2. OPERATING AGREEMENT OF THE COMPANY
The rights and obligations of the equityholders of the Company (the
"Members") are governed by the Operating Agreement of Eldorado Resorts LLC
dated as of June 28, 1996, as amended (the "Operating Agreement"), entered
into in connection with the Reorganization. In accordance with the
Reorganization, all assets and liabilities of Eldorado Hotel Associates
Limited Partnership became the assets and liabilities of the
F-9
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company. Each Member's interest in the Company is equal to the percentage of
capital contributed by that Member, in accordance with the ownership
percentages previously held in the Predecessor Partnership. The Operating
Agreement provides that no officer or member of the Board of Managers ("Board
Member") of the Company will be liable to the Company, its Members or holders
of its membership interests for acts or omissions of such officer or Board
Member in connection with the business or affairs of the Company, including
for any breach of fiduciary duty or mistake of judgment, except for acts
involving intentional misconduct, fraud or knowing violations of the law. The
Company will dissolve upon the earliest to occur of: (a) December 31, 2030,
(b) the sale or disposition of all or substantially all of the assets in the
Company, (c) the written consent of Members holding more than a 75% voting
interest in the Company or (d) any event that, pursuant to the Operating
Agreement, terminates a Member's interest, unless there are at least two
remaining Members and at least a Majority Interest, as defined in the
Operating Agreement, of the remaining Members agree to continue the Company.
3. ACCOUNTS RECEIVABLE
Components of accounts receivable, net are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable......................... $3,296 $4,524 $5,009
Due from partners and affiliates............ 116 98 138
------ ------ ------
3,412 4,622 5,147
Allowance for doubtful accounts............. (750) (673) (755)
------ ------ ------
Total................................... $2,662 $3,949 $4,392
====== ====== ======
</TABLE>
The provision for bad debt expense is $480,000, $725,000, $760,000, $550,000
(unaudited) and $1,367,000 (including discounts of $557,000) (unaudited) for
the years ended December 31, 1993, 1994 and 1995 and the nine months ended
September 30, 1995 and 1996, respectively.
4. CERTAIN RISK AND UNCERTAINTIES
A significant portion of the Partnership's revenues and operating income are
generated from patrons who are residents of northern California. A change in
general economic conditions or the extent and nature of casino gaming in
California, Washington or Oregon could adversely affect the Partnership's
operating results.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
DECEMBER 31, ENDED
ESTIMATED ------------------ SEPTEMBER 30,
SERVICE LIFE 1994 1995 1996
------------ -------- -------- -------------
(YEARS) (UNAUDITED)
<S> <C> <C> <C> <C>
Land and improvements.......... -- $ 13,622 $ 14,511 $ 15,737
Buildings and other leasehold
improvements.................. 10-33 78,972 129,715 135,357
Furniture, fixtures, and equip-
ment.......................... 5-15 43,397 52,195 48,772
Property held under capital
lease (Note 13)............... 3-15 3,159 5,682 6,685
Construction in progress....... 7,993 1,627 6,994
-------- -------- --------
147,143 203,730 213,545
Less--Accumulated deprecia-
tion.......................... (49,561) (56,449) (57,859)
-------- -------- --------
Property and equipment, net.. $ 97,582 $147,281 $155,686
======== ======== ========
</TABLE>
F-10
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in Buildings and other leasehold improvements is $3,154,000,
$4,152,000 and $4,428,000 (unaudited) of capitalized interest as of December
31, 1994 and 1995 and September 30, 1996, respectively.
Substantially all property and equipment are pledged as collateral for long-
term debt (see Note 9).
6. OTHER ASSETS
Other assets include the following amounts:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land held for development....................... $ 7,955 $ 7,955 $ 8,157
Loan acquisition costs.......................... 1,354 1,507 1,715
Bond costs...................................... -- -- 3,726
Other........................................... 1,051 1,000 526
------- ------- -------
10,360 10,462 14,124
Accumulated amortization........................ (144) (386) (641)
------- ------- -------
Total....................................... $10,216 $10,076 $13,483
======= ======= =======
</TABLE>
7. INVESTMENT IN THE SILVER LEGACY RESORT CASINO
Effective March 1, 1994, ELLC and Galleon, Inc. (a Nevada corporation owned
and controlled by Circus Circus Enterprises, Inc.) entered into a joint
venture (the "Silver Legacy Joint Venture") pursuant to a joint venture
agreement (the "Joint Venture Agreement") to develop the Silver Legacy Resort
Casino (the "Silver Legacy"). The Silver Legacy consists of a casino and hotel
located in Reno, Nevada, which began operations on July 28, 1995. During 1994,
ELLC contributed land to the Silver Legacy Joint Venture with a fair value of
$25,000,000 (a book value of $17,215,000), and cash of $23,000,000. Additional
cash contributions of $3,900,000 were made in 1995, for a total equity
investment of $51,900,000. Each partner owns a 50% interest in the Silver
Legacy Joint Venture. Galleon, Inc. contributed cash of $51,900,000 to the
Silver Legacy Joint Venture. Galleon, Inc. is entitled to receive a priority
allocation of operating income, up to an amount equal to 7.5% of the initial
investment, not to exceed $290,000,000, adjusted for taxes, and reduced for
depreciation and principal payments, starting May 1997, as defined in the
Joint Venture Agreement.
F-11
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1994, the Partnership contributed land with a fair value of
$22,185,000 (cost of $15,715,000) to ELLC; the minority interest member of
ELLC contributed land with a fair value of $2,815,000 (cost of $1,500,000) to
ELLC. Based upon these contributions, the Partnership had an 88.75% interest
in ELLC as of December 31, 1994. In addition, during 1994, the Partnership
loaned $23,000,000 to ELLC to contribute to the Silver Legacy Joint Venture;
this note receivable from ELLC is eliminated in consolidation. During 1995,
the minority interest member contributed cash of $3,900,000 to ELLC; as a
result, the Partnership's interest in ELLC was reduced to 76.76%. For the year
ended December 31, 1995, ELLC's 50% share of the Silver Legacy Joint Ventures'
net loss was ($3,208,000). The minority interest member's investment in ELLC
was therefore adjusted by ($745,000), its respective share of the loss. For
the nine months ended September 30, 1996, ELLC's 50% share of the Silver
Legacy Joint Ventures' net income was $1.8 million; the minority interest
member's investment in ELLC was therefore adjusted by $420,000, its respective
share of the income (unaudited).
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Beginning balance............................. $42,229 $44,644
Equity in net income (loss) of subsidiary..... (3,208) 1,808
Contributions................................. 3,900 --
Distributions................................. -- --
Other (capitalized interest).................. 1,723 --
------- -------
Ending balance................................ $44,644 $46,452
======= =======
</TABLE>
Summarized balance sheet information for the Silver Legacy Joint Venture is
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current assets................................ $ 16,165 $ 16,729
Property and equipment, net................... 352,837 345,897
Other assets.................................. 958 1,396
-------- --------
Total assets................................ $369,960 $364,022
======== ========
Current liabilities........................... $ 46,163 $ 23,537
Long-term liabilities......................... 226,413 239,484
Partners' equity.............................. 97,384 101,001
-------- --------
Total liabilities and partners' equity...... $369,960 $364,022
======== ========
</TABLE>
Summarized results of operations for the Silver Legacy Joint Venture are as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE PERIOD OF INCEPTION MONTHS ENDED
(MARCH 1, 1994) TO SEPTEMBER 30,
DECEMBER 31, 1995 1996
--------------------------- -------------
(UNAUDITED)
<S> <C> <C>
Net Revenues.................... $ 66,013 $112,654
Operating Expenses.............. (63,052) (93,399)
-------- --------
Operating Income................ 2,961 19,255
-------- --------
Other (Expense)................. (9,377) (15,639)
-------- --------
Net Income (Loss)............... $ (6,416) $ 3,616
======== ========
</TABLE>
The Silver Legacy commenced operations on July 28, 1995.
F-12
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and benefits................... $3,096 $3,386 $2,216
Accrued vacation............................... 646 740 1,074
Accrued medical claims......................... 653 1,068 625
Progressive slot liability..................... 585 666 547
Related party rent and management fees......... 592 324 54
Other.......................................... 309 1,386 4,587
------ ------ ------
$5,881 $7,570 $9,103
====== ====== ======
</TABLE>
9. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
10 1/2% Senior Subordinated Notes; semi-
annual payments of interest only, in
arrears on February 15 and August 15 of
each year, commencing on
August 15, 1997, maturing August 15,
2006................................... -- -- $100,000
Outstanding portion of reducing revolver
and the revolving credit line due in
quarterly installments of principal
(plus interest calculated using either
Base rate or Eurodollar rate; the
Eurodollar rate at December 31, 1995
and September 30, 1996 was 5.63% and
5.56%, respectively, and the Base rate
at December 31, 1995 and September 30,
1996 was 8.5% and 8.25%, respectively)
due March 25, 2000; secured by
substantially all real property........ $75,294 $118,544 $ 19,500
Notes payable to a corporation due in
quarterly principal installments of
$97,500 and $90,000, respectively,
(including monthly interest at prime
plus 2%; the rate at December 31, 1995
and September 30, 1996 was 10.5% and
10.25%, respectively) to June 30, 1997
and July 30, 1999, respectively, when
principal balance is due; secured by
real property.......................... 2,828 2,104 1,693
Notes Payable, Other.................... 640 503 3,114
------- -------- --------
78,762 121,151 124,307
Less--Current portion................... (1,119) (13,674) (847)
------- -------- --------
$77,643 $107,477 $123,460
======= ======== ========
</TABLE>
F-13
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Scheduled maturities of long-term debt are as follows for the years ended
December 31, (in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 13,674
1997.............................................................. 17,939
1998.............................................................. 17,617
1999.............................................................. 18,255
2000.............................................................. 53,546
Thereafter........................................................ 120
--------
$121,151
========
</TABLE>
The reducing revolver and the revolving credit lines consist of: Line A for
$115,000,000 (the reducing revolver) and Line B (the revolving credit line)
for $15,000,000 maturing March 25, 2000; of which $107,775,000 was drawn on
Line A as of December 31, 1995 and $10,769,000 of which was drawn on Line B as
of December 31, 1995 (see "Letters of Credit" in Note 13). The loan agreement,
among other things, includes various provisions which require a minimum
tangible net worth, a minimum total debt to EBITDA ratio and limitations on
expenditures for property and equipment and on additional borrowings.
On July 31, 1996, Eldorado Resorts LLC, a Nevada limited-liability company
and successor to the Partnership (the "Company"), and Eldorado Capital Corp.,
a Nevada corporation ("Capital" and, together with the Company, the
"Issuers"), sold $100,000,000 in aggregate principal amount of 10 1/2% Senior
Subordinated Notes due 2006 (the "Notes"). The Notes are joint and several
obligations of the Issuers. The Notes mature on August 15, 2006 and bear
interest at the rate of 10 1/2% per annum, payable semi-annually in arrears on
February 15 and August 15 of each year, commencing on August 15, 1997.
Pursuant to a Registration Rights Agreement dated as of July 31, 1996, among
the Issuers and the Initial Purchasers party thereto (the "Registration Rights
Agreement"), the Issuers have filed a registration statement under the
Securities Act of 1933, as amended, with respect to an offer to exchange the
Notes for debt securities of the Issuers with terms identical to the Notes.
The Indenture relating to the Notes contains certain covenants which, among
other things, limit the ability of the Issuers and any Restricted Subsidiaries
(as defined in the Indenture) to incur additional indebtedness, pay dividends
or make other distributions, create certain liens, enter into certain
transactions with affiliates, utilize proceeds from asset sales, issue or sell
equity interests of subsidiaries and enter into certain mergers and
consolidations and requires the Company to maintain certain financial
requirements.
The net proceeds of the Offering of approximately $96.5 million were used by
the Company to repay a portion of its existing debt. Concurrent with this
repayment, the Company amended its $130 million existing bank credit facility,
which was scheduled to mature March 25, 2000. The amended credit facility (the
"Credit Facility") provides for a senior secured revolving credit facility of
$50 million. Borrowings bear interest, at the Company's option, at either (i)
the greater of (a) the reference rate publicly announced by Bank of America
and (b) the Federal Funds Rate plus .50% plus an applicable percentage or (ii)
the Eurodollar rate plus an applicable percentage. The Credit Facility will
mature July 31, 2001. As of September 30, 1996, $30.5 million was available
under the Credit Facility (unaudited).
The Credit Facility is secured by substantially all of the Company's real
property. The facility includes various restrictions and other covenants
including: (i) restrictions on the disposition of property, (ii) restrictions
on investments and acquisitions, (iii) restrictions on distributions to
members of the Company, (iv) restrictions on the incurrence of negative
pledges, (v) restrictions on the incurrence of indebtedness and the issuance
of guarantees, (vi) restrictions on transactions with affiliates and, (vii)
restrictions on annual capital expenditures including capital leases. The
Credit Facility also contains financial covenants including a maximum total
debt to EBITDA ratio, a maximum senior debt to EBITDA ratio, a minimum fixed
charge coverage ratio and a minimum
F-14
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
equity requirement. As of December 31, 1995, the Company was in compliance
with all loan agreement provisions. The Company believes it is in compliance
with the restrictions and covenants of the Notes and the Credit Facility as of
September 30, 1996. Included in other assets at September 30, 1996 are $4.8
million of debt offering costs related to the Indenture and the amendment to
the credit facility which will be amortized over the life of the applicable
agreements (unaudited).
10. ABANDONMENT LOSS
During fiscal year 1995, the Partnership abandoned certain real property
with a net book value of $1,862,000 related to the expansion of the existing
casino.
11. EMPLOYEE BENEFIT PLANS
On May 1, 1990, the Partnership established a voluntary, qualified, defined
contribution plan covering all full-time employees of the Partnership who have
completed six months and 1,000 hours of service and are age twenty-one or
older. The plan allows an employer contribution up to 25 percent of the first
6 percent of each participating employee's compensation. Plan participants can
elect to defer before tax compensation through payroll deductions. These
deferrals are regulated under Section 401(K) of the Internal Revenue Code. The
Partnership's matching contributions were $208,000, $221,000 and $252,000 for
the fiscal years ended December 31, 1993, 1994 and 1995, respectively.
12. EXECUTIVE DEFERRED COMPENSATION PLANS
Effective January 1, 1990, the Partnership established a Deferred
Compensation Plan for the benefit of a select group of management or highly
compensated employees. The Partnership has established a trust fund to hold
and invest amounts elected by the executives to be deferred from their current
compensation. As of December 31, 1994 and 1995, the Partnership has accrued
$481,000 and $629,000, respectively, related to this deferred compensation
agreement.
The Partnership instituted the Eldorado Performance and Appreciation Rights
Plan (the "Plan") for the benefit of certain of its key executives and other
key employees of the Partnership and its general partners, effective for the
fiscal year commencing January 1, 1995. A person shall be eligible to be
granted performance and/or appreciation rights only if on the proposed grant
date, such person is an executive or other key employee of the Partnership or
an affiliate of the Partnership. The performance right allows the key employee
the right to receive an amount equal to a percentage of income from the grant
date, as defined, through the date of exercise. The appreciation right allows
the key employee to receive compensation based upon the difference between the
value of the Partnership, as defined, as of January 1, 1995 (the "Base Rate")
and the future value of the Partnership. One Partnership Unit (1% of the
Partnership) is equivalent to the combination of 100,000 performance rights
and 100,000 appreciation rights. The Base Rate for each appreciation right is
$26.66 as of January 1, 1995. The Partnership value is calculated as a factor
of eight (8) times trailing twelve months operating income (adjusted for
certain items to approximate EBITDA) less funded indebtedness and adjusted for
certain additional items, as defined. The rights are not ownership interests
in the Partnership. As of December 31, 1995, 860,000 appreciation rights have
been granted. The maximum amount of performance rights and appreciation rights
which may be granted shall not exceed 1,000,000 each.
The Plan's committee shall determine the date on which each performance
right or appreciation right shall vest and become exercisable; as of December
31, 1995, no vesting period has been established. The Partnership value as of
December 31, 1995, as calculated, is below the $26.66 Base Rate, and therefore
no accrual is required as of December 31, 1995. Except as defined in the Plan
agreement, the Partnership has no duty or obligation to fund or secure the
benefits payable to key executives.
F-15
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
Letters of Credit
Line B of the revolving credit line (see Note 9) allows for the issuance of
letters of credit which reduces the available line by the amount pledged. At
December 31, 1995 the amount pledged was $932,000.
Capital Leases
The Partnership leases certain equipment under agreements classified as
capital leases. The future minimum lease payments by year under these leases,
together with the present value of the minimum lease payments consisted of the
following at December 31, (in thousands):
<TABLE>
<S> <C>
1996............................................................. $ 705
1997............................................................. 604
1998............................................................. 604
1999............................................................. 604
2000............................................................. 482
Thereafter....................................................... --
------
Minimum lease payments........................................... 2,999
Less--Amounts representing interest.............................. (520)
------
$2,479
======
</TABLE>
Operating Leases
The Partnership leases equipment under operating leases. Future minimum
payments (expiring from 1996 and thereafter) under noncancellable operating
leases with initial terms of one year or more consisted of the following at
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
FUTURE MINIMUM
LEASE PAYMENTS
--------------
<S> <C>
1996...................................................... $245
1997...................................................... 189
1998...................................................... 189
1999...................................................... 10
Thereafter................................................ --
----
$633
====
</TABLE>
Total rental expense under operating leases was $939,000 for the year ended
December 31, 1993, $751,000 for the year ended December 31, 1994 and $751,000
for the year ended December 31, 1995. Additional rent for land upon which the
hotel casino resides of $649,000 in 1995 ($636,000 in 1993 and $642,000 in
1994) was paid to a related party based on gross gaming receipts. This rental
agreement expires June 30, 2027.
Legal Matters
The Partnership is a litigant in legal matters arising in the normal course
of business. In the opinion of management, all pending legal matters are
either adequately covered by insurance or, if not insured, will not have a
material adverse effect on the financial position or results of operations of
the Partnership.
F-16
<PAGE>
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. CORPORATE EXPENSES/MANAGEMENT FEES
The Partnership pays management fees to Recreation Enterprises, Inc. and
Hotel Casino Management, Inc., the owners of 55% and 29% of the Partnership's
equity interests, respectively. Historically, the salaries of senior executive
officers and certain other key employees of the Partnership were not directly
incurred by the Partnership, but were paid from a portion of the management
fees paid to Recreational Enterprises, Inc. As of July 1, 1996, the aggregate
annual salaries of such senior executive officers and other key employees
became payroll obligations of the Partnership. In connection with the
consummation of the offering of the Notes, the Partnership entered into a
Management Agreement with Recreational Enterprises, Inc. and Hotel Casino
Management, Inc. providing that future management fees paid to Recreational
Enterprises, Inc. and Hotel Casino Management, Inc. will not exceed 1.5% of
the Partnership's annual net revenues.
15. RELATED PARTIES
The Partnership pays management fees to two of its corporate Partners.
Salaries for certain of the Partnership's executives were paid by the
management company during the years and are included in the management fee.
The Partnership also utilizes wine that is produced by a winery owned by one
of the owners of the Company.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF OR THAT ANY INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 3
Risk Factors............................................................. 12
The Exchange Offer....................................................... 19
Use of Proceeds.......................................................... 29
Capitalization........................................................... 29
Selected Consolidated Financial Data..................................... 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
Business................................................................. 40
Management............................................................... 54
Security Ownership of Certain Beneficial Owners and Management........... 61
Certain Transactions..................................................... 63
Material Agreements...................................................... 63
Description of Notes..................................................... 69
Certain Federal Income Tax Considerations................................ 99
Plan of Distribution..................................................... 99
Legal Matters............................................................ 100
Experts.................................................................. 100
Available Information.................................................... 100
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
UNTIL APRIL 17, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING
IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
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$100,000,000
ELDORADO RESORTS LLC
ELDORADO CAPITAL CORP.
10 1/2% SENIOR SUBORDINATED
NOTES DUE 2006
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PROSPECTUS
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January 17, 1997
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